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Checking the validity of given statements

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Indicate whether each of the following statements is true or false, and explain why. If a statement is false or true, please provide a full explanation as to why that statement is correct or not.

a. Consumer surplus is the difference between the minimum and maximum price a consumer is wiling to pay for a good.
b. Producer surplus is the difference between the actual price a producer receives for a product and the minimum price the producer would have been willing to accept for the product.
c. For Good A, supply elasticity is +2.5 and price elasticity of demand is -1.5. If an excise tax is imposed on Good A, sellers will pay the more of this tax than buyers.
d. A perfectly competitive firm can maximize its economic profit or minimize its losses only by adjusting its output.
e. If a perfectly competitive firm is producing output less than its profit-maximizing output, marginal revenue is greater than marginal cost.

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Solution checks the validity of the given statements.

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a. False, a consumer surplus is the difference between the maximum price that the consumer is wiling to pay and the actual price paid by him for a good.

b. True, a producer surplus is the amount that producers benefit by selling at a ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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