Question 1

When the consumption of a good generates an external benefit:

Accepted Answer

A)  the private benefit consumers receive from the good will be higher than the true social benefit. 
B)  too much of the good will tend to be produced from the viewpoint of economic efficiency. 
C)  the community generally suffers an exactly offsetting external cost from the production of the good. 
D)  the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed. 
A)  the private benefit consumers receive from the good will be higher than the true social benefit. 
B)  too much of the good will tend to be produced from the viewpoint of economic efficiency. 
C)  the community generally suffers an exactly offsetting external cost from the production of the good. 
D)  the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed.

Question 2

Assume demand is held constant and supply increases. The result is a decrease in the equilibrium price and an increase in the equilibrium quantity of the item bought and sold.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following are not methods of dealing with externalities?

Accepted Answer

A)  Relying on voluntary compliance. 
B)  Taxing the output of industries that pollute. 
C)  Creating legal environmental standards. 
D)  Increasing public spending on cleanup/reduction. 
A)  Relying on voluntary compliance. 
B)  Taxing the output of industries that pollute. 
C)  Creating legal environmental standards. 
D)  Increasing public spending on cleanup/reduction.

Question 4

A market consequence of a price floor program is that:

Accepted Answer

A)  a shortage of the product will develop. 
B)  producers will stop supplying the product. 
C)  some rationing device must then be instituted. 
D)  a surplus of the product will develop. 
E)  there will be an excess demand for the product. 
A)  a shortage of the product will develop. 
B)  producers will stop supplying the product. 
C)  some rationing device must then be instituted. 
D)  a surplus of the product will develop. 
E)  there will be an excess demand for the product.

Question 5

Suppose that the average equilibrium monthly rental price of apartments and rooms in a college town had been steady at $600, but then the college expanded enrollment from 10,000 to 12,000. Suddenly there is a shortage of rental housing at the prevailing price of $600. Which of the following is most likely to be true? ​

Accepted Answer

A)  ​The shortage occurred because demand increased, and a new market equilibrium will result in higher rental prices and more rental units available on the market. 
B)  ​The shortage occurred because supply increased, and a new market equilibrium will result in lower rental prices and fewer rental units available on the market. 
C)  ​The shortage occurred because demand decreased, and a new market equilibrium will result in lower rental prices and fewer rental units available on the market. 
D)  ​The shortage occurred because demand increased, and a new market equilibrium will result in higher rental prices and fewer rental units available on the market. 
A)  ​The shortage occurred because demand increased, and a new market equilibrium will result in higher rental prices and more rental units available on the market. 
B)  ​The shortage occurred because supply increased, and a new market equilibrium will result in lower rental prices and fewer rental units available on the market. 
C)  ​The shortage occurred because demand decreased, and a new market equilibrium will result in lower rental prices and fewer rental units available on the market. 
D)  ​The shortage occurred because demand increased, and a new market equilibrium will result in higher rental prices and fewer rental units available on the market.

Question 6

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen?

Accepted Answer

A)  The quantity of milk demanded will increase. 
B)  The quantity of milk supplied will decrease. 
C)  There will be a surplus of milk. 
D)  There will be a shortage of milk. 
A)  The quantity of milk demanded will increase. 
B)  The quantity of milk supplied will decrease. 
C)  There will be a surplus of milk. 
D)  There will be a shortage of milk.

Question 7

When there are positive externalities associated with the consumption of a good, we can expect the market:

Accepted Answer

A)  demand curve to lie above the social demand curve. 
B)  demand curve to lie below the social demand curve. 
C)  supply curve to lie above the social supply curve. 
D)  supply curve to lie below the social supply curve. 
E)  demand curve to lie below the social supply curve. 
A)  demand curve to lie above the social demand curve. 
B)  demand curve to lie below the social demand curve. 
C)  supply curve to lie above the social supply curve. 
D)  supply curve to lie below the social supply curve. 
E)  demand curve to lie below the social supply curve.

Question 8

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will result in an output that is too:

Accepted Answer

A)  large and a price that is too high. 
B)  large and a price that is too low. 
C)  small and a price that is too high. 
D)  small and a price that is too low. 
A)  large and a price that is too high. 
B)  large and a price that is too low. 
C)  small and a price that is too high. 
D)  small and a price that is too low.

Question 9

If Congress decides to increase the tax per pack paid by sellers of cigarettes, other things being equal, the price of cigarettes will rise. This rise in prices can be attributed to a(n):

Accepted Answer

A)  upward movement along the supply curve for cigarettes. 
B)  rightward shift of the supply curve for cigarettes. 
C)  upward movement along the demand curve for cigarettes. 
D)  leftward shift of the supply curve for cigarettes. 
A)  upward movement along the supply curve for cigarettes. 
B)  rightward shift of the supply curve for cigarettes. 
C)  upward movement along the demand curve for cigarettes. 
D)  leftward shift of the supply curve for cigarettes.

Question 10

A cost or benefit of a good imposed on people other than the consumers or producer of a good is called a(n):

Accepted Answer

A)  public good. 
B)  merit good. 
C)  private good. 
D)  externality. 
A)  public good. 
B)  merit good. 
C)  private good. 
D)  externality.

Question 11

If the demand for 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.

Question 12

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

Accepted Answer

A)  The demand for beef would increase, increasing beef prices. 
B)  The demand for beef would decrease, decreasing beef prices. 
C)  The supply of beef would increase, decreasing beef prices. 
D)  The supply of beef would decrease, increasing beef prices. 
A)  The demand for beef would increase, increasing beef prices. 
B)  The demand for beef would decrease, decreasing beef prices. 
C)  The supply of beef would increase, decreasing beef prices. 
D)  The supply of beef would decrease, increasing beef prices.

Question 13

Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:

Accepted Answer

A)  price and quantity would be too high. 
B)  price would be too low and quantity would be too high. 
C)  price and quantity would be too low. 
D)  price would be too high and quantity would be too low. 
E)  price and quantity would be just right. 
A)  price and quantity would be too high. 
B)  price would be too low and quantity would be too high. 
C)  price and quantity would be too low. 
D)  price would be too high and quantity would be too low. 
E)  price and quantity would be just right.

Question 14

An example of a price ceiling would be:

Accepted Answer

A)  a ration coupon. 
B)  a guarantee of a target price for farm products. 
C)  parity pricing. 
D)  rent control. 
E)  the soil bank program. 
A)  a ration coupon. 
B)  a guarantee of a target price for farm products. 
C)  parity pricing. 
D)  rent control. 
E)  the soil bank program.

Question 15

Which of the following is not a common effect of imposing a rent control?

Accepted Answer

A)  Discriminatory practices by landlords. 
B)  More time on waiting lists and searching for housing. 
C)  A "black market" for rentals. 
D)  An excess supply of rentals at the controlled price. 
A)  Discriminatory practices by landlords. 
B)  More time on waiting lists and searching for housing. 
C)  A "black market" for rentals. 
D)  An excess supply of rentals at the controlled price.

Question 16

​In a market without government interference, the price is free to move the equilibrium.

Accepted Answer

A) True 
 B)False

Question 17

If there is a decrease in demand for lettuce, we would expect:

Accepted Answer

A)  both the price and quantity sold to increase. 
B)  both the price and quantity sold to decrease. 
C)  the price to decrease and the quantity sold to increase. 
D)  the price to increase and the quantity sold to decrease. 
A)  both the price and quantity sold to increase. 
B)  both the price and quantity sold to decrease. 
C)  the price to decrease and the quantity sold to increase. 
D)  the price to increase and the quantity sold to decrease.

Question 18

Exhibit 4-3 Supply and demand curves  
-Beginning from an equilibrium at point E2 in Exhibit 4-3, an increase in demand for good X, other things being equal, would move the equilibrium point to:

Accepted Answer

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

Question 19

Exhibit 4-2 Supply and demand curves   ​
-In Exhibit 4-2, a decrease in quantity demanded would cause a movement from which equilibrium point to another, other things being equal?

Accepted Answer

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

Question 20

A technological breakthrough lowers the cost of manufacturing DVDs. As a result, the market changes to a new equilibrium because of a(n):

Accepted Answer

A)  upward movement along the demand curve for DVDs. 
B)  rightward shift in the demand curve for DVDs. 
C)  rightward shift in the supply curve for DVDs. 
D)  shortage of DVDs. 
A)  upward movement along the demand curve for DVDs. 
B)  rightward shift in the demand curve for DVDs. 
C)  rightward shift in the supply curve for DVDs. 
D)  shortage of DVDs.

When the consumption of a good generates an external benefit:

Assume demand is held constant and supply increases. The result is a decrease in the equilibrium price and an increase in the equilibrium quantity of the item bought and sold.

Which of the following are not methods of dealing with externalities?

A market consequence of a price floor program is that:

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen?

When there are positive externalities associated with the consumption of a good, we can expect the market:

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will result in an output that is too:

If Congress decides to increase the tax per pack paid by sellers of cigarettes, other things being equal, the price of cigarettes will rise. This rise in prices can be attributed to a(n):

A cost or benefit of a good imposed on people other than the consumers or producer of a good is called a(n):

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

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:

An example of a price ceiling would be:

Which of the following is not a common effect of imposing a rent control?

In a market without government interference, the price is free to move the equilibrium.

If there is a decrease in demand for lettuce, we would expect:

Exhibit 4-3 Supply and demand curves -Beginning from an equilibrium at point E₂ in Exhibit 4-3, an increase in demand for good X, other things being equal, would move the equilibrium point to:

Exhibit 4-2 Supply and demand curves -In Exhibit 4-2, a decrease in quantity demanded would cause a movement from which equilibrium point to another, other things being equal?

A technological breakthrough lowers the cost of manufacturing DVDs. As a result, the market changes to a new equilibrium because of a(n):

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

When the consumption of a good generates an external benefit:

Assume demand is held constant and supply increases. The result is a decrease in the equilibrium price and an increase in the equilibrium quantity of the item bought and sold.

Which of the following are not methods of dealing with externalities?

A market consequence of a price floor program is that:

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen?

When there are positive externalities associated with the consumption of a good, we can expect the market:

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will result in an output that is too:

If Congress decides to increase the tax per pack paid by sellers of cigarettes, other things being equal, the price of cigarettes will rise. This rise in prices can be attributed to a(n):

A cost or benefit of a good imposed on people other than the consumers or producer of a good is called a(n):

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

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:

An example of a price ceiling would be:

Which of the following is not a common effect of imposing a rent control?

​In a market without government interference, the price is free to move the equilibrium.

If there is a decrease in demand for lettuce, we would expect:

Exhibit 4-3 Supply and demand curves -Beginning from an equilibrium at point E2 in Exhibit 4-3, an increase in demand for good X, other things being equal, would move the equilibrium point to:

Exhibit 4-2 Supply and demand curves ​ -In Exhibit 4-2, a decrease in quantity demanded would cause a movement from which equilibrium point to another, other things being equal?

A technological breakthrough lowers the cost of manufacturing DVDs. As a result, the market changes to a new equilibrium because of a(n):

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

In a market without government interference, the price is free to move the equilibrium.

Exhibit 4-3 Supply and demand curves -Beginning from an equilibrium at point E₂ in Exhibit 4-3, an increase in demand for good X, other things being equal, would move the equilibrium point to:

Exhibit 4-2 Supply and demand curves -In Exhibit 4-2, a decrease in quantity demanded would cause a movement from which equilibrium point to another, other things being equal?