Question 1

If it costs $2,000 to pick up the litter along a highway, then the cost of the externality is:

Accepted Answer

A)  $0. 
B)  more than $0, but less than $2,000. 
C)  $2,000. 
D)  more than $2,000, but finite. 
E)  infinite. 
A)  $0. 
B)  more than $0, but less than $2,000. 
C)  $2,000. 
D)  more than $2,000, but finite. 
E)  infinite. C

Question 2

If the equilibrium price of good X is $5 and a price ceiling is imposed at $4, the result will be a(n):

Accepted Answer

A)  accumulation of inventories of unsold gas. 
B)  shortage. 
C)  surplus. 
D)  all of these. 
A)  accumulation of inventories of unsold gas. 
B)  shortage. 
C)  surplus. 
D)  all of these. B

Question 3

If the supply of a good decreased, what would be the effect on the equilibrium price and quantity?

Accepted Answer

A)  Price would increase, and quantity would decrease. 
B)  Price would decrease, and quantity would decrease. 
C)  Price would increase, and quantity would increase. 
D)  Price would decrease, and quantity would increase. 
A)  Price would increase, and quantity would decrease. 
B)  Price would decrease, and quantity would decrease. 
C)  Price would increase, and quantity would increase. 
D)  Price would decrease, and quantity would increase. A

Question 4

Which of the following statements is not true?

Accepted Answer

A)  If marginal social cost and marginal private cost are the same, any externality that exists will be positive. 
B)  If marginal externality costs are not zero, externalities exist. 
C)  An expansion of property rights to include air quality and scenic beauty would bring some private markets close to a socially optimal equilibrium. 
D)  The existence of pollution as the byproduct of a production or exchange process indicates a market failure. 
E)  When municipal water supplies have heavy concentration of agricultural chemicals, it is probable that agricultural output from the area is produced in quantities greater than the socially optimal level. 
A)  If marginal social cost and marginal private cost are the same, any externality that exists will be positive. 
B)  If marginal externality costs are not zero, externalities exist. 
C)  An expansion of property rights to include air quality and scenic beauty would bring some private markets close to a socially optimal equilibrium. 
D)  The existence of pollution as the byproduct of a production or exchange process indicates a market failure. 
E)  When municipal water supplies have heavy concentration of agricultural chemicals, it is probable that agricultural output from the area is produced in quantities greater than the socially optimal level.

Question 5

Which of the following is not a market failure?

Accepted Answer

A)  A lack of competition in some markets. 
B)  Prices determined in competitive markets, which consumers, as individuals, have no control over. 
C)  The presence of externalities in some markets. 
D)  A lack of public goods desired by a majority of citizens. 
E)  Income inequality. 
A)  A lack of competition in some markets. 
B)  Prices determined in competitive markets, which consumers, as individuals, have no control over. 
C)  The presence of externalities in some markets. 
D)  A lack of public goods desired by a majority of citizens. 
E)  Income inequality.

Question 6

An externality is an unintended ____ imposed on ____ as a result of the ____.

Accepted Answer

A)  c or d 
B)  cost; sellers; negligence of others 
C)  cost; third parties; economic activity of others 
D)  benefit; third parties; economic activity of others 
E)  benefit; sellers; beneficence of others 
A)  c or d 
B)  cost; sellers; negligence of others 
C)  cost; third parties; economic activity of others 
D)  benefit; third parties; economic activity of others 
E)  benefit; sellers; beneficence of others

Question 7

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

Accepted Answer

A)  The flu shot is cheaper than the cost of treatment when you get the flu. 
B)  The income of doctors increases when you get the flu shot. 
C)  The flu shot reduces the likelihood others will catch the flu. 
D)  The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income. 
A)  The flu shot is cheaper than the cost of treatment when you get the flu. 
B)  The income of doctors increases when you get the flu shot. 
C)  The flu shot reduces the likelihood others will catch the flu. 
D)  The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income.

Question 8

​Public goods are overproduced in the marketplace.

Accepted Answer

A) True 
 B)False

Question 9

Price floors are instituted because the government wants to:

Accepted Answer

A)  help consumers. 
B)  help producers. 
C)  raise tax revenue. 
D)  prevent imports. 
E)  increase demand. 
A)  help consumers. 
B)  help producers. 
C)  raise tax revenue. 
D)  prevent imports. 
E)  increase demand.

Question 10

Price ceilings are imposed if the government believes:

Accepted Answer

A)  the market will not achieve an equilibrium price. 
B)  the market equilibrium price is too low. 
C)  an excess supply of the product exists. 
D)  the market equilibrium price is too high. 
E)  the demand will be less than the supply of the product. 
A)  the market will not achieve an equilibrium price. 
B)  the market equilibrium price is too low. 
C)  an excess supply of the product exists. 
D)  the market equilibrium price is too high. 
E)  the demand will be less than the supply of the product.

Question 11

One of the problems created by price floors set above the equilibrium is:

Accepted Answer

A)  consumers complain about high prices. 
B)  firms don't have incentives to reduce costs. 
C)  the creation of surplus. 
D)  how to cope with the shortages. 
E)  the impact on firm profitability. 
A)  consumers complain about high prices. 
B)  firms don't have incentives to reduce costs. 
C)  the creation of surplus. 
D)  how to cope with the shortages. 
E)  the impact on firm profitability.

Question 12

A market consequence of the establishment of a price floor program is that price will be:

Accepted Answer

A)  too low, and an excess supply will result. 
B)  too low, and a shortage will result. 
C)  too high, and an excess supply will result. 
D)  too high, and a shortage will result. 
E)  below the market equilibrium price. 
A)  too low, and an excess supply will result. 
B)  too low, and a shortage will result. 
C)  too high, and an excess supply will result. 
D)  too high, and a shortage will result. 
E)  below the market equilibrium price.

Question 13

A price floor (support price) set above equilibrium:

Accepted Answer

A)  is a minimum legal price set by government above equilibrium. 
B)  causes the quantity supplied to exceed the quantity demanded. 
C)  creates a surplus. 
D)  can represent the effect of a minimum wage. 
E)  all of these. 
A)  is a minimum legal price set by government above equilibrium. 
B)  causes the quantity supplied to exceed the quantity demanded. 
C)  creates a surplus. 
D)  can represent the effect of a minimum wage. 
E)  all of these.

Question 14

Exhibit 4-4 Supply and demand curves for good X  
-An increase in buyers' income, assuming good X is a normal good, combined with an increase in the wage rate paid to workers producing good X would be represented by which of the following changes in equilibrium shown in Graph C of Exhibit 4-4?

Accepted Answer

A)  E1 to E2. 
B)  E1 to E3. 
C)  E3 to E2. 
D)  E1 to E3 
E)  E4 to E1. 
A)  E1 to E2. 
B)  E1 to E3. 
C)  E3 to E2. 
D)  E1 to E3 
E)  E4 to E1.

Question 15

An externality is:

Accepted Answer

A)  always a benefit to the recipient. 
B)  always a detriment to the recipient. 
C)  an activity that occurs in a business which is unknown to management. 
D)  unintended benefits or costs imposed on third parties as a result of economic activity. 
E)  an act, caused by a firm located in this country, which has an effect on a person in a foreign country. 
A)  always a benefit to the recipient. 
B)  always a detriment to the recipient. 
C)  an activity that occurs in a business which is unknown to management. 
D)  unintended benefits or costs imposed on third parties as a result of economic activity. 
E)  an act, caused by a firm located in this country, which has an effect on a person in a foreign country.

Question 16

Which of the following would decrease the price of packaged hot dogs?

Accepted Answer

A)  An increase in the price of hot dog buns, a complement to packaged hot dogs. 
B)  A decrease in the price of hamburger meat, a substitute for packaged hot dogs. 
C)  A technological advance that lowers the cost of producing packaged hot dogs. 
D)  All of these. 
A)  An increase in the price of hot dog buns, a complement to packaged hot dogs. 
B)  A decrease in the price of hamburger meat, a substitute for packaged hot dogs. 
C)  A technological advance that lowers the cost of producing packaged hot dogs. 
D)  All of these.

Question 17

Pete throws leftover bread onto his front lawn because he enjoys watching the pigeons feeding. His neighbor John is not happy about the pigeons, since they leave a mess on his property. This is an example of:

Accepted Answer

A)  a negative externality. 
B)  a public good. 
C)  privatization. 
D)  third-party benefits. 
E)  well-defined property rights. 
A)  a negative externality. 
B)  a public good. 
C)  privatization. 
D)  third-party benefits. 
E)  well-defined property rights.

Question 18

How would a decrease in consumer income affect the market for new automobiles?

Accepted Answer

A)  Demand would decrease, leading to an increase in price and a reduction in quantity sold. 
B)  Demand would decrease, leading to a reduction in price and a reduction in quantity sold. 
C)  Demand would increase, leading to an increase in price and an increase in quantity sold. 
D)  Demand would increase, leading to a reduction in price and an increase in quantity sold. 
A)  Demand would decrease, leading to an increase in price and a reduction in quantity sold. 
B)  Demand would decrease, leading to a reduction in price and a reduction in quantity sold. 
C)  Demand would increase, leading to an increase in price and an increase in quantity sold. 
D)  Demand would increase, leading to a reduction in price and an increase in quantity sold.

Question 19

Minimum wage legislation:

Accepted Answer

A)  sets a price ceiling above the market-clearing price. 
B)  has no impact if the minimum wage is above the market-clearing price. 
C)  has the same impact in all labor markets. 
D)  creates unemployment when the minimum wage is above the equilibrium wage. 
E)  is opposed by organized labor. 
A)  sets a price ceiling above the market-clearing price. 
B)  has no impact if the minimum wage is above the market-clearing price. 
C)  has the same impact in all labor markets. 
D)  creates unemployment when the minimum wage is above the equilibrium wage. 
E)  is opposed by organized labor.

Question 20

Which of the following would be an external cost associated with the manufacture of cigarettes?

Accepted Answer

A)  Price of a pack of cigarettes. 
B)  Price of leaf tobacco. 
C)  Cost to the government of the hospital expenses of indigent smokers. 
D)  Cost to the employer of the higher health insurance premiums due to the hiring of a smoker. 
E)  Cost to the employer of the extra effort lost due to the increased missed days of work as a result of smoking. 
A)  Price of a pack of cigarettes. 
B)  Price of leaf tobacco. 
C)  Cost to the government of the hospital expenses of indigent smokers. 
D)  Cost to the employer of the higher health insurance premiums due to the hiring of a smoker. 
E)  Cost to the employer of the extra effort lost due to the increased missed days of work as a result of smoking.

If it costs $2,000 to pick up the litter along a highway, then the cost of the externality is:

If the equilibrium price of good X is $5 and a price ceiling is imposed at $4, the result will be a(n):

If the supply of a good decreased, what would be the effect on the equilibrium price and quantity?

Which of the following statements is not true?

Which of the following is not a market failure?

An externality is an unintended imposed on as a result of the .

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

Public goods are overproduced in the marketplace.

Price floors are instituted because the government wants to:

Price ceilings are imposed if the government believes:

One of the problems created by price floors set above the equilibrium is:

A market consequence of the establishment of a price floor program is that price will be:

A price floor (support price) set above equilibrium:

Exhibit 4-4 Supply and demand curves for good X -An increase in buyers' income, assuming good X is a normal good, combined with an increase in the wage rate paid to workers producing good X would be represented by which of the following changes in equilibrium shown in Graph C of Exhibit 4-4?

An externality is:

Which of the following would decrease the price of packaged hot dogs?

Pete throws leftover bread onto his front lawn because he enjoys watching the pigeons feeding. His neighbor John is not happy about the pigeons, since they leave a mess on his property. This is an example of:

How would a decrease in consumer income affect the market for new automobiles?

Minimum wage legislation:

Which of the following would be an external cost associated with the manufacture of cigarettes?

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution, Poverty, and Discrimination

Antitrust and Regulation

Environmental Economics

International Trade and Finance

Economies in Transition

Growth and the

Filters

Exam 4: Markets in Action

If it costs $2,000 to pick up the litter along a highway, then the cost of the externality is:

If the equilibrium price of good X is $5 and a price ceiling is imposed at $4, the result will be a(n):

If the supply of a good decreased, what would be the effect on the equilibrium price and quantity?

Which of the following statements is not true?

Which of the following is not a market failure?

An externality is an unintended ____ imposed on ____ as a result of the ____.

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

​Public goods are overproduced in the marketplace.

Price floors are instituted because the government wants to:

Price ceilings are imposed if the government believes:

One of the problems created by price floors set above the equilibrium is:

A market consequence of the establishment of a price floor program is that price will be:

A price floor (support price) set above equilibrium:

Exhibit 4-4 Supply and demand curves for good X -An increase in buyers' income, assuming good X is a normal good, combined with an increase in the wage rate paid to workers producing good X would be represented by which of the following changes in equilibrium shown in Graph C of Exhibit 4-4?

An externality is:

Which of the following would decrease the price of packaged hot dogs?

Pete throws leftover bread onto his front lawn because he enjoys watching the pigeons feeding. His neighbor John is not happy about the pigeons, since they leave a mess on his property. This is an example of:

How would a decrease in consumer income affect the market for new automobiles?

Minimum wage legislation:

Which of the following would be an external cost associated with the manufacture of cigarettes?

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution, Poverty, and Discrimination

Antitrust and Regulation

Environmental Economics

International Trade and Finance

Economies in Transition

Growth and the

Filters

An externality is an unintended imposed on as a result of the .

Public goods are overproduced in the marketplace.