The Analysis of Competitive Markets

If the market is in equilibrium, the consumer surplus earned by the buyer of the 1st unit is:

• $5

• $15

• $22.5

• $40

If the market is in equilibrium, the producer surplus earned by the seller of the 1st unit is:

• $5

• $15

• $20

• $25

Suppose the market is currently in equilibrium. If the government establishes a price ceiling of $20, producer surplus will:

• fall by $200

• fall by $300

• rise by $200

• rise by $300

In an unregulated, competitive market producer surplus exists because of some:

• consumers are willing to pay more than the equilibrium price.

• producers are willing to take more than the equilibrium price.

• producers are willing to sell at less than the equilibrium price.

• consumers are willing to purchase, but only at prices below the equilibrium price.

Price ceilings can result in a net loss in consumer surplus when the ________ curve is ________.

• demand; very elastic

• demand; very inelastic

• supply; very inelastic

• price ceilings always increase consumer surplus

At price 0E and quantity Q*, consumer surplus is the area:

• 0FCQ*.

• AFC.

• EFC.

• AEC.

If the market is in equilibrium, total producer surplus is:

• $100

• $200

• $300

• $400

Consider the following statements when answering this question:

I. When a competitive industry's supply curve is perfectly elastic, then the sole beneficiaries of a reduction in input prices are consumers.

II. Even in competitive markets firms have no incentives to control costs, as they can always pass on cost increases to consumers.

• I and II are true.

• I is true, and II is false.

• I is false, and II is true.

• I and II are false.

The market demand curve for a popular teen magazine is given by Q = 80 - 10P where P is the magazine price in dollars per issue and Q is the weekly magazine circulation in units of 10,000. If the circulation is 400,000 per week at the current price, what is the consumer surplus for a teen reader with maximum willingness to pay of $3 per issue?

• $2.00

• $1.00

• 0

• -$1.00

. When the minimum imposed price is P2,

• the quantity supplied is Q2 and the quantity demanded is Q3, so a surplus develops.

• the quantity supplied is Q3, which results in a deadweight loss.

• the quantity supplied remains at Q0, so only the quantity demanded falls to Q3.

• the resulting surplus in the market is transferred to consumers.