Question 1

Which of the following is a public good?

Accepted Answer

A) Pencil. 
B) Apple. 
C) Light house. 
D) Gun. 
A) Pencil. 
B) Apple. 
C) Light house. 
D) Gun.

Question 2

John paints the exterior of his house and, as a result, his neighbor Christine is able to sell her home for $5,000 more than she could have before. John's house painting:

Accepted Answer

A) creates a negative externality for Christine. 
B) shows John is a free rider. 
C) results in an efficient market outcome for both. 
D) creates a positive externality for Christine. 
E) was poorly done. 
A) creates a negative externality for Christine. 
B) shows John is a free rider. 
C) results in an efficient market outcome for both. 
D) creates a positive externality for Christine. 
E) was poorly done.

Question 3

A price ceiling:

Accepted Answer

A) is the lowest price that the law will allow to be charged in the market. 
B) is the highest price that the law will allow to be charged in the market. 
C) is the price that must be charged in the market. 
D) would be imposed if the government believes the market equilibrium price is too low. 
E) would only be applicable in the case of non-essential goods. 
A) is the lowest price that the law will allow to be charged in the market. 
B) is the highest price that the law will allow to be charged in the market. 
C) is the price that must be charged in the market. 
D) would be imposed if the government believes the market equilibrium price is too low. 
E) would only be applicable in the case of non-essential goods.

Question 4

There are apartments in Chicago whose rooftops overlook Wrigley Field. On game day you can find free riders on the roof enjoying ____.

Accepted Answer

A) free property rights 
B) an externality 
C) a public good 
D) excess utility 
A) free property rights 
B) an externality 
C) a public good 
D) excess utility

Question 5

People who enjoy the benefits of a public good without paying for them are called:

Accepted Answer

A) spillover parties. 
B) external consumers. 
C) free riders. 
D) antitrust violators. 
A) spillover parties. 
B) external consumers. 
C) free riders. 
D) antitrust violators.

Question 6

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 7

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 8

A price ceiling that sets the price of a good below market equilibrium will cause:

Accepted Answer

A) An increase in quantity demanded of the good. 
B) A decrease in quantity supplied of the good. 
C) A shortage of the good. 
D) All of these. 
A) An increase in quantity demanded of the good. 
B) A decrease in quantity supplied of the good. 
C) A shortage of the good. 
D) All of these.

Question 9

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

Accepted Answer

A) Cars. 
B) Education. 
C) Radios. 
D) Air traffic control. 
A) Cars. 
B) Education. 
C) Radios. 
D) Air traffic control.

Question 10

Assume that the production of a good imposes external costs upon third parties. If the price and quantity of this good is set by supply and demand the price will be too:

Accepted Answer

A) high and quantity too low for efficient resource allocation. 
B) low and quantity too low for efficient resource allocation. 
C) low and quantity too high for efficient resource allocation. 
D) high and quantity too high for efficient resource allocation. 
A) high and quantity too low for efficient resource allocation. 
B) low and quantity too low for efficient resource allocation. 
C) low and quantity too high for efficient resource allocation. 
D) high and quantity too high for efficient resource allocation.

Question 11

Over a ten year period, the monthly charge for cellular phone service decreased from $120 per month to $30 per month. At the same time, the number of subscribers increased from less than 10 million to more than 75 million. Which of the following provides the best explanation for these changes?

Accepted Answer

A) An increase in consumer income over this ten year period 
B) A reduction in the price of residential phone service, a substitute for cellular phone service 
C) An increase in the wages of workers in the cellular phone industry 
D) Technological improvements that reduced the cost of supplying cellular phone service 
A) An increase in consumer income over this ten year period 
B) A reduction in the price of residential phone service, a substitute for cellular phone service 
C) An increase in the wages of workers in the cellular phone industry 
D) Technological improvements that reduced the cost of supplying cellular phone service

Question 12

Suppose prices for new homes have risen, yet sales of new homes have also risen. We can conclude that:

Accepted Answer

A) the demand for new homes has risen. 
B) the law of demand has been violated. 
C) new firms have entered the construction industry. 
D) construction firms must be facing higher costs. 
A) the demand for new homes has risen. 
B) the law of demand has been violated. 
C) new firms have entered the construction industry. 
D) construction firms must be facing higher costs.

Question 13

A cost imposed on people other than the consumers of a good or service is a:

Accepted Answer

A) price floor. 
B) negative externality. 
C) positive externality. 
D) price externality. 
A) price floor. 
B) negative externality. 
C) positive externality. 
D) price externality.

Question 14

A side effect of a price floor set above the equilibrium price is:

Accepted Answer

A) the new price is below equilibrium price. 
B) an excess supply of the good is created. 
C) an excess demand for the good is created. 
D) the supply of the good decreases. 
E) the demand for the good increases. 
A) the new price is below equilibrium price. 
B) an excess supply of the good is created. 
C) an excess demand for the good is created. 
D) the supply of the good decreases. 
E) the demand for the good increases.

Question 15

A black market may arise when government imposes a price ceiling.

Accepted Answer

A) True 
 B)False

Question 16

Suppose a price ceiling is set by the government below the market equilibrium price. Which of the following will result?

Accepted Answer

A) The demand curve will shift to the left. 
B) The quantity demanded will exceed the quantity supplied. 
C) The quantity supplied will exceed the quantity demanded. 
D) There will be a surplus. 
A) The demand curve will shift to the left. 
B) The quantity demanded will exceed the quantity supplied. 
C) The quantity supplied will exceed the quantity demanded. 
D) There will be a surplus.

Question 17

The existence of an externality is proof that there is a(n):

Accepted Answer

A) market failure. 
B) undervaluation of a good. 
C) undervaluation of a cost. 
D) property dispute. 
E) free-rider problem 
A) market failure. 
B) undervaluation of a good. 
C) undervaluation of a cost. 
D) property dispute. 
E) free-rider problem

Question 18

Assume a price floor is set above the equilibrium price. The result is a surplus.

Accepted Answer

A) True 
 B)False

Question 19

Exhibit 4-3 Supply and demand curves   The market shown in Exhibit 4-3 is initially in equilibrium at point E4. Union negotiations result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

Accepted Answer

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

Question 20

Which of the following is a public good?

Accepted Answer

A) An economics lecture. 
B) A television set. 
C) Higher education. 
D) Housing. 
E) Clean air 
A) An economics lecture. 
B) A television set. 
C) Higher education. 
D) Housing. 
E) Clean air

Exam 4: Markets in Action

Which of the following is a public good?

John paints the exterior of his house and, as a result, his neighbor Christine is able to sell her home for $5,000 more than she could have before. John's house painting:

A price ceiling:

There are apartments in Chicago whose rooftops overlook Wrigley Field. On game day you can find free riders on the roof enjoying ____.

People who enjoy the benefits of a public good without paying for them are called:

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

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:

A price ceiling that sets the price of a good below market equilibrium will cause:

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

Assume that the production of a good imposes external costs upon third parties. If the price and quantity of this good is set by supply and demand the price will be too:

Over a ten year period, the monthly charge for cellular phone service decreased from $120 per month to $30 per month. At the same time, the number of subscribers increased from less than 10 million to more than 75 million. Which of the following provides the best explanation for these changes?

Suppose prices for new homes have risen, yet sales of new homes have also risen. We can conclude that:

A cost imposed on people other than the consumers of a good or service is a:

A side effect of a price floor set above the equilibrium price is:

A black market may arise when government imposes a price ceiling.

Suppose a price ceiling is set by the government below the market equilibrium price. Which of the following will result?

The existence of an externality is proof that there is a(n):

Assume a price floor is set above the equilibrium price. The result is a surplus.

Exhibit 4-3 Supply and demand curves The market shown in Exhibit 4-3 is initially in equilibrium at point E4. Union negotiations result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

Which of the following is a public good?

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 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 4-3 Supply and demand curves The market shown in Exhibit 4-3 is initially in equilibrium at point E₄. Union negotiations result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?