An Informative Quiz On The Aspects Of Microeconomics

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An Informative Quiz On The Aspects Of Microeconomics - Quiz

This is an informative quiz on the aspects of microeconomics. The market would not exist if there were no consumers and producers. The level of consumption or production in a market is dependent on a lot of variables and we have covered them all in our past classes. Do you think that you have what it takes to handle the informative quiz on aspects of economics? Take it and find out!


Questions and Answers
  • 1. 

    Consumer surplus is the amount a buyer is willing to pay for a good minus the seller's cost

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Consumer surplus is not the amount a buyer is willing to pay for a good minus the seller's cost. Instead, it is the difference between the price a consumer is willing to pay for a good and the actual price they pay. It represents the additional benefit or value that consumers receive from purchasing a good at a price lower than what they are willing to pay. Therefore, the correct answer is False.

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  • 2. 

    If the demand curve in a market is stationary, consumer surplus decreases when the price in the market increases

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    When the demand curve in a market is stationary, it means that the quantity demanded by consumers remains constant regardless of price changes. Therefore, if the price in the market increases, consumers are still willing to purchase the same quantity at a higher price. As a result, their consumer surplus decreases because they are paying more for the same quantity of goods or services. Hence, the statement "consumer surplus decreases when the price in the market increases" is true in this scenario.

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  • 3. 

    If your willingness to pay for a hamburger is $3.00 and the price is $2.00, your consumer surplus is $5.00

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The statement is false because consumer surplus is the difference between the maximum price a consumer is willing to pay for a product and the actual price they pay. In this case, the willingness to pay for a hamburger is $3.00, but the price is $2.00, so the consumer surplus would be $1.00, not $5.00.

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  • 4. 

    Producer surplus is a measure of the unsold inventories of suppliers in a market

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Producer surplus is not a measure of unsold inventories of suppliers in a market. It is actually a measure of the difference between the price at which producers are willing to sell a good or service and the price they actually receive. It represents the additional benefit or profit that producers receive when they are able to sell a good or service at a price higher than their willingness to sell. Therefore, the statement that producer surplus is a measure of unsold inventories of suppliers is incorrect.

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  • 5. 

    Consumer surplus is a good measure of buyers' benefits if buyers are rational

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Consumer surplus is a good measure of buyers' benefits if buyers are rational because it represents the difference between the price that buyers are willing to pay for a product or service and the actual price they pay. Rational buyers will only purchase a product if they believe that the benefits they receive from it outweigh the price they pay. Therefore, consumer surplus reflects the additional value that buyers receive from a transaction, indicating their overall benefit.

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  • 6. 

    Cost to the seller includes the opportunity cost of the seller's time

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because the cost to the seller not only includes the monetary expenses but also the opportunity cost of their time. When a seller spends time on a particular transaction, they are sacrificing the opportunity to engage in other activities that could potentially generate income or provide other benefits. Therefore, the seller needs to consider the value of their time when calculating the overall cost of the transaction.

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  • 7. 

    The height of the supply curve is the marginal seller's cost

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The height of the supply curve represents the marginal seller's cost. This means that as the quantity of goods or services supplied increases, the cost for the marginal seller to produce an additional unit also increases. The height of the supply curve visually represents this relationship between quantity supplied and cost. Therefore, the statement is true.

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  • 8. 

    Total surplus is the cost to sellers minus the value to buyers

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The correct answer is False. Total surplus is actually the value to buyers minus the cost to sellers. This concept is used in economics to measure the overall welfare or benefit that is generated in a market. It represents the difference between the maximum amount that buyers are willing to pay for a good or service and the minimum amount that sellers are willing to accept in order to provide it. By calculating total surplus, economists can assess the efficiency and effectiveness of markets in allocating resources.

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  • 9. 

    Free markets are efficient because they allocate output to buyers who have a willingness to pay that is below the price

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Free markets are efficient because they allocate output to buyers who have a willingness to pay that is equal to or above the price. In a free market, prices are determined by the equilibrium between supply and demand. Buyers who are willing to pay the price set by the market are able to purchase the goods or services they desire. This ensures that resources are allocated efficiently, as those who value the product the most are able to obtain it. Therefore, the correct answer is False, as the statement suggests that buyers with a willingness to pay below the price are allocated the output, which is not the case in a free market.

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  • 10. 

    Producer surplus is the area above the supply curve and below the price

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because producer surplus represents the difference between the price at which producers are willing to supply a good and the actual price they receive. It is calculated by finding the area above the supply curve and below the equilibrium price. This area represents the extra profit that producers make when they are able to sell their goods at a price higher than their cost of production. Therefore, the statement accurately describes producer surplus.

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  • 11. 

    The major advantage of allowing free markets to allocate resources is that the outcome of the allocation is efficent

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Allowing free markets to allocate resources is advantageous because it leads to efficient outcomes. In a free market, prices are determined by supply and demand, and individuals and businesses make their own decisions about what to produce and consume. This competition and freedom of choice encourages efficiency because resources are allocated to their most valued uses. Producers are incentivized to minimize costs and maximize quality to attract consumers, leading to optimal allocation of resources. Overall, free markets promote efficiency by allowing resources to be allocated based on the preferences and decisions of individuals and businesses.

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  • 12. 

    Equilibrium in a competitive market maximizes total surplus

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    In a competitive market, equilibrium occurs when the quantity demanded by consumers is equal to the quantity supplied by producers. This equilibrium price and quantity maximize total surplus, which is the combined benefit to both consumers and producers in the market. At this point, the market is efficiently allocating resources, and any deviation from this equilibrium would result in a decrease in total surplus. Therefore, the statement that equilibrium in a competitive market maximizes total surplus is true.

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  • 13. 

    The two main types of market failure are market power and externalities

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement is true because market power and externalities are indeed the two main types of market failure. Market power refers to a situation where a single firm or a group of firms has the ability to influence the market price or quantity of a good, leading to an inefficient allocation of resources. Externalities, on the other hand, occur when the production or consumption of a good affects third parties who are not involved in the transaction, resulting in a divergence between private and social costs or benefits. Both market power and externalities can lead to market failures where the free market fails to allocate resources efficiently.

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  • 14. 

    Externalities are side effects, such as pollution, that are not taken into account by the buyers and sellers in a market

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Externalities refer to the unintended consequences or side effects of economic activities that affect individuals or groups who are not directly involved in the transaction. These effects, such as pollution, are not considered or accounted for by buyers and sellers in a market. Therefore, the statement that externalities are side effects, such as pollution, that are not taken into account by the buyers and sellers in a market is true.

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  • 15. 

    Producing more of a product always adds to total surplus

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    Producing more of a product does not always add to total surplus. Total surplus is the sum of consumer surplus and producer surplus. While producing more of a product may increase producer surplus, it does not necessarily increase consumer surplus. If the additional units produced are not demanded by consumers, they may go unsold and result in a surplus for producers but not contribute to total surplus. Additionally, producing more may also lead to a decrease in price, reducing overall surplus. Therefore, the statement is false.

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  • 16. 

    Consumer surplus is the area

    • A.

      Above the supply curve and below the price

    • B.

      Below the supply curve and above the price

    • C.

      Above the demand curve and below the price

    • D.

      Below the demand curve and above the price

    • E.

      Below the demand curve and above the supply curve

    Correct Answer
    D. Below the demand curve and above the price
    Explanation
    Consumer surplus is the area below the demand curve and above the price. This is because consumer surplus represents the difference between what consumers are willing to pay for a good or service (as indicated by the demand curve) and what they actually have to pay (the price). The area below the demand curve and above the price represents the additional value that consumers receive from purchasing the good or service at a price lower than their maximum willingness to pay.

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  • 17. 

    A buyer's willingness to pay is

    • A.

      That buyer's consumer surplus

    • B.

      That buyer's producer surplus

    • C.

      That buyer's maximum amount he is willing to pay for a good

    • D.

      That buyer's minimum amount he is willing to pay for a good

    • E.

      None of the above

    Correct Answer
    C. That buyer's maximum amount he is willing to pay for a good
    Explanation
    A buyer's willingness to pay refers to the maximum amount that the buyer is willing to pay for a good. It represents the highest price the buyer is willing to offer in order to acquire the good, indicating the buyer's valuation or preference for the item. This willingness to pay is often influenced by factors such as the buyer's personal needs, preferences, and the perceived value of the good. Therefore, the correct answer is "that buyer's maximum amount he is willing to pay for a good."

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  • 18. 

    If a buyer's willingness to pay for a new Honda is $20,000 and she i able to actually buy it for $18,000, her consumer surplus is

    • A.

      $0

    • B.

      $2,000

    • C.

      $18,000

    • D.

      $20,000

    • E.

      $38,000

    Correct Answer
    B. $2,000
    Explanation
    The buyer's consumer surplus is the difference between her willingness to pay and the actual price she pays. In this case, her willingness to pay is $20,000 and she is able to buy it for $18,000. Therefore, her consumer surplus is $20,000 - $18,000 = $2,000.

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  • 19. 

    An increase in the price of a good along a stationary demand curve

    • A.

      Increases consumer surplus

    • B.

      Decreases consumer surplus

    • C.

      Improves the material welfare of the buyers

    • D.

      Improves market efficiency

    Correct Answer
    B. Decreases consumer surplus
    Explanation
    An increase in the price of a good along a stationary demand curve decreases consumer surplus. This is because consumer surplus is the difference between the price that consumers are willing to pay for a good and the actual price they pay. When the price increases, consumers are paying more for the good, which reduces their surplus.

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  • 20. 

    Suppose there are three identical vases available to be purchased.  Buyer 1 is willing to pay $30 for one, buyer 2 is willing to pay $25 for one, and buyer 3 is willing to pay $20 for one.  If the rpice is $25, how many vases will be sold and what is the value of consumer surplus in this market?

    • A.

      One vase will be sold, and consumer surplus is $30

    • B.

      One vase will be sold, and consumer surplus is $5

    • C.

      Two vases will be sold, and consumer surplus is $5

    • D.

      Three vases will be sold, and consumer surplus is $0

    • E.

      Three vases will be sold, and consumer surplus is $80

    Correct Answer
    C. Two vases will be sold, and consumer surplus is $5
    Explanation
    Buyer 1 is willing to pay $30 for one vase, but the price is only $25. Therefore, buyer 1 will purchase one vase and experience a consumer surplus of $5 ($30 - $25). Buyer 2 is willing to pay $25 for one vase, which matches the price, so they will also purchase one vase with no consumer surplus. Buyer 3 is willing to pay $20 for one vase, but since the price is $25, they will not make a purchase. Therefore, two vases will be sold and the total consumer surplus in this market is $5.

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  • 21. 

    Producer surplus is the area

    • A.

      Above the supply curve and below the price

    • B.

      Below the supply curve and above the price

    • C.

      Above the demand curve and below the price

    • D.

      Below the demand curve and above the price

    • E.

      Below the demand curve and above the supply curve

    Correct Answer
    A. Above the supply curve and below the price
    Explanation
    Producer surplus is the area above the supply curve and below the price because it represents the difference between the price at which producers are willing to supply a good and the actual price they receive. The supply curve shows the quantity of a good that producers are willing to supply at different prices. The area above the supply curve represents the amount of money that producers are willing to accept for supplying a certain quantity of the good. The area below the price represents the actual amount of money they receive. Therefore, the area above the supply curve and below the price represents the producer surplus.

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  • 22. 

    If a benevolent planner chooses to produce less than the equilibrium quantity of a good, then

    • A.

      Producer surplus is maximized

    • B.

      Consumer surplus is maximized

    • C.

      Total surplus is maximized

    • D.

      The value placed on the last unit of production by buyers exceeds the cost of production

    • E.

      The cost of production on the last unit produced exceeds the value placed on it by buyers

    Correct Answer
    D. The value placed on the last unit of production by buyers exceeds the cost of production
    Explanation
    When a benevolent planner chooses to produce less than the equilibrium quantity of a good, it means that they are producing at a quantity below what would maximize total surplus. In this case, the value placed on the last unit of production by buyers exceeds the cost of production. This implies that buyers are willing to pay more for the last unit produced than it costs to produce it, indicating that there is potential for higher profits for producers. Therefore, the correct answer is "the value placed on the last unit of production by buyers exceeds the cost of production".

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  • 23. 

    If a benevolent social planner chooses to produce more than the equilibrium quantity of a good, then

    • A.

      Producer surplus is maximized

    • B.

      Consumer surplus is maximized

    • C.

      Total surplus is maximized

    • D.

      The value placed on the last unit of production by buyers exceeds the cost of production

    • E.

      The cost of production on the last unit produced exceeds the value placed on it by buyers

    Correct Answer
    E. The cost of production on the last unit produced exceeds the value placed on it by buyers
    Explanation
    When a benevolent social planner chooses to produce more than the equilibrium quantity of a good, it means that the planner is producing beyond what is demanded by consumers. This results in a situation where the cost of production on the last unit produced exceeds the value placed on it by buyers. This is because the additional units produced are not as highly valued by buyers, and the cost of producing these extra units outweighs their value. Therefore, the answer is that the cost of production on the last unit produced exceeds the value placed on it by buyers.

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  • 24. 

    The seller's cost of production is

    • A.

      The seller's consumer surplus

    • B.

      The seller's producer surplus

    • C.

      The maximum amount the seller is willing to accept for a good

    • D.

      The minimum amount the seller is willing to accept for a good

    • E.

      None of the above

    Correct Answer
    D. The minimum amount the seller is willing to accept for a good
    Explanation
    The seller's cost of production refers to the minimum amount that the seller is willing to accept for a good. This is because the cost of production represents the expenses incurred by the seller in order to produce the good. Therefore, the seller would not be willing to accept any amount lower than their cost of production, as it would result in a loss for them. Thus, the minimum amount the seller is willing to accept for a good is the correct answer.

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  • 25. 

    Total surplus is the area

    • A.

      Above the supply curve and below the price

    • B.

      Below the supply curve and above the price

    • C.

      Above the demand curve and below the price

    • D.

      Below the demand curve and above the price

    • E.

      Below the demand curve and above the supply curve

    Correct Answer
    E. Below the demand curve and above the supply curve
    Explanation
    Total surplus refers to the overall welfare or economic benefit that is generated in a market. It is calculated as the difference between the total consumer surplus and total producer surplus. In this case, the correct answer is "below the demand curve and above the supply curve". This means that the total surplus is the area between the demand curve and the supply curve, indicating the additional benefit that both consumers and producers receive in the market.

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  • 26. 

    An increase in the price of a good along a stationary supply curve

    • A.

      Increases producer surplus

    • B.

      Decreases producer surplus

    • C.

      Improves market equity

    • D.

      Does all of the above

    Correct Answer
    A. Increases producer surplus
    Explanation
    An increase in the price of a good along a stationary supply curve increases producer surplus because it allows producers to sell their goods at a higher price than before. This means that producers are able to earn more profit from their sales, resulting in an increase in their surplus.

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  • 27. 

    Adam Smith's "invisible hand" concept suggests that a competitive market outcome

    • A.

      Minimizes total suprlus

    • B.

      Maximizes total surplus

    • C.

      Generates equality among the members of society

    • D.

      Does both b and c

    Correct Answer
    B. Maximizes total surplus
    Explanation
    Adam Smith's "invisible hand" concept suggests that a competitive market outcome maximizes total surplus. This means that when markets are allowed to operate freely and without interference, the forces of supply and demand will naturally lead to the most efficient allocation of resources. This efficiency results in the maximum total benefit or surplus for society as a whole. By allowing prices to adjust based on market conditions, resources are allocated to their highest valued uses, leading to overall economic prosperity.

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  • 28. 

    In general, if a benevolent social planner wanted to maximize the total benefits received by buyers and sellers in a market, the planner should

    • A.

      Choose a price above the market equilibrium price

    • B.

      Choose a price below the market equilibrium price

    • C.

      Allow the market to seek equilibrium on its own

    • D.

      Choose any price the planner wants because the losses to the sellers (buyers) from any change in price are exactly offset by the gains to the buyers (sellers)

    Correct Answer
    C. Allow the market to seek equilibrium on its own
    Explanation
    Allowing the market to seek equilibrium on its own is the correct answer because in a competitive market, the forces of supply and demand will naturally push the market towards an equilibrium price and quantity. This is because buyers will be willing to pay more for a product as the price decreases, while sellers will be willing to supply more as the price increases. By allowing the market to reach equilibrium, the social planner ensures that the total benefits received by both buyers and sellers are maximized, as the market operates efficiently without any external intervention.

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  • 29. 

    If buyers are rational and there is no market failure,

    • A.

      Free market solutions are efficient

    • B.

      Free market solutions generate equality

    • C.

      Free market solutions maximize total surplus

    • D.

      All of the above are true

    • E.

      A and c are correct

    Correct Answer
    E. A and c are correct
    Explanation
    If buyers are rational and there is no market failure, it means that buyers make decisions based on their own self-interest and there are no external factors that disrupt the market. In such a scenario, free market solutions are efficient because they allow for the most optimal allocation of resources. Additionally, free market solutions maximize total surplus, which means that they generate the highest overall benefit for society. Therefore, both statements "free market solutions are efficient" and "free market solutions maximize total surplus" are true.

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  • 30. 

    If a producer has market power (can influence the price of the product in the market) then free market solutions

    • A.

      Generate equality

    • B.

      Are efficient

    • C.

      Are inefficient

    • D.

      Maximize consumer surlus

    Correct Answer
    C. Are inefficient
    Explanation
    If a producer has market power, it means that they have the ability to influence the price of the product in the market. In such a scenario, free market solutions are likely to be inefficient. This is because the producer with market power can manipulate prices to their advantage, potentially leading to higher prices and reduced competition. This lack of competition and potential for price manipulation can result in market inefficiencies, such as reduced consumer welfare and economic inequality.

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  • 31. 

    If a market is efficient, then

    • A.

      The market allocates outputs to the buyers who value it the most

    • B.

      The market allocates buyers to the sellers who can produce the good at least cost

    • C.

      The quantity produced in the market maximizes the sum of consumer and producer surplus

    • D.

      All of the above are true

    • E.

      None of the above are true

    Correct Answer
    D. All of the above are true
    Explanation
    In an efficient market, all of the statements mentioned are true. The market allocates outputs to the buyers who value it the most, ensuring that the goods or services are distributed to those who are willing to pay the highest price. It also allocates buyers to the sellers who can produce the good at the least cost, ensuring that production is carried out by the most efficient producers. Additionally, the quantity produced in the market maximizes the sum of consumer and producer surplus, resulting in an optimal balance between supply and demand. Therefore, all of the given statements accurately describe the characteristics of an efficient market.

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  • 32. 

    If a market generates a side effect or externality, then free market solutions

    • A.

      Generate equality

    • B.

      Are efficient

    • C.

      Are inefficient

    • D.

      Maximize producer surplus

    Correct Answer
    C. Are inefficient
    Explanation
    When a market generates a side effect or externality, such as pollution or congestion, free market solutions are inefficient. This is because the costs or benefits of the side effect are not fully accounted for in the market transactions. As a result, resources are not allocated optimally, leading to inefficiency. Government intervention or regulation is often required to internalize these external costs or benefits and achieve a more efficient outcome.

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  • 33. 

    Medical care clearly enhances people's lives.  Therefore, we should consume medical care until

    • A.

      Everyone has as much as they would like

    • B.

      The benefit buyers place on medical care is equal to the cost of producing it

    • C.

      Buyers receive no benefit from another unit of medical care

    • D.

      We must cut back on the consumption of other goods

    Correct Answer
    B. The benefit buyers place on medical care is equal to the cost of producing it
    Explanation
    The answer suggests that we should consume medical care until the benefit buyers place on it is equal to the cost of producing it. This implies that the consumption of medical care should be balanced with its production cost, indicating an efficient allocation of resources. It does not mention consuming medical care until everyone has as much as they would like or cutting back on the consumption of other goods, as these factors are not directly related to the balance between benefit and cost.

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  • 34. 

    Joe has ten baseball gloves and Sue has none.  A baseball glove costs $50 to produce.  If Joe values an additional baseball glove at $100 and Sue values a baseball glove at $40, then to maximize

    • A.

      Efficiency, Joe should receive the glove

    • B.

      Efficiency, Sue should receive the glove

    • C.

      Consumer surplus, both should receive a glove

    • D.

      Equity, Joe should receive the glove

    Correct Answer
    A. Efficiency, Joe should receive the glove
    Explanation
    In order to maximize efficiency, the glove should be given to the person who values it the most. Joe values an additional baseball glove at $100, which is higher than Sue's value of $40. Therefore, to maximize efficiency, Joe should receive the glove.

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  • 35. 

    Suppose that the price of a new bicycle is $300.  Sue values a new bicycle at $400.  If costs $200 for the seller to produce the new bicycle.  What is the value of total surplus if Sue buys a bew bike?

    • A.

      $100

    • B.

      $200

    • C.

      $300

    • D.

      $400

    • E.

      $500

    Correct Answer
    B. $200
    Explanation
    The total surplus is calculated by subtracting the cost of production from the value that Sue places on the bicycle. In this case, Sue values the bicycle at $400 and it costs $200 to produce. Therefore, the total surplus is $400 - $200 = $200.

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