Question 1

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

Accepted Answer

A) market price will decrease, and market quantity exchanged could increase, decrease, or remain unchanged. 
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 could increase, decrease, or remain unchanged. 
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.

Question 2

Rent controls create distortions in the housing market by:

Accepted Answer

A) increasing rents received by landlords 
B) raising property values. 
C) encouraging landlords to overspend for maintenance. 
D) discouraging new housing construction. 
E) increasing the supply of housing in the long run. 
A) increasing rents received by landlords 
B) raising property values. 
C) encouraging landlords to overspend for maintenance. 
D) discouraging new housing construction. 
E) increasing the supply of housing in the long run.

Question 3

Which of the following is an example of a pure public good?

Accepted Answer

A) A bus. 
B) A mall. 
C) A teddy bear. 
D) An army. 
E) An automobile. 
A) A bus. 
B) A mall. 
C) A teddy bear. 
D) An army. 
E) An automobile.

Question 4

Exhibit 4-9 Data on supply and demand
  In Exhibit 4-9, if a price ceiling is set at $1.50 the market result after adjustment is:

Accepted Answer

A) a shortage of 150 units. 
B) a surplus of 100 units. 
C) shortage of 100 units. 
D) equilibrium at 200 units. 
A) a shortage of 150 units. 
B) a surplus of 100 units. 
C) shortage of 100 units. 
D) equilibrium at 200 units.

Question 5

Denise is thinking about setting up a butterfly garden in her backyard. She estimates that it will cost her $2,000 to purchase and install special plants and an irrigation system to attract butterflies. The benefit she expects to receive is $1,800. In addition, neighbor Billy will receive a benefit of $150 and neighbor Sammy will receive a benefit of $100. From this, we can conclude that:

Accepted Answer

A) butterflies are a negative externality for Billy and Sammy. 
B) Denise will set up the butterfly garden without any help from her free-rider neighbors. 
C) if Sammy refuses to contribute to the butterfly garden, he will be unable to enjoy its benefits if it is built. 
D) if Billy refuses to contribute to the butterfly garden, Denise will not have one. 
E) if Billy and Sammy contribute the amounts at which they value the butterfly garden, Denise will set it up. 
A) butterflies are a negative externality for Billy and Sammy. 
B) Denise will set up the butterfly garden without any help from her free-rider neighbors. 
C) if Sammy refuses to contribute to the butterfly garden, he will be unable to enjoy its benefits if it is built. 
D) if Billy refuses to contribute to the butterfly garden, Denise will not have one. 
E) if Billy and Sammy contribute the amounts at which they value the butterfly garden, Denise will set it up.

Question 6

If there is a decrease in demand for lettuce, we would expect:

Accepted Answer

A) both the price and quantity sold to increase. 
B) both the price and quantity sold to decrease. 
C) the price to decrease and the quantity sold to increase. 
D) the price to increase and the quantity sold to decrease. 
A) both the price and quantity sold to increase. 
B) both the price and quantity sold to decrease. 
C) the price to decrease and the quantity sold to increase. 
D) the price to increase and the quantity sold to decrease.

Question 7

Assuming supply is held constant, an increase in demand for a product will cause an increase in the equilibrium price and the amount bought and sold.

Accepted Answer

A) True 
 B)False

Question 8

If the cost of fertilizer rises, then the price of corn will:

Accepted Answer

A) rise. 
B) fall. 
C) remain unchanged. 
D) react unpredictably. 
A) rise. 
B) fall. 
C) remain unchanged. 
D) react unpredictably.

Question 9

Either an increase in demand with the supply curve held constant or a decrease in supply with the demand curve held constant will raise a market's equilibrium price.

Accepted Answer

A) True 
 B)False

Question 10

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

Question 11

An increase in consumers' incomes will have what effect on the equilibrium in the restaurant meals market?

Accepted Answer

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

Question 12

If the free market is called upon to provide public goods, then:

Accepted Answer

A) there will more goods provided than is optimal. 
B) there will be fewer goods provided than is optimal. 
C) the market will provide the optimal number of goods. 
D) the market price will be correct, but the optimal amount of output will not be produced. 
E) the firms will earn excess profit. 
A) there will more goods provided than is optimal. 
B) there will be fewer goods provided than is optimal. 
C) the market will provide the optimal number of goods. 
D) the market price will be correct, but the optimal amount of output will not be produced. 
E) the firms will earn excess profit.

Question 13

Exhibit 4-7 Demand and supply schedules for movie tickets
  In Exhibit 4-7, the equilibrium price of a movie ticket is:

Accepted Answer

A) $10. 
B) $8. 
C) $6. 
D) $4. 
E) $2. 
A) $10. 
B) $8. 
C) $6. 
D) $4. 
E) $2.

Question 14

Which of the following is the best example of an action that imposes an external cost?

Accepted Answer

A) Wear and tear on your car as the result of frequent use. 
B) Deterioration in the average quality of a house you own as the result of poor maintenance. 
C) Water pollution from an upstream factory that increases the cost of providing clean water to downstream residents. 
D) A rose garden on your property from which your neighbor gets much enjoyment. 
A) Wear and tear on your car as the result of frequent use. 
B) Deterioration in the average quality of a house you own as the result of poor maintenance. 
C) Water pollution from an upstream factory that increases the cost of providing clean water to downstream residents. 
D) A rose garden on your property from which your neighbor gets much enjoyment.

Question 15

Exhibit 4-2 Supply and demand curves   Beginning from an equilibrium at point E1 in Exhibit 4-2, an increase in demand for good X, other things being equal, would move the equilibrium point to:

Accepted Answer

A) E1, no change. 
B) E2. 
C) E3. 
D) E4. 
A) E1, no change. 
B) E2. 
C) E3. 
D) E4.

Question 16

Price ceilings set below the equilibrium create:

Accepted Answer

A) externalities. 
B) unemployment. 
C) shortages. 
D) surpluses. 
A) externalities. 
B) unemployment. 
C) shortages. 
D) surpluses.

Question 17

A market consequence of the establishment of a price floor program is that price will be:

Accepted Answer

A) too low, and an excess supply will result. 
B) too low, and a shortage will result. 
C) too high, and an excess supply will result. 
D) too high, and a shortage will result. 
E) below the market equilibrium price. 
A) too low, and an excess supply will result. 
B) too low, and a shortage will result. 
C) too high, and an excess supply will result. 
D) too high, and a shortage will result. 
E) below the market equilibrium price.

Question 18

Which of the following would generate positive externalities?

Accepted Answer

A) Flu vaccinations. 
B) Farmers' use of pesticides. 
C) Cigarette smoking in elevators. 
D) Litter left at the beach. 
E) An unkept front yard. 
A) Flu vaccinations. 
B) Farmers' use of pesticides. 
C) Cigarette smoking in elevators. 
D) Litter left at the beach. 
E) An unkept front yard.

Question 19

A cost or benefit of a good imposed on people other than the consumers or producer of a good is called a(n):

Accepted Answer

A) public good. 
B) merit good. 
C) private good. 
D) externality. 
A) public good. 
B) merit good. 
C) private good. 
D) externality.

Question 20

Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:

Accepted Answer

A) price and quantity would be too high. 
B) price would be too low and quantity would be too high. 
C) price and quantity would be too low. 
D) price would be too high and quantity would be too low. 
E) price and quantity would be just right. 
A) price and quantity would be too high. 
B) price would be too low and quantity would be too high. 
C) price and quantity would be too low. 
D) price would be too high and quantity would be too low. 
E) price and quantity would be just right.

Exam 4: Markets in Action

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

Rent controls create distortions in the housing market by:

Which of the following is an example of a pure public good?

Exhibit 4-9 Data on supply and demand In Exhibit 4-9, if a price ceiling is set at $1.50 the market result after adjustment is:

If there is a decrease in demand for lettuce, we would expect:

Assuming supply is held constant, an increase in demand for a product will cause an increase in the equilibrium price and the amount bought and sold.

If the cost of fertilizer rises, then the price of corn will:

Either an increase in demand with the supply curve held constant or a decrease in supply with the demand curve held constant will raise a market's equilibrium price.

Exhibit 4-4 Supply and demand curves for good X An increase in buyers' income, assuming good X is a normal good, combined with an increase 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 consumers' incomes will have what effect on the equilibrium in the restaurant meals market?

If the free market is called upon to provide public goods, then:

Exhibit 4-7 Demand and supply schedules for movie tickets In Exhibit 4-7, the equilibrium price of a movie ticket is:

Which of the following is the best example of an action that imposes an external cost?

Exhibit 4-2 Supply and demand curves Beginning from an equilibrium at point E1 in Exhibit 4-2, an increase in demand for good X, other things being equal, would move the equilibrium point to:

Price ceilings set below the equilibrium create:

A market consequence of the establishment of a price floor program is that price will be:

Which of the following would generate positive externalities?

A cost or benefit of a good imposed on people other than the consumers or producer of a good is called a(n):

Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:

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 Beginning from an equilibrium at point E₁ in Exhibit 4-2, an increase in demand for good X, other things being equal, would move the equilibrium point to: