Question 1

A price floor (support price)set above equilibrium:

Accepted Answer

A) is a minimum legal price set by government above equilibrium. 
B) causes the quantity supplied to exceed the quantity demanded. 
C) creates a surplus. 
D) can represent the effect of a minimum wage. 
E) all of these. 
A) is a minimum legal price set by government above equilibrium. 
B) causes the quantity supplied to exceed the quantity demanded. 
C) creates a surplus. 
D) can represent the effect of a minimum wage. 
E) all of these.

Question 2

If the supply of 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 3

Consider the market for chicken. Assuming that chicken and beef are substitutes, an increase in the price of beef will:

Accepted Answer

A) decrease the demand for chicken creating a lower price and a smaller amount of chicken purchased in the market. 
B) decrease the supply of chicken creating a higher price and a smaller amount of chicken purchased in the market. 
C) increase the demand for chicken creating a higher price and a greater amount of chicken purchased in the market. 
D) increase the supply of chicken creating a lower price and a greater amount of chicken purchased in the market. 
A) decrease the demand for chicken creating a lower price and a smaller amount of chicken purchased in the market. 
B) decrease the supply of chicken creating a higher price and a smaller amount of chicken purchased in the market. 
C) increase the demand for chicken creating a higher price and a greater amount of chicken purchased in the market. 
D) increase the supply of chicken creating a lower price and a greater amount of chicken purchased in the market.

Question 4

Exhibit 4-1 Supply and demand data   In Exhibit 4-1, suppose that a reduction in the price of an important input used to produce the good causes an increase in quantity supplied of 150 units at every price level. Assuming that demand does not change, the new equilibrium price will be:

Accepted Answer

A) $1.00. 
B) $1.50. 
C) $2.00. 
D) $2.50. 
A) $1.00. 
B) $1.50. 
C) $2.00. 
D) $2.50.

Question 5

Tammy installed a set of wind chimes in her backyard. She enjoys listening to the musical tones when the breeze hits them. Her neighbor Steven also enjoys the chimes, but her other neighbor Sally hates the constant noise. Tammy's wind chimes:

Accepted Answer

A) create a negative externality for Steven and a positive externality for Sally. 
B) are not related to the issue of property rights since all parties are homeowners. 
C) are an example of an efficient market since the benefits to one party are balanced by costs to another party. 
D) are a public good because all three parties can hear the wind chimes. 
E) create a positive externality for Steven and a negative externality for Sally. 
A) create a negative externality for Steven and a positive externality for Sally. 
B) are not related to the issue of property rights since all parties are homeowners. 
C) are an example of an efficient market since the benefits to one party are balanced by costs to another party. 
D) are a public good because all three parties can hear the wind chimes. 
E) create a positive externality for Steven and a negative externality for Sally.

Question 6

Suppose the government imposes a per unit tax on an item whose production process creates a negative externality. Suppose the tax is exactly the value of the marginal externality cost. If the government now uses the tax revenue to clean up pollution from this process, the market will:

Accepted Answer

A) have internalized all costs and benefits. 
B) be inefficient. 
C) be destroyed. 
D) not have failed. 
E) be subject to obligatory controls. 
A) have internalized all costs and benefits. 
B) be inefficient. 
C) be destroyed. 
D) not have failed. 
E) be subject to obligatory controls.

Question 7

Externalities are unintended costs or benefits that are imposed on unsuspecting people and that result from:

Accepted Answer

A) poor planning. 
B) intentional damages. 
C) excessive costs. 
D) excessive losses. 
E) the economic activity of others. 
A) poor planning. 
B) intentional damages. 
C) excessive costs. 
D) excessive losses. 
E) the economic activity of others.

Question 8

If the equilibrium price of good X is $4 and a price ceiling is imposed at $5, the result will be a(n):

Accepted Answer

A) depletion of inventories. 
B) shortage. 
C) surplus. 
D) equilibrium. 
A) depletion of inventories. 
B) shortage. 
C) surplus. 
D) equilibrium.

Question 9

Public goods differ from private goods in that:

Accepted Answer

A) they produce negative externalities. 
B) they are not scarce. 
C) their benefits cannot be denied to anyone. 
D) their consumption must be regulated by the government. 
E) their benefits are very narrow. 
A) they produce negative externalities. 
B) they are not scarce. 
C) their benefits cannot be denied to anyone. 
D) their consumption must be regulated by the government. 
E) their benefits are very narrow.

Question 10

A minimum wage that is set below the equilibrium wage will:

Accepted Answer

A) cause increased unemployment. 
B) have no effect on employment. 
C) cause the overall wage to increase. 
D) cause the overall wage to decrease. 
E) create more jobs. 
A) cause increased unemployment. 
B) have no effect on employment. 
C) cause the overall wage to increase. 
D) cause the overall wage to decrease. 
E) create more jobs.

Question 11

Which of the following is the best description of the effects of an increase in the supply of bread?

Accepted Answer

A) Consumers will pay more for bread. 
B) Bread prices will fall, and bread sales will rise. 
C) A permanent surplus of bread will remain on the market. 
D) Bakers will have higher marginal costs. 
A) Consumers will pay more for bread. 
B) Bread prices will fall, and bread sales will rise. 
C) A permanent surplus of bread will remain on the market. 
D) Bakers will have higher marginal costs.

Question 12

Assume no price ceiling exists and a market is in equilibrium. Then a price ceiling is established which is below the market equilibrium. What would result?

Accepted Answer

A) Shortage. 
B) Equilibrium. 
C) Surplus. 
D) Equity. 
A) Shortage. 
B) Equilibrium. 
C) Surplus. 
D) Equity.

Question 13

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

Accepted Answer

A) Price will increase, and quantity will decrease. 
B) Price will decrease, and quantity will decrease. 
C) Price will decrease, and quantity will increase. 
D) Price will increase, and quantity will increase. 
A) Price will increase, and quantity will decrease. 
B) Price will decrease, and quantity will decrease. 
C) Price will decrease, and quantity will increase. 
D) Price will increase, and quantity will increase.

Question 14

If it costs $2,000 to pick up the litter along a highway, then the cost of the externality is:

Accepted Answer

A) $0. 
B) more than $0, but less than $2,000. 
C) $2,000. 
D) more than $2,000, but finite. 
E) infinite. 
A) $0. 
B) more than $0, but less than $2,000. 
C) $2,000. 
D) more than $2,000, but finite. 
E) infinite.

Question 15

Exhibit 4-2 Supply and demand curves   In Exhibit 4-2, a decrease in quantity demanded would cause a movement from which equilibrium point to another, other things being equal?

Accepted Answer

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

Question 16

If an increase in the government-imposed minimum wage pushes the price (wage)of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

Accepted Answer

A) An increase in quantity of unskilled labor demanded. 
B) A decrease in the quantity of unskilled labor supplied. 
C) A shortage of unskilled labor. 
D) A surplus of unskilled labor (unemployment). 
A) An increase in quantity of unskilled labor demanded. 
B) A decrease in the quantity of unskilled labor supplied. 
C) A shortage of unskilled labor. 
D) A surplus of unskilled labor (unemployment).

Question 17

Which of the following is not an example of an externality?

Accepted Answer

A) Drunk drivers raise everyone's auto insurance premiums. 
B) The price of lumber increases as lumberjacks' wages increase. 
C) The neighbor's beautiful front yard increases your home value. 
D) Someone drives a car that emits thick black smoke. 
E) People who live near a bakery enjoy the smell of baked bread. 
A) Drunk drivers raise everyone's auto insurance premiums. 
B) The price of lumber increases as lumberjacks' wages increase. 
C) The neighbor's beautiful front yard increases your home value. 
D) Someone drives a car that emits thick black smoke. 
E) People who live near a bakery enjoy the smell of baked bread.

Question 18

Price ceilings are imposed if the government believes:

Accepted Answer

A) the market will not achieve an equilibrium price. 
B) the market equilibrium price is too low. 
C) an excess supply of the product exists. 
D) the market equilibrium price is too high. 
E) the demand will be less than the supply of the product. 
A) the market will not achieve an equilibrium price. 
B) the market equilibrium price is too low. 
C) an excess supply of the product exists. 
D) the market equilibrium price is too high. 
E) the demand will be less than the supply of the product.

Question 19

City streets, sewage systems, and police protection are all examples of:

Accepted Answer

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

Question 20

Exhibit 4-2 Supply and demand curves   In Exhibit 4-2 an increase in supply would cause a movement from which equilibrium point to another, other things being equal?

Accepted Answer

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

Exam 4: Markets in Action

A price floor (support price)set above equilibrium:

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

Consider the market for chicken. Assuming that chicken and beef are substitutes, an increase in the price of beef will:

Exhibit 4-1 Supply and demand data In Exhibit 4-1, suppose that a reduction in the price of an important input used to produce the good causes an increase in quantity supplied of 150 units at every price level. Assuming that demand does not change, the new equilibrium price will be:

Tammy installed a set of wind chimes in her backyard. She enjoys listening to the musical tones when the breeze hits them. Her neighbor Steven also enjoys the chimes, but her other neighbor Sally hates the constant noise. Tammy's wind chimes:

Suppose the government imposes a per unit tax on an item whose production process creates a negative externality. Suppose the tax is exactly the value of the marginal externality cost. If the government now uses the tax revenue to clean up pollution from this process, the market will:

Externalities are unintended costs or benefits that are imposed on unsuspecting people and that result from:

If the equilibrium price of good X is $4 and a price ceiling is imposed at $5, the result will be a(n):

Public goods differ from private goods in that:

A minimum wage that is set below the equilibrium wage will:

Which of the following is the best description of the effects of an increase in the supply of bread?

Assume no price ceiling exists and a market is in equilibrium. Then a price ceiling is established which is below the market equilibrium. What would result?

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

If it costs $2,000 to pick up the litter along a highway, then the cost of the externality is:

Exhibit 4-2 Supply and demand curves In Exhibit 4-2, a decrease in quantity demanded would cause a movement from which equilibrium point to another, other things being equal?

If an increase in the government-imposed minimum wage pushes the price (wage)of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

Which of the following is not an example of an externality?

Price ceilings are imposed if the government believes:

City streets, sewage systems, and police protection are all examples of:

Exhibit 4-2 Supply and demand curves In Exhibit 4-2 an increase in supply would cause a movement from which equilibrium point to another, other things being equal?

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

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