Chapter 7

Question 0

What is producer surplus?

Answer 0

This is the area above the supply curve and below the price. It is the difference between what producers are will and able to sell a good for and the price they actually sell it for.

Question 1

What is consumer surplus?

Answer 1

It is the area below the demand curve and above the price. It is the difference between what consumers are willing and able to pay and the price they actually get to pay

Question 2

What is total welfare/economic surplus?

Answer 2

This is the sum of consumer and producer surplus.

Question 3

What is deadweight loss?

Answer 3

This is the loss in consumer and producer surplus, resulting from not being at market equilibrium due to a market restriction.

Question 4

What is a price ceiling?

Answer 4

This is the legal maximum price. Producers cannot charge above the price ceiling.

Question 5

What is the difference between a binding price ceiling and a non-binding price ceiling?

Answer 5

A binding price ceiling is set below the equilibrium price. A non-binding price ceiling is set above the equilibrium price.

Question 6

What is a price floor?

Answer 6

This is a legal minimum price. Producers cannot charge less than the price floor.

Question 7

What is the difference between a binding price floor and a non-binding price floor?

Answer 7

A binding price floor is set above the equilibrium price. A non-binding price floor is set below the equilibrium price.

Question 8

Draw the graph for producer and consumer surplus and total welfare

Question 9

Draw the graph for Deadweight Loss (DWL)

Question 10

Draw an example/graph for price ceiling

Question 11

Draw an example/graph for price floor