Question 1

If we observe a decrease in the price of a good and an increase in the amount of the good bought and sold, this could be explained by a(n):

Accepted Answer

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

Question 2

When there is market failure due to a negative externality,

Accepted Answer

A) innocent people will suffer since it cannot be corrected. 
B) setting price equal to marginal social cost will solve it. 
C) the free market produces too little output. 
D) externalities have been taken into account. 
E) the best solution eliminates the externality entirely. 
A) innocent people will suffer since it cannot be corrected. 
B) setting price equal to marginal social cost will solve it. 
C) the free market produces too little output. 
D) externalities have been taken into account. 
E) the best solution eliminates the externality entirely.

Question 3

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 4

A price floor is a price set below equilibrium by government and it creates a shortage.

Accepted Answer

A) True 
 B)False

Question 5

The excess supply created when governments impose a price floor is:

Accepted Answer

A) shrinking as the floor rises. 
B) the difference between the old quantity supplied and new quantity demanded. 
C) the difference between the new quantity supplied and the old quantity demanded. 
D) the difference between the new quantity supplied and the new quantity demanded. 
E) actually efficient because prices are higher for suppliers. 
A) shrinking as the floor rises. 
B) the difference between the old quantity supplied and new quantity demanded. 
C) the difference between the new quantity supplied and the old quantity demanded. 
D) the difference between the new quantity supplied and the new quantity demanded. 
E) actually efficient because prices are higher for suppliers.

Question 6

Suppose a new law requires all piercing studios to pass tougher licensing tests and to begin using more costly sterilization methods. Other things constant, this law would cause:

Accepted Answer

A) an increase in the supply of piercings and a lower price for piercings. 
B) an increase in the supply of piercings and a higher price for piercings. 
C) a decrease in the supply of piercings and a higher price for piercings. 
D) a decrease in the supply of piercings and a lower price for piercings. 
A) an increase in the supply of piercings and a lower price for piercings. 
B) an increase in the supply of piercings and a higher price for piercings. 
C) a decrease in the supply of piercings and a higher price for piercings. 
D) a decrease in the supply of piercings and a lower price for piercings.

Question 7

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 8

Market failure can result from market outcomes that:

Accepted Answer

A) result in too few resources devoted to a good. 
B) result in too many resources devoted to a good. 
C) may justify government intervention. 
D) all of these. 
A) result in too few resources devoted to a good. 
B) result in too many resources devoted to a good. 
C) may justify government intervention. 
D) all of these.

Question 9

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

Accepted Answer

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

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that a below-equilibrium price established by rent control:

Accepted Answer

A) creates a surplus of rental housing. 
B) promotes a rapid increase in the future supply of housing. 
C) results in poor service and quality deterioration of many rental units. 
D) leads to a reduction in housing discrimination against minorities. 
A) creates a surplus of rental housing. 
B) promotes a rapid increase in the future supply of housing. 
C) results in poor service and quality deterioration of many rental units. 
D) leads to a reduction in housing discrimination against minorities.

Question 12

A public good may be defined as any good or service that:

Accepted Answer

A) must be provided to citizens who are most able to benefit from it. 
B) must be distributed to all citizens in equal shares. 
C) excludes free riders. 
D) none of these. 
A) must be provided to citizens who are most able to benefit from it. 
B) must be distributed to all citizens in equal shares. 
C) excludes free riders. 
D) none of these.

Question 13

Exhibit 4-2 Supply and demand curves   The market shown in Exhibit 4-2 is initially in equilibrium at E1. Changes in market conditions result in a new equilibrium at E2. 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 and 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 and an increase in supply.

Question 14

Which of the following is an example of a negative externality?

Accepted Answer

A) A Japanese company begins to produce cars, which causes American workers to lose their jobs. 
B) An employee of a chemical company spills acid on his arm, causing severe damage. 
C) John plants fruit trees in his front yard, which attracts bees, which sting neighbor Mary. 
D) Sally buys coffee at McDonald's, spills some on her, and burns her arm. 
E) Jack attempts to fix his roof, falls off, and breaks his leg. 
A) A Japanese company begins to produce cars, which causes American workers to lose their jobs. 
B) An employee of a chemical company spills acid on his arm, causing severe damage. 
C) John plants fruit trees in his front yard, which attracts bees, which sting neighbor Mary. 
D) Sally buys coffee at McDonald's, spills some on her, and burns her arm. 
E) Jack attempts to fix his roof, falls off, and breaks his leg.

Question 15

If a price ceiling is imposed, then:

Accepted Answer

A) the market supply curve will shift to the right. 
B) the market demand will shift to the left. 
C) a shortage of product will result. 
D) the government would be required to buy-up the surplus product. 
E) the market equilibrium price is below the level the government wishes to achieve. 
A) the market supply curve will shift to the right. 
B) the market demand will shift to the left. 
C) a shortage of product will result. 
D) the government would be required to buy-up the surplus product. 
E) the market equilibrium price is below the level the government wishes to achieve.

Question 16

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 17

The reason individual homeowners usually do not hire a private contractor to fill the potholes on their street is because:

Accepted Answer

A) it costs too much. 
B) the value to the neighborhood exceeds the cost of repair. 
C) others who use the street will be free riders. 
D) they do not trust the government. 
E) there are negative externalities associated with the repair. 
A) it costs too much. 
B) the value to the neighborhood exceeds the cost of repair. 
C) others who use the street will be free riders. 
D) they do not trust the government. 
E) there are negative externalities associated with the repair.

Question 18

Exhibit 4-4 Supply and demand curves for good X   Which of the graphs in Exhibit 4-4 represents a decrease in the price of a factor of production?

Accepted Answer

A) Graph A. 
B) Graph B. 
C) Graph C. 
D) None of these. 
A) Graph A. 
B) Graph B. 
C) Graph C. 
D) None of these.

Question 19

If a chemical factory causes noxious fumes to be emitted in the neighborhood, a third party would be:

Accepted Answer

A) workers at the factory. 
B) factory managers. 
C) chemical customers. 
D) local homeowners. 
E) owners of the factory. 
A) workers at the factory. 
B) factory managers. 
C) chemical customers. 
D) local homeowners. 
E) owners of the factory.

Question 20

Exhibit 4-10 Supply and demand data for apricots   Which of the following would occur if the government sets a price floor of $4 in the market shown in Exhibit 4-10?

Accepted Answer

A) There would be a shortage of apricots. 
B) Buyers would not purchase all of the apricots that are grown. 
C) Buyers would purchase more apricots than are currently being supplied. 
D) Farmers would reduce the number of acres allocated to the growing of apricots. 
A) There would be a shortage of apricots. 
B) Buyers would not purchase all of the apricots that are grown. 
C) Buyers would purchase more apricots than are currently being supplied. 
D) Farmers would reduce the number of acres allocated to the growing of apricots.

Exam 4: Markets in Action

If we observe a decrease in the price of a good and an increase in the amount of the good bought and sold, this could be explained by a(n):

When there is market failure due to a negative externality,

An example of a price ceiling would be:

A price floor is a price set below equilibrium by government and it creates a shortage.

The excess supply created when governments impose a price floor is:

Suppose a new law requires all piercing studios to pass tougher licensing tests and to begin using more costly sterilization methods. Other things constant, this law would cause:

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):

Market failure can result from market outcomes that:

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

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

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that a below-equilibrium price established by rent control:

A public good may be defined as any good or service that:

Exhibit 4-2 Supply and demand curves The market shown in Exhibit 4-2 is initially in equilibrium at E1. Changes in market conditions result in a new equilibrium at E2. This change is stated as a(n):

Which of the following is an example of a negative externality?

If a price ceiling is imposed, then:

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

The reason individual homeowners usually do not hire a private contractor to fill the potholes on their street is because:

Exhibit 4-4 Supply and demand curves for good X Which of the graphs in Exhibit 4-4 represents a decrease in the price of a factor of production?

If a chemical factory causes noxious fumes to be emitted in the neighborhood, a third party would be:

Exhibit 4-10 Supply and demand data for apricots Which of the following would occur if the government sets a price floor of $4 in the market shown in Exhibit 4-10?

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 4-2 Supply and demand curves The market shown in Exhibit 4-2 is initially in equilibrium at E₁. Changes in market conditions result in a new equilibrium at E₂. This change is stated as a(n):