Question 1

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen?

Accepted Answer

A) The quantity of milk demanded will increase. 
B) The quantity of milk supplied will decrease. 
C) There will be a surplus of milk. 
D) There will be a shortage of milk. 
A) The quantity of milk demanded will increase. 
B) The quantity of milk supplied will decrease. 
C) There will be a surplus of milk. 
D) There will be a shortage of milk.

Question 2

For a public good, only one user can consume the good.

Accepted Answer

A) True 
 B)False

Question 3

When the consumption of a good generates an external benefit:

Accepted Answer

A) the private benefit consumers receive from the good will be higher than the true social benefit. 
B) too much of the good will tend to be produced from the viewpoint of economic efficiency. 
C) the community generally suffers an exactly offsetting external cost from the production of the good. 
D) the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed. 
A) the private benefit consumers receive from the good will be higher than the true social benefit. 
B) too much of the good will tend to be produced from the viewpoint of economic efficiency. 
C) the community generally suffers an exactly offsetting external cost from the production of the good. 
D) the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed.

Question 4

Which of the following are not methods of dealing with externalities?

Accepted Answer

A) Relying on voluntary compliance. 
B) Taxing the output of industries that pollute. 
C) Creating legal environmental standards. 
D) Increasing public spending on cleanup\reduction. 
A) Relying on voluntary compliance. 
B) Taxing the output of industries that pollute. 
C) Creating legal environmental standards. 
D) Increasing public spending on cleanup\reduction.

Question 5

One method of correcting for ____ externalities is to create a ____ to make sure the market accounts for all costs and benefits.

Accepted Answer

A) market failure; tax 
B) negative; tax 
C) positive; mechanism 
D) positive; tax 
E) negative; free market 
A) market failure; tax 
B) negative; tax 
C) positive; mechanism 
D) positive; tax 
E) negative; free market

Question 6

Nonsmoking sections in restaurants are designed to remove ____ from a market ____.

Accepted Answer

A) smoke; with food service 
B) third parties; for food service 
C) externalities; with public goods 
D) third parties; externality 
E) nonsmokers; for food service 
A) smoke; with food service 
B) third parties; for food service 
C) externalities; with public goods 
D) third parties; externality 
E) nonsmokers; for food service

Question 7

Which of the following is the most likely result of an increase in the minimum wage?

Accepted Answer

A) An increase in the employment of unskilled workers. 
B) A decrease in the number of workers seeking minimum wage jobs. 
C) An increase in the demand for unskilled workers. 
D) A decrease in the employment of unskilled workers. 
A) An increase in the employment of unskilled workers. 
B) A decrease in the number of workers seeking minimum wage jobs. 
C) An increase in the demand for unskilled workers. 
D) A decrease in the employment of unskilled workers.

Question 8

Price floors typically improve market efficiency.

Accepted Answer

A) True 
 B)False

Question 9

A price floor that sets the price of a good above market equilibrium will cause:

Accepted Answer

A) a decrease in quantity demanded of the good. 
B) an increase in quantity supplied of the good. 
C) a surplus of the good. 
D) all of these. 
A) a decrease in quantity demanded of the good. 
B) an increase in quantity supplied of the good. 
C) a surplus of the good. 
D) all of these.

Question 10

If each of us relied exclusively on the market to determine what to buy, we would probably end up with few, if any:

Accepted Answer

A) streetlights. 
B) strawberries. 
C) CDs. 
D) raincoats. 
E) televisions. 
A) streetlights. 
B) strawberries. 
C) CDs. 
D) raincoats. 
E) televisions.

Question 11

Which of the following is a property of a public good?

Accepted Answer

A) A public good is free from externalities. 
B) Many individuals benefit simultaneously. 
C) A public good is not subject to free riders. 
D) A public good is established by law. 
A) A public good is free from externalities. 
B) Many individuals benefit simultaneously. 
C) A public good is not subject to free riders. 
D) A public good is established by law.

Question 12

A decrease in demand leads to a (an):

Accepted Answer

A) increased equilibrium price and an increased equilibrium quantity. 
B) decreased equilibrium price and a decreased equilibrium quantity. 
C) decreased equilibrium price and an increased equilibrium quantity. 
D) increased equilibrium price and a decreased equilibrium quantity. 
A) increased equilibrium price and an increased equilibrium quantity. 
B) decreased equilibrium price and a decreased equilibrium quantity. 
C) decreased equilibrium price and an increased equilibrium quantity. 
D) increased equilibrium price and a decreased equilibrium quantity.

Question 13

Assume a price floor is set above the equilibrium price. The result is a shortage.

Accepted Answer

A) True 
 B)False

Question 14

It's easy for a private firm to provide a public good because of free riders.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Which of the following is not a solution to the problem of negative externalities due to pollution?

Accepted Answer

A) Create private property rights. 
B) Levy pollution taxes. 
C) Create obligatory controls. 
D) Reward the production of these products through subsidies. 
E) Establish strict limits on the amount of pollution allowed. 
A) Create private property rights. 
B) Levy pollution taxes. 
C) Create obligatory controls. 
D) Reward the production of these products through subsidies. 
E) Establish strict limits on the amount of pollution allowed.

Question 17

Exhibit 4-10 Supply and demand data for apricots
  In Exhibit 4-10, assume that the government initially sets a price floor of $4 for apricots, and then removes the $4 price floor. What effect will this price change have?

Accepted Answer

A) The price of apricots will rise. 
B) The quantity of apricots demanded will fall. 
C) The quantity of apricots supplied will decline. 
D) Quantity supplied will continue to exceed quantity demanded. 
A) The price of apricots will rise. 
B) The quantity of apricots demanded will fall. 
C) The quantity of apricots supplied will decline. 
D) Quantity supplied will continue to exceed quantity demanded.

Question 18

A hurricane destroyed the peach crop in South Carolina. Shortly thereafter the price of peaches rose significantly. These events suggest that a(n):

Accepted Answer

A) decrease in the supply of peaches caused the price of peaches to rise. 
B) increase in the supply of peaches caused the price of peaches to rise. 
C) increase in demand caused the price of peaches to rise. 
D) decrease in demand caused the price of peaches to rise. 
A) decrease in the supply of peaches caused the price of peaches to rise. 
B) increase in the supply of peaches caused the price of peaches to rise. 
C) increase in demand caused the price of peaches to rise. 
D) decrease in demand caused the price of peaches to rise.

Question 19

A price ceiling set below the equilibrium price creates a shortage.

Accepted Answer

A) True 
 B)False

Question 20

In the case of negative externalities in production, the firm's internal costs:

Accepted Answer

A) exceed the external costs. 
B) are less than the external costs. 
C) equal the external costs. 
D) understate the true cost of producing the product. 
E) overstate the true cost of producing the product. 
A) exceed the external costs. 
B) are less than the external costs. 
C) equal the external costs. 
D) understate the true cost of producing the product. 
E) overstate the true cost of producing the product.

Exam 4: Markets in Action

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen?

For a public good, only one user can consume the good.

When the consumption of a good generates an external benefit:

Which of the following are not methods of dealing with externalities?

One method of correcting for ____ externalities is to create a ____ to make sure the market accounts for all costs and benefits.

Nonsmoking sections in restaurants are designed to remove ____ from a market ____.

Which of the following is the most likely result of an increase in the minimum wage?

Price floors typically improve market efficiency.

A price floor that sets the price of a good above market equilibrium will cause:

If each of us relied exclusively on the market to determine what to buy, we would probably end up with few, if any:

Which of the following is a property of a public good?

A decrease in demand leads to a (an):

Assume a price floor is set above the equilibrium price. The result is a shortage.

It's easy for a private firm to provide a public good because of free riders.

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

Which of the following is not a solution to the problem of negative externalities due to pollution?

Exhibit 4-10 Supply and demand data for apricots In Exhibit 4-10, assume that the government initially sets a price floor of $4 for apricots, and then removes the $4 price floor. What effect will this price change have?

A hurricane destroyed the peach crop in South Carolina. Shortly thereafter the price of peaches rose significantly. These events suggest that a(n):

A price ceiling set below the equilibrium price creates a shortage.

In the case of negative externalities in production, the firm's internal costs:

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

One method of correcting for externalities is to create a to make sure the market accounts for all costs and benefits.

Nonsmoking sections in restaurants are designed to remove from a market .