4.1.5.11 Consumer and producer surplus Quiz: AQA Economics, Unit 1

The 20 questions

1. Consumer surplus is:

   • The price paid by consumers multiplied by the quantity bought
   • The difference between the maximum price consumers are willing to pay and the price they actually pay
   • Total revenue minus total costs for consumers, which is the net income that buyers earn from the goods they purchase in each period
   • The difference between price and average variable cost, which measures how much buyers gain above the costs of supplying each unit

2. Producer surplus is:

   • The total profit earned by a firm after its fixed costs
   • The difference between the price received and the minimum price producers would accept, summed over units sold
   • Average revenue minus marginal cost at the market price, which gives the margin that the firm earns on each unit it sells in the period
   • The area under the demand curve up to the market quantity

3. On a standard supply and demand diagram, consumer surplus is shown by:

   • The area above the supply curve and below the market price
   • The area below the market price and above the supply curve
   • The area above the market price and below the demand curve
   • The area under the supply curve up to the market quantity

4. On the same diagram, producer surplus is shown by:

   • The area above the demand curve and below the price
   • The area under the demand curve only
   • The area above the market price and below the demand curve
   • The area below the market price and above the supply curve

5. A demand curve is P = 20 - Q and the market price is £10. Consumer surplus is:

   • £100
   • £50
   • £10
   • £200

6. A supply curve is P = 2 + Q and the market price is £10. Producer surplus is:

   • £80
   • £16
   • £32
   • £64

7. A monopolist raises price, which reduces consumer surplus. Which best describes the welfare effect?

   • A transfer to consumers only, with no loss of welfare
   • A loss of producer surplus only
   • A transfer to the monopolist plus a dead-weight loss on units no longer traded
   • No welfare effect, since consumer surplus is unaffected by price in a market where buyers accept any price that the firm sets

8. A dead-weight loss is best described as:

   • The tax revenue collected by government on each unit sold, which is the income the state receives from the goods traded in the market
   • The fixed costs paid by a firm that leaves the market
   • Welfare lost when mutually beneficial trades do not take place
   • The surplus transferred from consumers to producers

9. Under monopoly, the dead-weight loss is best shown as:

   • The triangle between the demand curve and marginal cost, from the monopoly output to the competitive output
   • The rectangle of abnormal profit from price down to average cost
   • The area under the marginal revenue curve from zero to the monopoly output
   • The triangle between the supply curve and the market price at the monopoly output

10. Which statement about price discrimination and surplus is most accurate?

    • It transfers some consumer surplus to the firm, and may add surplus by increasing output
    • It always eliminates dead-weight loss completely
    • It has no effect on either consumer or producer surplus
    • It reduces producer surplus to zero in every case

11. The market price is £6 and the firm's marginal cost on a unit is £4. The producer surplus on that unit is:

    • £2 on that unit, since the price received exceeds the minimum the firm would accept
    • 6 on that unit, the full price received, since the producer keeps the whole selling price as surplus once the sale has been completed
    • 4 on that unit, equal to marginal cost
    • 10 on that unit, the price plus marginal cost

12. A government imposes a tax that reduces the quantity traded. Which surpluses are affected?

    • Only consumer surplus falls, while producer surplus rises
    • Only producer surplus falls
    • Neither surplus changes because government pays the tax
    • Both consumer and producer surplus fall, and part of the lost surplus is collected as tax revenue

13. A consumer willing to pay £30 buys a good for £22. Their consumer surplus is:

    • £22
    • £30
    • £52
    • £8

14. In a perfectly competitive market in equilibrium, total surplus is:

    • Zero, since consumer and producer surplus cancel each other out
    • Equal to the total revenue of all firms in the market
    • Minimised, since firms earn only normal profit
    • Maximised, since no mutually beneficial trades are left unmade

15. Demand is Q = 16 - P and supply is Q = P - 4. The equilibrium price is £10 and quantity is 6. Consumer surplus is:

    • £9
    • £18
    • £36
    • £6

16. Which statement best applies consumer and producer surplus to evaluate a merger that creates monopoly power?

    • It only affects total revenue, not surplus
    • It always increases consumer surplus through lower prices
    • It may transfer surplus from consumers to the merged firm and create a dead-weight loss, so welfare may fall
    • It has no effect on producer surplus because merged firms are price takers

17. Holding supply constant, what happens to producer surplus when price rises?

    • Producer surplus falls
    • Producer surplus is unchanged
    • Producer surplus rises
    • Producer surplus becomes negative

18. The efficient output in a market is where:

    • The output at which marginal revenue is zero, since that is the point where the firm earns the largest possible surplus from its sales
    • The output at which consumer surplus is zero
    • Marginal benefit equals marginal cost, so total surplus is maximised
    • The output at which price is set equal to the average cost of production

19. Why might a monopolist's price discrimination be judged less harmful to total surplus than a single high price?

    • It may increase output, reducing dead-weight loss, even though it transfers surplus to the firm
    • It has no effect on output, so the number of units traded is the same whether the firm charges one price or many prices to its buyers
    • It is always more harmful
    • It reduces total output to zero for all groups

20. Demand is P = 35 - Q/4. When price rises from £20 to £25, consumer surplus falls by:

    • £450
    • £250
    • £200
    • £150

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