Question 1

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. B

Question 2

Which of the following is not an example of market failure?

Accepted Answer

A) Lack of competition. 
B) Externalities. 
C) Equilibrium. 
D) Extreme income inequality. 
A) Lack of competition. 
B) Externalities. 
C) Equilibrium. 
D) Extreme income inequality. C

Question 3

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. A

Question 4

Exhibit 4-9 Data on supply and demand
  In Exhibit 4-9 the equilibrium price and quantity in the market are:

Accepted Answer

A) $5.50, 200. 
B) $1.50, 300. 
C) $2.00, 100. 
D) $1.00, 200. 
A) $5.50, 200. 
B) $1.50, 300. 
C) $2.00, 100. 
D) $1.00, 200.

Question 5

Third-party beneficiaries are called:

Accepted Answer

A) polluters. 
B) property owners. 
C) free riders. 
D) efficient market. 
E) losers. 
A) polluters. 
B) property owners. 
C) free riders. 
D) efficient market. 
E) losers.

Question 6

Exhibit 4-8 Demand and supply curves   In Exhibit 4-8, a movement from A to B in which price has decreased and quantity has increased is best explained by a(n):

Accepted Answer

A) increase in supply and demand. 
B) decrease in supply and demand. 
C) increase in supply that dominates a decrease in demand. 
D) increase in demand that dominates a decrease supply. 
E) decrease in demand that dominates an increase in supply. 
A) increase in supply and demand. 
B) decrease in supply and demand. 
C) increase in supply that dominates a decrease in demand. 
D) increase in demand that dominates a decrease supply. 
E) decrease in demand that dominates an increase in supply.

Question 7

If consumers switch away from eating margarine at the same time that the number of margarine suppliers increases, then:

Accepted Answer

A) these two effects cancel each other out and there is no change in the margarine market equilibrium. 
B) the demand curve shifts left and the supply curve shifts right. 
C) there is a margarine price increase. 
D) there is an excess demand for margarine. 
E) the equilibrium quantity of margarine must increase. 
A) these two effects cancel each other out and there is no change in the margarine market equilibrium. 
B) the demand curve shifts left and the supply curve shifts right. 
C) there is a margarine price increase. 
D) there is an excess demand for margarine. 
E) the equilibrium quantity of margarine must increase.

Question 8

Which of the following is the best example of a public good?

Accepted Answer

A) Apples. 
B) Cars. 
C) Education. 
D) National defense. 
A) Apples. 
B) Cars. 
C) Education. 
D) National defense.

Question 9

Using supply and demand analysis, customers will stand in line for gasoline when a price ceiling is in force, even if the price ceiling is at a level higher than the equilibrium price.

Accepted Answer

A) True 
 B)False

Question 10

Why do negative externalities like pollution result in inefficiency?

Accepted Answer

A) Because producers artificially restrict their supply. 
B) Because producers ignore the external costs they impose on third-parties. 
C) Because producers manufacture more goods than people can afford to buy. 
D) Because producers will receive an unequal distribution of profits. 
A) Because producers artificially restrict their supply. 
B) Because producers ignore the external costs they impose on third-parties. 
C) Because producers manufacture more goods than people can afford to buy. 
D) Because producers will receive an unequal distribution of profits.

Question 11

A good that provides external benefits to society has:

Accepted Answer

A) too few resources devoted to its production. 
B) too many resources devoted to its production. 
C) the optimal resources devoted to its production. 
D) not provided profits to producers of the good. 
A) too few resources devoted to its production. 
B) too many resources devoted to its production. 
C) the optimal resources devoted to its production. 
D) not provided profits to producers of the good.

Question 12

A price floor is:

Accepted Answer

A) the lowest price a producer will accept. 
B) the lowest price a consumer will pay. 
C) a minimum price set by the government above equilibrium price. 
D) a maximum price set by the government above equilibrium price 
E) usually set equal to equilibrium price. 
A) the lowest price a producer will accept. 
B) the lowest price a consumer will pay. 
C) a minimum price set by the government above equilibrium price. 
D) a maximum price set by the government above equilibrium price 
E) usually set equal to equilibrium price.

Question 13

Assume a ceiling price is set above the equilibrium price. The eventual result is a shortage.

Accepted Answer

A) True 
 B)False

Question 14

Exhibit 4-4 Supply and demand curves for good X   A decrease in buyers' income, assuming good X is a normal good, combined with a decrease 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 E4. 
A) E1 to E2. 
B) E1 to E3. 
C) E3 to E2. 
D) E1 to E4.

Question 15

An increase in demand and a decrease in supply cause which of the following?

Accepted Answer

A) Equilibrium price change is indeterminate. 
B) Equilibrium quantity decreases. 
C) Equilibrium price falls. 
D) Equilibrium price rises. 
E) Equilibrium quantity increases. 
A) Equilibrium price change is indeterminate. 
B) Equilibrium quantity decreases. 
C) Equilibrium price falls. 
D) Equilibrium price rises. 
E) Equilibrium quantity increases.

Question 16

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.

Question 17

Each year around Valentine's Day, we would expect:

Accepted Answer

A) the demand for roses to increase. 
B) the price of roses to increase. 
C) the quantity of roses sold to increase. 
D) all of these. 
A) the demand for roses to increase. 
B) the price of roses to increase. 
C) the quantity of roses sold to increase. 
D) all of these.

Question 18

Exhibit 4-3 Supply and demand curves   The market shown in Exhibit 4-3 is initially in equilibrium at E4. Changes in market conditions result in a new equilibrium at E3. This change is stated as a(n):

Accepted Answer

A) increase in supply and an increase in quantity demanded. 
B) increase in supply and a decrease in demand. 
C) decrease in supply and a decrease in quantity demanded. 
D) increase in demand an increase in supply. 
A) increase in supply and an increase in quantity demanded. 
B) increase in supply and a decrease in demand. 
C) decrease in supply and a decrease in quantity demanded. 
D) increase in demand an increase in supply.

Question 19

Exhibit 4-3 Supply and demand curves   In Exhibit 4-3, an increase in quantity supplied would cause a movement from which equilibrium point to another, other things being equal?

Accepted Answer

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

Question 20

Exhibit 4-6 Demand and supply curves   If market supply decreases and, simultaneously, market demand increases, the new equilibrium will show:

Accepted Answer

A) market price will decrease, and market quantity exchanged will increase. 
B) market price will increase, and market quantity exchanged will decrease. 
C) market price will increase, and the quantity exchanged could increase, decrease, or remain the same. 
D) market price could increase, decrease, or remain the same, and quantity exchanged will increase. 
E) market price will increase, decrease, or remain the same, and quantity exchanged will decrease. 
A) market price will decrease, and market quantity exchanged will increase. 
B) market price will increase, and market quantity exchanged will decrease. 
C) market price will increase, and the quantity exchanged could increase, decrease, or remain the same. 
D) market price could increase, decrease, or remain the same, and quantity exchanged will increase. 
E) market price will increase, decrease, or remain the same, and quantity exchanged will decrease.

Exam 4: Markets in Action

Which of the following is not a market failure?

Which of the following is not an example of market failure?

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:

Exhibit 4-9 Data on supply and demand In Exhibit 4-9 the equilibrium price and quantity in the market are:

Third-party beneficiaries are called:

Exhibit 4-8 Demand and supply curves In Exhibit 4-8, a movement from A to B in which price has decreased and quantity has increased is best explained by a(n):

If consumers switch away from eating margarine at the same time that the number of margarine suppliers increases, then:

Which of the following is the best example of a public good?

Using supply and demand analysis, customers will stand in line for gasoline when a price ceiling is in force, even if the price ceiling is at a level higher than the equilibrium price.

Why do negative externalities like pollution result in inefficiency?

A good that provides external benefits to society has:

A price floor is:

Assume a ceiling price is set above the equilibrium price. The eventual result is a shortage.

Exhibit 4-4 Supply and demand curves for good X A decrease in buyers' income, assuming good X is a normal good, combined with a decrease 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 increase in demand and a decrease in supply cause which of the following?

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

Each year around Valentine's Day, we would expect:

Exhibit 4-3 Supply and demand curves The market shown in Exhibit 4-3 is initially in equilibrium at E4. Changes in market conditions result in a new equilibrium at E3. This change is stated as a(n):

Exhibit 4-3 Supply and demand curves In Exhibit 4-3, an increase in quantity supplied would cause a movement from which equilibrium point to another, other things being equal?

Exhibit 4-6 Demand and supply curves If market supply decreases and, simultaneously, market demand increases, the new equilibrium will show:

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Filters

Exhibit 4-3 Supply and demand curves The market shown in Exhibit 4-3 is initially in equilibrium at E₄. Changes in market conditions result in a new equilibrium at E₃. This change is stated as a(n):