Surplus – MCQs

20 questions. Click to practice.

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Correct options are highlighted when revealed.

1.When a market produces an externality, how effective are free market solutions?

They increase producer gains to the highest levelThey lead to optimal efficiencyThey fail to achieve efficiencyThey ensure fairness in outcomesThey guarantee maximum social welfare

2.When a producer possesses market power and can affect the product's price, how do free market outcomes typically perform?

result in fair distributionachieve maximum efficiencyoptimize benefits for consumerslead to inefficiencies

3.Assuming buyers act rationally and there is no market failure, what can be said about free market outcomes?

Free market outcomes are efficientFree market outcomes optimize total surplusAll of the above statements are trueFree market outcomes are fairFree market outcomes are both efficient and optimize total surplus

4.According to Adam Smith's concept of the invisible hand, what is the result of a competitive market equilibrium?

It maximizes the overall economic surplusIt ensures equal wealth distribution among individualsIt reduces the total economic surplusIt both maximizes total surplus and promotes equality in society

5.If a new bicycle is priced at Rs 300, Natalie values it at Rs 400, and the production cost for the seller is Rs 200, what is the total surplus when Natalie purchases the bicycle?

6.What does the seller’s cost of production represent?

None of the provided choices.The lowest price the seller is ready to accept for the product.The producer surplus earned by the seller.The highest price the seller demands for the product.The consumer surplus gained by the seller.

7.What happens if a well-intentioned social planner decides to produce less than the market equilibrium quantity of a good?

The overall surplus reaches its highest point.Buyers value the last unit produced more than it costs to make it.Producers achieve the maximum possible surplus.The production cost of the final unit is greater than the value buyers assign to it.Consumers gain the greatest possible surplus.

8.Which area represents the producer surplus on a supply and demand graph?

The region beneath the supply curve and above the market priceThe area between the demand curve and the supply curveThe space under the demand curve but over the market priceThe portion above the demand curve and below the price levelThe section above the supply curve and below the market price

9.What is the effect on consumer surplus when the price of a product rises, assuming the demand curve remains unchanged?

Enhances the economic well-being of consumers.Reduces the consumer surplus.Leads to greater overall market efficiency.Raises the level of consumer surplus.

10.What does a buyer's willingness to pay represent?

The lowest price a buyer agrees to pay for a productThe excess benefit received by producersThe benefit consumers gain from purchasing at a lower priceThe highest price a buyer is prepared to pay for a productNone of the above

11.Jamil owns ten pairs of football boots while Saleem has none. The production cost for one pair of boots is Rs 50. Jamil values an extra pair at Rs 100, whereas Saleem values a pair at Rs 40. According to efficiency principles, who should be allocated an additional pair of boots?

For efficiency, Saleem should be given the bootsFor efficiency, Jamil should be given the bootsFor fairness, Jamil should receive the bootsConsidering consumer surplus, both should get a pairNone of the above

12.Medical treatment improves individuals' well-being. Up to what point should we continue using medical services?

Until every person obtains as much medical care as they desireUntil the value that consumers assign to medical care matches the expense of providing itUntil consumers gain no additional advantage from one more unit of medical careUntil it becomes necessary to reduce the use of other products

13.What is true about a market when it is considered efficient?

The market matches buyers with sellers who produce goods at the lowest cost.All of the above statements are correct.None of the statements provided are accurate.The produced quantity in the market maximizes the combined consumer and producer surplus.The market distributes goods to buyers who place the highest value on them.

14.Typically, if a well-intentioned social planner aims to maximize the combined benefits for both buyers and sellers in a market, what approach should they take?

Set a price lower than the market's equilibrium price.Let the market naturally reach its equilibrium without intervention.Select any price freely, since losses to one party are perfectly balanced by gains to the other.Impose a price higher than the market equilibrium.Fix prices based on external factors unrelated to market forces.

15.What is the effect of a price rise for a product when the supply curve remains unchanged?

raises the producer surpluscauses all the outcomes mentioned in the optionslowers the producer surplusenhances fairness in the market

16.Which area represents the total surplus in a market?

The region above the supply curve but beneath the market priceThe area under the demand curve but over the market priceThe space between the demand curve and the supply curveThe section below the supply curve and above the market priceThe zone above the demand curve and below the market price

17.What happens if a well-intentioned social planner decides to produce a quantity of a good that is greater than the market equilibrium level?

Buyers value the final unit produced more than it costs to make.The expense of producing the last unit is higher than the value buyers assign to it.The benefit to consumers reaches its highest point.The overall economic welfare is at its peak.The gains received by producers are at their maximum.

18.There are three identical vases available for purchase. Buyer 1 values a vase at Rs30, buyer 2 values it at Rs25, and buyer 3 values it at Rs20. If the selling price is set at Rs25, how many vases will be sold, and what will be the total consumer surplus in this market?

All three vases will be sold, with a total consumer surplus of Rs80.Only one vase will be sold, resulting in a consumer surplus of Rs5.Just one vase will be purchased, and the consumer surplus will be Rs30.All three vases will be sold, but there will be no consumer surplus.Two vases will be sold, and the total consumer surplus will be Rs5.

19.A buyer values a new Honda at Rs20,000 but manages to purchase it for Rs18,000. What is the amount of her consumer surplus?

Rs18,000Rs20,000Rs2,000No surplus

20.Which area represents consumer surplus in a market graph?

The region beneath the demand curve and above the market price.The section above the supply curve and below the market price.The area above the demand curve and beneath the market price.The portion below the supply curve and over the market price.The space below the demand curve and above the supply curve.