Question

Consumer surplus is defined as the gap between the supply curve and the market price.

True

False

Soybeans produced in Brazil, but eaten by cows in a Kansas feedlot, will be included in U.S. GDP.

True

False

Producer surplus is defined as the gap between the supply curve and the market price.

True

False

The total of disposable income must be either spent or saved.

True

False

A price ceiling usually results in a surplus and a misallocation of resources.

True

False

The invisible hand is the process that describes how resources are allocated efficiently through individual decisions made in markets.

True

False

Answer 1

False

Consumer surplus is defined as the difference between the maximum price one could pay and the price actually one pays. So, it's the gap between the demand curve and the market price.

True

It counts under the imports component of the GDP.

True

Producer surplus can be defined as the difference between the actual selling price and the minimum selling price a producer can sell. Graphically it's the gap between supply curve and market price.

True

The concepts of propensity to save and propensity to spend shows us the same.

False

Price ceiling translates to shortage of supply and misallocation of resources. This is because, at a price ceiling the supply for a good is less due to less incentive and because of lower prices the demand increases causing a shortage.

True

The constant influence of individual pressure on market supply and demand causes the natural price movement and trade flow. Thereby metaphorically refered to as the invisible hand.

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