1.2.8 Consumer and producer surplus Quiz: Pearson Edexcel Economics A, Unit 1

The 20 questions

1. What is consumer surplus?

   • The total revenue earned by firms from selling their output at the market price in the period.
   • The total amount of money consumers spend on a good in a market over a given period of time.
   • The difference between the price producers receive and the minimum price at which they would supply.
   • The difference between the maximum amount consumers are willing to pay for a good and the price they actually pay.

2. What is producer surplus?

   • The difference between the price producers receive for a good and the minimum price they would accept to supply it.
   • The total wages paid by firms to their workers over a financial year in the economy.
   • The difference between the maximum price consumers pay and the price producers charge in the market.
   • The total cost of production that firms incur when they produce a given quantity of output.

3. On a standard supply and demand diagram, consumer surplus is shown by which area?

   • The triangle below the equilibrium price and above the supply curve in the diagram.
   • The rectangle below the equilibrium price and to the left of the equilibrium quantity.
   • The triangle above the equilibrium price and below the demand curve.
   • The area under the supply curve and above the horizontal axis of the diagram.

4. On a standard supply and demand diagram, producer surplus is shown by which area?

   • The area under the demand curve and above the horizontal axis of the diagram.
   • The triangle above the equilibrium price and below the demand curve in the diagram.
   • The rectangle above the equilibrium price and to the right of the equilibrium quantity.
   • The triangle below the equilibrium price and above the supply curve, up to the equilibrium quantity.

5. A market price falls from 8 pounds to 6 pounds, with the quantity demanded rising. What happens to consumer surplus?

   • Consumer surplus falls to zero, since at a lower price buyers no longer receive any benefit from buying.
   • Consumer surplus rises, since buyers now pay less than before for the same units they were already buying.
   • Consumer surplus falls, since buyers now pay less and so the amount of surplus is reduced in the market.
   • Consumer surplus is unchanged, since the change in price affects only producer surplus in the market.

6. A rise in the market price reduces the quantity bought. What is the effect on consumer surplus?

   • Consumer surplus falls, since buyers pay more on the units they buy and fewer units are bought.
   • Consumer surplus becomes negative, since buyers pay more than they would be willing to pay in any market.
   • Consumer surplus is unchanged, since consumer surplus depends only on the number of firms in the market.
   • Consumer surplus rises, since higher prices give buyers more benefit from each unit purchased.

7. A rise in demand for a good shifts the demand curve to the right. What happens to producer surplus, other things equal?

   • Producer surplus is unchanged, since producer surplus depends only on the cost of production in the market.
   • Producer surplus falls, since higher demand means producers must cut their prices to sell more units.
   • Producer surplus falls to zero, since producers must share the market with the new buyers entering.
   • Producer surplus rises, since the higher equilibrium price and quantity raise the area between price and supply.

8. Which statement best describes the effect of a fall in supply on consumer surplus, if demand is unchanged?

   • Consumer surplus is unchanged, since consumer surplus depends only on the willingness of sellers to supply goods.
   • Consumer surplus becomes equal to producer surplus, since both groups share the same loss in the market.
   • Consumer surplus rises, since a fall in supply means buyers can obtain the good more cheaply in the market.
   • Consumer surplus falls, since the higher equilibrium price reduces the gap between willingness to pay and the price paid.

9. Which of the following would cause consumer surplus to increase?

   • A fall in the market price of a good, with demand unchanged.
   • A rise in the market price of a good, with demand unchanged.
   • A fall in consumer incomes, which reduces the amount consumers are willing to pay for goods.
   • A rise in the cost of producing the good, which raises the price consumers must pay.

10. A market has equilibrium price 10 pounds. The first unit's maximum buyer value is 16 pounds and its minimum acceptable seller price is 4 pounds. What is consumer surplus on that unit?

    • 6 pounds, which is the 16 pound willingness to pay less the 10 pound price paid.
    • 12 pounds, which is the 16 pound willingness to pay less the 4 pound minimum supply price.
    • 4 pounds, which is the 4 pound minimum supply price for the first unit in the market.
    • 10 pounds, which is the equilibrium price paid by consumers on every unit traded.

11. A supply and demand diagram shows a market with equilibrium price 10 pounds and quantity 50 units. The minimum price sellers would accept for the first unit is 4 pounds. What is the producer surplus on the first unit?

    • 6 pounds, which is the 10 pound price received less the 4 pound minimum acceptable price.
    • 10 pounds, which is the full price received by producers and so is their total surplus.
    • 4 pounds, which is the minimum acceptable price for the first unit and so is the surplus.
    • 14 pounds, which is the 10 pound price received plus the 4 pound minimum acceptable price.

12. Which of these best explains why the market equilibrium is considered efficient in terms of surplus?

    • At equilibrium consumer surplus is zero, so the market cannot be efficient in any sense in the economy.
    • At equilibrium the government has set a price that eliminates all surplus so that the market is fair.
    • At equilibrium the sum of consumer and producer surplus is maximised, since all mutually beneficial trades have taken place.
    • At equilibrium producer surplus is zero, since firms earn only normal profit in every competitive market.

13. Evaluate: does a rise in producer surplus always mean that society is better off?

    • No, because producer surplus is always a loss to society, since it reduces consumer purchases in the market.
    • Yes, because producer surplus always represents an increase in welfare for every member of society in the market.
    • Yes, because producer surplus is the only measure of welfare used in economic analysis of markets.
    • Not necessarily, since a gain to producers may be outweighed by a larger loss to consumers, so the net effect must be checked.

14. A rise in the supply of a good shifts the supply curve to the right. What is the effect on consumer surplus, if demand is unchanged?

    • Consumer surplus falls, since a rise in supply means buyers must pay more to obtain the extra units in the market.
    • Consumer surplus rises, since the equilibrium price falls and buyers pay less for the units they purchase.
    • Consumer surplus falls to zero, since all of the extra supply goes to producers rather than to buyers.
    • Consumer surplus is unchanged, since supply changes affect only the producer side of the market in every case.

15. Which of these is the best definition of total surplus in a market?

    • The amount of money that consumers save by buying goods in sale periods during the year.
    • The sum of consumer surplus and producer surplus, which measures the net gain to society from trade in the market.
    • The total revenue of all firms in the market, less the cost of production for every unit sold.
    • The difference between the highest price paid by any buyer and the lowest price received by any seller.

16. Which of these would reduce producer surplus, other things equal?

    • A rise in demand for the good, with supply unchanged.
    • A fall in the cost of producing the good, with the price unchanged.
    • A fall in the market price of the good, with supply unchanged.
    • A rise in the market price of the good, with supply unchanged.

17. On a supply and demand diagram, what does the area between the demand curve and the equilibrium price show?

    • Consumer surplus, the net gain to buyers from paying less than their maximum willingness to pay.
    • Producer surplus, the net gain to sellers from receiving more than their minimum acceptable price.
    • The deadweight loss, the value of trades that no longer take place in the market.
    • Total revenue, the price multiplied by the quantity sold in the market at equilibrium.

18. A government ban on trade reduces the quantity bought and sold below equilibrium. What happens to total surplus?

    • Total surplus falls, because trades that would have benefited both buyers and sellers no longer take place.
    • Total surplus is unchanged, because the same money is paid by buyers and received by sellers.
    • Total surplus rises, because fewer units traded means each unit is shared among more producers.
    • Total surplus rises, because consumers always gain more from a ban than producers lose from it.

19. Two consumers each buy one unit at 6 pounds. One values the unit at 9 pounds and the other at 7 pounds. What is total consumer surplus?

    • 2 pounds, which is the difference between the two values, since only one unit is bought in total.
    • 4 pounds, which is 3 pounds for the first buyer plus 1 pound for the second.
    • 16 pounds, which is the sum of the two values of the units to the buyers.
    • 6 pounds, which is the price paid, since consumer surplus equals the price paid by buyers.

20. A producer would accept 3 pounds for a unit and sells it for 5 pounds. What is the producer surplus on that unit?

    • 3 pounds, which is the minimum acceptable price and so equals the producer's surplus on the unit.
    • 8 pounds, which is the sum of the price received and the minimum acceptable price for the unit.
    • 5 pounds, which is the full price received, and so equals the producer's total surplus on the unit.
    • 2 pounds, which is the 5 pound price received less the 3 pound minimum acceptable price.

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