Market Concepts and Interventions Quiz

A competitive market equilibrium ensures that:

• The government sets all prices

• Resources are allocated inefficiently

• Goods are allocated to buyers who value them most highly

• Prices remain constant over time

Consumer surplus is best described as:

• The amount consumers save by buying in bulk

• The difference between what a consumer is willing to pay and the actual price paid

• The extra supply in a market that drives prices down

• The total revenue earned by businesses

Producer surplus is:

• The extra profit that businesses make from charging high prices

• The difference between the price a seller receives and the lowest price they would accept

• The cost of producing an extra unit of a good

• The total revenue earned by suppliers

When total surplus is maximized in a market, this means:

• No one can be made better off without making someone else worse off

• The government has successfully controlled all prices

• Demand is always greater than supply

• Only producers benefit from transactions

In a competitive market, excess supply occurs when:

• The quantity demanded exceeds the quantity supplied

• The quantity supplied exceeds the quantity demanded

• The price of the good is too high for any transactions to take place

• The government regulates production too strictly

Excess demand in a market results in:

• A surplus of goods that no one wants

• Buyers competing for limited supply, which can drive prices up

• A decrease in producer surplus

• A government-imposed price ceiling

The price elasticity of demand measures:

• How much producers increase production when prices rise

• How much the quantity demanded responds to a change in price

• The total revenue earned by firms in an industry

• The difference between demand and supply at equilibrium

If demand for a product is inelastic, this means that:

• A change in price leads to a smaller percentage change in quantity demanded

• Consumers stop buying the product when prices increase

• The good is easily substituted with another product

• Demand for the good fluctuates frequently

If a good has perfectly elastic demand, then:

• Consumers will buy the same quantity regardless of price

• The demand curve is vertical

• Any price increase causes quantity demanded to drop to zero

• There are no available substitutes for the good

The price elasticity of supply is influenced by:

• The government’s ability to control prices

• How easily producers can adjust production levels

• The elasticity of demand

• The total consumer surplus in a market