ECON 103 Name _________________________________

Chapter 4 Assignment
1. In many parts of Canada when Wal-Mart opens a new store, some
smaller retailers go out of business. One of the reasons for this
development could be that:
A) consumers in those areas receive a larger consumer surplus
from shopping at Wal-Mart than from the smaller stores.
B) consumers in those areas receive no consumer surplus from
Wal-Mart.
C) Wal-Mart practices unfair pricing methods that reduce consumer
surplus over time.
D) both a and c are true.
Use the following to answer questions 2-3.
Table: Consumer Surplus and Phantom Tickets
Student Willingness to pay:
Jessica $150
Jacquelyn $125
Brad $105
Robert $60
Gwen $25
2. (Table: Consumer Surplus and Phantom Tickets) If the price of a ticket
to see Phantom of the Opera is $50, then Robert's consumer surplus is:
A) $60.
B) $50.
C) $10.
D) $240.
3. (Table: Consumer Surplus and Phantom Tickets) If the box-office price
of a ticket to see Phantom of the Opera is $50, and there is no other
market for tickets, then total consumer surplus for the five students is:
A) $100.
B) $175.
C) $230.
D) $240.
4. Suppose Canada removes the current sugar quotas and the market
price of sugar drops. In the candy bar market, we would expect:
A) the consumer surplus to increase.
B) the consumer surplus to decrease.
C) the consumer surplus to be unchanged.
D) the deadweight loss to increase.

5. Anna is willing to sell her 20-year-old boat—but not for less than
$2,300. For Anna, the cost of selling this boat is ______ $2,300.
A) more than
B) less than
C) equal to

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ECON 103 Name _________________________________

D) There is not enough information to answer the question.

6. Along a given supply curve, an increase in the price of a good will:

A) increase producer surplus.
B) decrease producer surplus.
C) increase consumer surplus.
D) both b and c

7. Consumer surplus is the amount buyers actually pay for a good minus
the maximum amount they are willing to pay for it.
A) True
B) False

8. Suppose Ontario removes the current dairy quotas and the market
price of milk drops. In the cheese market, we would then expect
consumer surplus to increase.
A) True
B) False

9. In the former Soviet Union, people often resorted to black market

transactions preferring them over waiting in long lines for goods and
services. This fact seems to suggest that saving time is part of the
consumer surplus derived from buying goods.
A) True
B) False

10. If the price of pizza changes for any reason, a deadweight loss
will occur.
A) True
B) False

11. The following table shows Beth’s marginal willingness to

pay and Steve’s marginal cost for sweaters.

Quantit Beth's Steve's Steve's MC +

y MWTP MC tax
1 20 5
2 18 6
3 16 7
4 14 8
5 12 9
6 10 10
7 8 11

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ECON 103 Name _________________________________

8 6 12

A) What is the equilibrium price and quantity of sweaters?

P* = _________________ Q* = _________________
B) Graph the MWTP and MC (in a bar chart form)

$
20
18
16
14
12
10
8
6
4
2
0
0 1 2 3 4 5 6 7 8

C) At the equilibrium what will Beth’s consumer surplus be? CS

=____________

D) At the equilibrium what will Steve’s producer surplus be? PS =

____________

E) At the equilibrium what will the total surplus be? TS =

______________

F) Suppose the government imposes a tax of $6 per sweater.

Fill in the right column on the table and show the effect on
your graph. What will be the new quantity, Q T, the new
demand price, PC, and the new supply price, PP?

QT = ___________ PC = ____________ PP = __________

G) What will be the new consumer surplus? CS = _____________

H) What will be the new producer surplus? PS = _____________

I) What will be the total tax revenue for the government? TR

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= __________

J) What will be the new total surplus? TS =____________

K) What will be the deadweight loss? DWL = ___________

L) What will be the total consumer incidence from the tax? CI

= _________

M) What will be the total producer incidence from the tax? PI

= __________

12. In the market for litres of ice cream, the demand function
is P = 15 – 0.003Q and the supply function is P = 3 + 0.001Q.

A) Graph the demand and supply functions.

B) Calculate the equilibrium price and quantity.

Q* = ______________________

P* = ______________________

C) Calculate consumer surplus, producer surplus, and total

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surplus. Label the areas on the graph above.

CS = ________________________

PS = ________________________

TS = ________________________

D) Suppose supply decreases to P = 5 + 0.001Q. Show on the

graph below.

i. Calculate the new equilibrium price and quantity.

Q* = ______________________

P* = ______________________

ii. Calculate the change in CS for the consumers who

remain in the market but are now paying a higher
price.

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CS = ______________________

iii. Calculate the change in CS for the consumers who

have exited the market because of the higher price.

CS = ______________________

iv. By how much has producer surplus changed?

PS = ______________________

i. Use stripes to show the area that would be the change

in total surplus.
E) If the government imposes a tax of $2 per litre calculate
consumer surplus, producer surplus, total tax revenue,
total surplus, and deadweight loss using the original supply
curve. Show on the graph below.

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ECON 103 Name _________________________________

CS = ________________________

PS = ________________________

Total tax revenue = ________________________

TS = ________________________

DWL = ________________________

Total consumer tax incidence = _____________________

Total produce tax incidence = ______________________