Question 1

Assume no price floor exists and a market has a given equilibrium. Then a price floor is established, which is above the market equilibrium. A shortage would result.

Accepted Answer

A) True 
 B)False

Question 2

Negative externalities result in unfair, excessively high prices.

Accepted Answer

A) True 
 B)False

Question 3

A vaccination shot provides a(n):

Accepted Answer

A) beneficial opportunity cost. 
B) positive externality. 
C) out-resourcing benefit. 
D) managed-care opportunity benefit. 
A) beneficial opportunity cost. 
B) positive externality. 
C) out-resourcing benefit. 
D) managed-care opportunity benefit.

Question 4

Which of the following is not a characteristic of a public good?

Accepted Answer

A) It is scarce. 
B) It is not diminished in amount as additional people consume the product. 
C) Its benefits cannot be withheld from anyone. 
D) It is free. 
E) It yields widespread benefits. 
A) It is scarce. 
B) It is not diminished in amount as additional people consume the product. 
C) Its benefits cannot be withheld from anyone. 
D) It is free. 
E) It yields widespread benefits.

Question 5

Public goods are overproduced in the marketplace.

Accepted Answer

A) True 
 B)False

Question 6

If you were a government official and wanted to raise the price of wheat, which of the following actions would you take?

Accepted Answer

A) Take wheat from government storage and sell it. 
B) Encourage farmers to use more fertilizer. 
C) Lower the price of rye. 
D) Subsidize purchases of farm equipment. 
E) Encourage farmers to grow less wheat. 
A) Take wheat from government storage and sell it. 
B) Encourage farmers to use more fertilizer. 
C) Lower the price of rye. 
D) Subsidize purchases of farm equipment. 
E) Encourage farmers to grow less wheat.

Question 7

Which of the following would raise both the equilibrium price and the equilibrium quantity of strawberries?

Accepted Answer

A) A decrease in the demand for strawberries. 
B) An increase in the demand for strawberries. 
C) A decrease in the supply of strawberries. 
D) An increase in the supply of strawberries. 
A) A decrease in the demand for strawberries. 
B) An increase in the demand for strawberries. 
C) A decrease in the supply of strawberries. 
D) An increase in the supply of strawberries.

Question 8

An economic justification for government providing public goods and services is that many people can benefit regardless of whether they pay or not.

Accepted Answer

A) True 
 B)False

Question 9

In the presence of positive externalities, a free market will choose a price which is too ____ and produce an output which is too ____ compared with the social optimum.

Accepted Answer

A) high; low 
B) low; low 
C) high; high 
D) low; high 
E) marginal; inequitable 
A) high; low 
B) low; low 
C) high; high 
D) low; high 
E) marginal; inequitable

Question 10

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 11

The Yankee Candle Company, in Hatfield, Massachusetts, makes thousands of scented candles each day. The factory emits the odor of the candles it produces, some of which smell quite nice. On days when they make strawberry candles the townspeople really enjoy the smell. On days when they make potpourri scented candles, people close their windows and don't go outside. What can we infer about the scented candle market?

Accepted Answer

A) b and c. 
B) Strawberry candles are more expensive than is socially optimum. 
C) Potpourri candles are priced too low to be socially optimum. 
D) Candle production generates only negative externalities. 
E) Candle production technologies are inefficient. 
A) b and c. 
B) Strawberry candles are more expensive than is socially optimum. 
C) Potpourri candles are priced too low to be socially optimum. 
D) Candle production generates only negative externalities. 
E) Candle production technologies are inefficient.

Question 12

Exhibit 4-10 Supply and demand data for apricots  
In Exhibit 4-10, the equilibrium price is:

Accepted Answer

A) $1. 
B) $2. 
C) $3. 
D) $4. 
A) $1. 
B) $2. 
C) $3. 
D) $4.

Question 13

Which of the following would be a private cost to a cigarette manufacturer?

Accepted Answer

A) Price of leaf tobacco. 
B) Cost to the government of the hospital expenses of indigent smokers. 
C) Increased risk of cancer to the nonsmoking passengers in the smoker's carpool. 
D) Price of a pack of cigarettes. 
E) The loss in utility received because the smoker must stand outside her office building in the winter to smoke. 
A) Price of leaf tobacco. 
B) Cost to the government of the hospital expenses of indigent smokers. 
C) Increased risk of cancer to the nonsmoking passengers in the smoker's carpool. 
D) Price of a pack of cigarettes. 
E) The loss in utility received because the smoker must stand outside her office building in the winter to smoke.

Question 14

If the demand curve increases while the supply curve remains unchanged, the equilibrium price would increase.

Accepted Answer

A) True 
 B)False

Question 15

If a good gives rise to substantial external benefits to society that are associated with its production and\or consumption then the good likely has too few resources devoted to its production.

Accepted Answer

A) True 
 B)False

Question 16

A third party is a person, or persons, who:

Accepted Answer

A) consume goods produced from at least two intermediate inputs. 
B) avoids the transactions of the two principal parties. 
C) takes risks to avoid externalities. 
D) internalizes the costs of market failure. 
E) is imposed upon by the activity of others. 
A) consume goods produced from at least two intermediate inputs. 
B) avoids the transactions of the two principal parties. 
C) takes risks to avoid externalities. 
D) internalizes the costs of market failure. 
E) is imposed upon by the activity of others.

Question 17

Exhibit 4-1 Supply and demand data
  A decrease in consumer income decreases the demand for compact discs. As a result of the change to a new equilibrium, there is a(n):

Accepted Answer

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

Question 18

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 19

If the cost of producing a good rises for sellers, equilibrium price rises because of a decrease in demand.

Accepted Answer

A) True 
 B)False

Question 20

Suppose the market for "soda X" is in equilibrium. If the FDA announced today that this soda has been proven to cause a fatal disease, what would be most likely to happen to the equilibrium price and equilibrium quantity of soda X?

Accepted Answer

A) Price increases and quantity increases 
B) Price decreases and quantity increases 
C) Price decreases and quantity decreases 
D) No change in price and quantity 
A) Price increases and quantity increases 
B) Price decreases and quantity increases 
C) Price decreases and quantity decreases 
D) No change in price and quantity

Exam 4: Markets in Action

Assume no price floor exists and a market has a given equilibrium. Then a price floor is established, which is above the market equilibrium. A shortage would result.

Negative externalities result in unfair, excessively high prices.

A vaccination shot provides a(n):

Which of the following is not a characteristic of a public good?

Public goods are overproduced in the marketplace.

If you were a government official and wanted to raise the price of wheat, which of the following actions would you take?

Which of the following would raise both the equilibrium price and the equilibrium quantity of strawberries?

An economic justification for government providing public goods and services is that many people can benefit regardless of whether they pay or not.

In the presence of positive externalities, a free market will choose a price which is too ____ and produce an output which is too ____ compared with the social optimum.

An externality is:

Exhibit 4-10 Supply and demand data for apricots In Exhibit 4-10, the equilibrium price is:

Which of the following would be a private cost to a cigarette manufacturer?

If the demand curve increases while the supply curve remains unchanged, the equilibrium price would increase.

If a good gives rise to substantial external benefits to society that are associated with its production and\or consumption then the good likely has too few resources devoted to its production.

A third party is a person, or persons, who:

Exhibit 4-1 Supply and demand data A decrease in consumer income decreases the demand for compact discs. As a result of the change to a new equilibrium, there is a(n):

A market consequence of a price floor program is that:

If the cost of producing a good rises for sellers, equilibrium price rises because of a decrease in demand.

Suppose the market for "soda X" is in equilibrium. If the FDA announced today that this soda has been proven to cause a fatal disease, what would be most likely to happen to the equilibrium price and equilibrium quantity of soda X?

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

In the presence of positive externalities, a free market will choose a price which is too and produce an output which is too compared with the social optimum.