Section 4 & 5

Consumer surplus equals the

• value to buyers minus the amount paid by buyers.

• value to buyers minus the cost to sellers.

• amount received by sellers minus the cost to sellers

• amount received by sellers minus the amount paid by buyers

Total surplus is

• the total cost to sellers of providing the good minus the total value of the good to buyers.

• the total value of the good to buyers minus the cost to sellers of providing the good

• the difference between consumer surplus and sellers’ cost

• always smaller than producer surplus

Producer surplus equals the

• value to buyers minus the amount paid by buyers.

• value to buyers minus the cost to sellers.

• amount received by sellers minus the cost to sellers.

• amount received by sellers minus the amount paid by buyers.

Which of the following equations is not valid?

• Consumer surplus = Value to buyers - Amount paid by buyers

• Producer surplus = Amount received by sellers - Cost to sellers

• Total surplus = Value to buyers - Amount paid by buyers + Amount received by sellers - Costs of sellers

• Total surplus = Value to sellers - Cost to sellers

Which of the following is correct?

• Consumer surplus refers to a situation in which there are more buyers than sellers in a market

• Producer surplus refers to a situation in which there are more sellers than buyers in a market

• Total surplus is measured as the area below the demand curve and above the supply curve

• All of the above are correct

We can say that the allocation of resources is efficient if

• producer surplus is maximized

• consumer surplus is maximized

• total surplus is maximized

• sellers’ costs are minimized

Inefficiency exists in an economy when a good is

• not being consumed by buyers who value it most highly

• not distributed fairly among buyers

• not produced because buyers do not value it very highly.

• being produced with less than all available resources

When a tax is levied on a good, the buyers and sellers of the good share the burden

• provided the tax is levied on the sellers.

• provided the tax is levied on the buyers.

• provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers

• regardless of how the tax is levied

A tax on a good

• raises the price that buyers effectively pay and raises the price that sellers effectively receive

• raises the price that buyers effectively pay and lowers the price that sellers effectively receive

• lowers the price that buyers effectively pay and raises the price that sellers effectively receive.

• lowers the price that buyers effectively pay and lowers the price that sellers effectively receive

The government’s benefit from a tax can be measured by

• consumer surplus.

• producer surplus.

• tax revenue.

• All of the above are correct