Question 1

A third party is:

Accepted Answer

A) the party to which a contractual agreement is meant to benefit. 
B) a person, or persons, who are unintentionally affected by a market transaction. 
C) the third person in a three-way contract. 
D) the person who owns the property right in a contract. 
E) when the government attempts to mediate a dispute between management and labor. 
A) the party to which a contractual agreement is meant to benefit. 
B) a person, or persons, who are unintentionally affected by a market transaction. 
C) the third person in a three-way contract. 
D) the person who owns the property right in a contract. 
E) when the government attempts to mediate a dispute between management and labor.

Question 2

Exhibit 4-6 Demand and supply curves   In Exhibit 4-6, the demand curve has shifted from D1 to D2 and, simultaneously, the supply curve has shifted from S1 to S2. Describe these actions in this market.

Accepted Answer

A) Market supply has decreased, and market demand has increased. 
B) Market supply has increased, and market demand has decreased. 
C) Market supply has decreased, and market demand has decreased. 
D) The quantity supplied has decreased, and the quantity demanded has increased. 
E) Market supply has increased, and market demand has increased. 
A) Market supply has decreased, and market demand has increased. 
B) Market supply has increased, and market demand has decreased. 
C) Market supply has decreased, and market demand has decreased. 
D) The quantity supplied has decreased, and the quantity demanded has increased. 
E) Market supply has increased, and market demand has increased.

Question 3

The city of Logan Square needs $40 million for a network of streetlights. There are 20,000 residents in the Logan Square neighborhood, meaning the cost for each resident is $2,000. Psychiatrist Denise Miller refuses to donate $2,000 towards the project. This is an example of the problems encountered with:

Accepted Answer

A) consumer goods. 
B) capital goods. 
C) rival goods. 
D) public goods. 
E) private goods. 
A) consumer goods. 
B) capital goods. 
C) rival goods. 
D) public goods. 
E) private goods.

Question 4

Collusive action among producers creates higher prices for consumers because it:

Accepted Answer

A) causes overproduction and inefficiency. 
B) creates negative externalities. 
C) forces producers to be more competitive. 
D) allows producers to artificially restrict their supply. 
A) causes overproduction and inefficiency. 
B) creates negative externalities. 
C) forces producers to be more competitive. 
D) allows producers to artificially restrict their supply.

Question 5

One of the problems created by price floors set above the equilibrium is:

Accepted Answer

A) consumers complain about high prices. 
B) firms don't have incentives to reduce costs. 
C) the creation of surplus. 
D) how to cope with the shortages. 
E) the impact on firm profitability. 
A) consumers complain about high prices. 
B) firms don't have incentives to reduce costs. 
C) the creation of surplus. 
D) how to cope with the shortages. 
E) the impact on firm profitability.

Question 6

Ceteris paribus , if consumer tastes change so that more people are eating broccoli, then what will happen to the market equilibrium for cabbage, a substitute good for broccoli?

Accepted Answer

A) Price will increase, and quantity will increase. 
B) Price and quantity will stay the same. 
C) Price will decrease, and quantity will increase. 
D) Price will increase, and quantity will decrease. 
E) Price will decrease, and quantity will decrease. 
A) Price will increase, and quantity will increase. 
B) Price and quantity will stay the same. 
C) Price will decrease, and quantity will increase. 
D) Price will increase, and quantity will decrease. 
E) Price will decrease, and quantity will decrease.

Question 7

The government would use production taxes to remedy the problem of substantial:

Accepted Answer

A) internal benefits of production. 
B) external benefits of production. 
C) external costs of production. 
D) external benefits of consumption 
E) external costs of consumption. 
A) internal benefits of production. 
B) external benefits of production. 
C) external costs of production. 
D) external benefits of consumption 
E) external costs of consumption.

Question 8

An increase in both supply and demand causes which of the following?

Accepted Answer

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

Question 9

In order to avoid the free-rider problem, which of the following goods is best provided by the government and paid for with tax dollars?

Accepted Answer

A) Automobiles. 
B) Lighthouses. 
C) Bread. 
D) Prescription drugs. 
E) Windows. 
A) Automobiles. 
B) Lighthouses. 
C) Bread. 
D) Prescription drugs. 
E) Windows.

Question 10

Sometimes the government deals with externalities by creating laws to regulate behavior instead of using taxes to correct the market failure. So, requiring auto manufacturers to install a device called a catalytic converter which removes some toxins from exhaust may be preferable to a gas tax that reduces driving levels. This route is often preferred because:

Accepted Answer

A) c and e. 
B) it requires less technological development. 
C) it doesn't penalize drivers of clean cars. 
D) only car drivers pay for the externality. 
E) the cost of the externality is unknown. 
A) c and e. 
B) it requires less technological development. 
C) it doesn't penalize drivers of clean cars. 
D) only car drivers pay for the externality. 
E) the cost of the externality is unknown.

Question 11

Ceteris paribus , an increase in the supply of a good causes which of the following?

Accepted Answer

A) Lowers the equilibrium price, and reduces the quantity bought and sold. 
B) Raises the equilibrium price, and raises the quantity bought and sold. 
C) Raises the equilibrium price, and increases the quantity bought and sold. 
D) Lowers the equilibrium price, and increases the quantity bought and sold. 
E) Equilibrium price and equilibrium quantity change are indeterminate. 
A) Lowers the equilibrium price, and reduces the quantity bought and sold. 
B) Raises the equilibrium price, and raises the quantity bought and sold. 
C) Raises the equilibrium price, and increases the quantity bought and sold. 
D) Lowers the equilibrium price, and increases the quantity bought and sold. 
E) Equilibrium price and equilibrium quantity change are indeterminate.

Question 12

A free rider is a person who:

Accepted Answer

A) is harmed by another's actions. 
B) is subject to a negative externality. 
C) receives benefits from someone else's action but does not pay for them. 
D) pays less than the full value for a product. 
E) won the state lottery. 
A) is harmed by another's actions. 
B) is subject to a negative externality. 
C) receives benefits from someone else's action but does not pay for them. 
D) pays less than the full value for a product. 
E) won the state lottery.

Question 13

Exhibit 4-4 Supply and demand curves for good X   An increase in the wage rate paid to workers producing good X would be represented by which of the graphs in Exhibit 4-4?

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 14

Externalities get their name from the fact that they are:

Accepted Answer

A) b and d. 
B) unintended. 
C) short lived. 
D) outside of decisions. 
E) outside of marketplace. 
A) b and d. 
B) unintended. 
C) short lived. 
D) outside of decisions. 
E) outside of marketplace.

Question 15

Consider the market for grapes. An increase in the wage paid to grape pickers will cause the:

Accepted Answer

A) demand curve for grapes to shift to the right, resulting in a higher equilibrium price for grapes and a reduction in the quantity consumed. 
B) demand curve for grapes to shift to the left, resulting in a lower equilibrium price for grapes and an increase in the quantity consumed. 
C) supply curve for grapes to shift to the left, resulting in a lower equilibrium price for grapes and a decrease in the quantity consumed. 
D) supply curve for grapes to shift to the left, resulting in a higher equilibrium price for grapes and a decrease in the quantity consumed. 
A) demand curve for grapes to shift to the right, resulting in a higher equilibrium price for grapes and a reduction in the quantity consumed. 
B) demand curve for grapes to shift to the left, resulting in a lower equilibrium price for grapes and an increase in the quantity consumed. 
C) supply curve for grapes to shift to the left, resulting in a lower equilibrium price for grapes and a decrease in the quantity consumed. 
D) supply curve for grapes to shift to the left, resulting in a higher equilibrium price for grapes and a decrease in the quantity consumed.

Question 16

Which of the following would decrease the price of packaged hot dogs?

Accepted Answer

A) An increase in the price of hot dog buns, a complement to packaged hot dogs. 
B) A decrease in the price of hamburger meat, a substitute for packaged hot dogs. 
C) A technological advance that lowers the cost of producing packaged hot dogs. 
D) All of these. 
A) An increase in the price of hot dog buns, a complement to packaged hot dogs. 
B) A decrease in the price of hamburger meat, a substitute for packaged hot dogs. 
C) A technological advance that lowers the cost of producing packaged hot dogs. 
D) All of these.

Question 17

Price floors are used as a method to:

Accepted Answer

A) ensure buyers that goods won't be cheaper tomorrow. 
B) see that production levels don't fall too low. 
C) guarantee there will be enough food for everyone. 
D) combat excess demand in the market. 
E) ensure sellers a minimum price for their goods. 
A) ensure buyers that goods won't be cheaper tomorrow. 
B) see that production levels don't fall too low. 
C) guarantee there will be enough food for everyone. 
D) combat excess demand in the market. 
E) ensure sellers a minimum price for their goods.

Question 18

Exhibit 4-8 Demand and supply curves   In Exhibit 4-8, a movement from A to C is best described as a(n):

Accepted Answer

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

Question 19

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 20

Price floors are instituted because the government wants to:

Accepted Answer

A) help consumers. 
B) help producers. 
C) raise tax revenue. 
D) prevent imports. 
E) increase demand. 
A) help consumers. 
B) help producers. 
C) raise tax revenue. 
D) prevent imports. 
E) increase demand.

Exam 4: Markets in Action

A third party is:

Exhibit 4-6 Demand and supply curves In Exhibit 4-6, the demand curve has shifted from D1 to D2 and, simultaneously, the supply curve has shifted from S1 to S2. Describe these actions in this market.

Collusive action among producers creates higher prices for consumers because it:

One of the problems created by price floors set above the equilibrium is:

Ceteris paribus , if consumer tastes change so that more people are eating broccoli, then what will happen to the market equilibrium for cabbage, a substitute good for broccoli?

The government would use production taxes to remedy the problem of substantial:

An increase in both supply and demand causes which of the following?

In order to avoid the free-rider problem, which of the following goods is best provided by the government and paid for with tax dollars?

Ceteris paribus , an increase in the supply of a good causes which of the following?

A free rider is a person who:

Exhibit 4-4 Supply and demand curves for good X An increase in the wage rate paid to workers producing good X would be represented by which of the graphs in Exhibit 4-4?

Externalities get their name from the fact that they are:

Consider the market for grapes. An increase in the wage paid to grape pickers will cause the:

Which of the following would decrease the price of packaged hot dogs?

Price floors are used as a method to:

Exhibit 4-8 Demand and supply curves In Exhibit 4-8, a movement from A to C is best described as a(n):

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

Price floors are instituted because the government wants to:

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 4-6 Demand and supply curves In Exhibit 4-6, the demand curve has shifted from D₁ to D₂ and, simultaneously, the supply curve has shifted from S₁ to S₂. Describe these actions in this market.