ECN 101 EXAM 2 - FULL UPDATED QUESTIONS
AND CORRECT ANSWERS
Question:
1. What is consumer surplus?
Answer:
The difference between what consumers are willing to pay (WTP) and what they actually pay.
Question:
2. How do you calculate consumer surplus?
Answer:
Consumer Surplus = Willingness to Pay (WTP) - Price.
Question:
3. What factors influence willingness to pay (WTP)?
Answer:
Number of buyers, consumer income, prices of related goods, tastes, and expectations.
Question:
4. What is producer surplus?
Answer:
The difference between the price producers receive for a good and the minimum price they are willing to
accept.
Question:
5. How does an increase in price affect producer surplus?
Answer:
Producer surplus increases when price increases.
Question:
6. What is the formula for producer surplus?
Answer:
Producer Surplus (PS) = Price - Cost.
Question:
7. What is total surplus?
Answer:
Total Surplus = Consumer Surplus + Producer Surplus.
Question:
8. What does it mean for an allocation of resources to be efficient?
Answer:
It maximizes total surplus, meaning goods are consumed by those who value them most and produced by
those with the lowest costs.
, Question:
9. What is a price ceiling?
Answer:
A regulation that sets the maximum price that can be legally charged for a good or service.
Question:
10. When is a price ceiling binding?
Answer:
When it is set below the equilibrium price.
Question:
11. What is a price floor?
Answer:
A regulation that sets the minimum price that can be legally paid for a good or service.
Question:
12. When is a price floor binding?
Answer:
When it is set above the equilibrium price.
Question:
13. How do price ceilings affect market outcomes?
Answer:
A binding price ceiling leads to shortages as it prevents prices from reaching equilibrium.
Question:
14. How do price floors affect market outcomes?
Answer:
A binding price floor leads to surpluses as it prevents prices from falling to equilibrium.
Question:
15. What is the effect of taxation on market prices?
Answer:
It creates a wedge between the price buyers pay and the price sellers receive.
Question:
16. What is deadweight loss (DWL)?
Answer:
The loss in total surplus that occurs when a tax prevents mutually beneficial trades.
Question:
17. What determines the size of deadweight loss?
Answer:
It depends on the price elasticities of supply and demand.
AND CORRECT ANSWERS
Question:
1. What is consumer surplus?
Answer:
The difference between what consumers are willing to pay (WTP) and what they actually pay.
Question:
2. How do you calculate consumer surplus?
Answer:
Consumer Surplus = Willingness to Pay (WTP) - Price.
Question:
3. What factors influence willingness to pay (WTP)?
Answer:
Number of buyers, consumer income, prices of related goods, tastes, and expectations.
Question:
4. What is producer surplus?
Answer:
The difference between the price producers receive for a good and the minimum price they are willing to
accept.
Question:
5. How does an increase in price affect producer surplus?
Answer:
Producer surplus increases when price increases.
Question:
6. What is the formula for producer surplus?
Answer:
Producer Surplus (PS) = Price - Cost.
Question:
7. What is total surplus?
Answer:
Total Surplus = Consumer Surplus + Producer Surplus.
Question:
8. What does it mean for an allocation of resources to be efficient?
Answer:
It maximizes total surplus, meaning goods are consumed by those who value them most and produced by
those with the lowest costs.
, Question:
9. What is a price ceiling?
Answer:
A regulation that sets the maximum price that can be legally charged for a good or service.
Question:
10. When is a price ceiling binding?
Answer:
When it is set below the equilibrium price.
Question:
11. What is a price floor?
Answer:
A regulation that sets the minimum price that can be legally paid for a good or service.
Question:
12. When is a price floor binding?
Answer:
When it is set above the equilibrium price.
Question:
13. How do price ceilings affect market outcomes?
Answer:
A binding price ceiling leads to shortages as it prevents prices from reaching equilibrium.
Question:
14. How do price floors affect market outcomes?
Answer:
A binding price floor leads to surpluses as it prevents prices from falling to equilibrium.
Question:
15. What is the effect of taxation on market prices?
Answer:
It creates a wedge between the price buyers pay and the price sellers receive.
Question:
16. What is deadweight loss (DWL)?
Answer:
The loss in total surplus that occurs when a tax prevents mutually beneficial trades.
Question:
17. What determines the size of deadweight loss?
Answer:
It depends on the price elasticities of supply and demand.
