Question 1

Exhibit 4-4 Supply and demand curves for good X   An increase in the price of a complementary good would be represented in 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 2

Assume demand is held constant and supply increases. The result is a decrease in the equilibrium price and an increase in the equilibrium quantity of the item bought and sold.

Accepted Answer

A) True 
 B)False

Question 3

Market failure occurs when supply and demand curves only reflect:

Accepted Answer

A) private or market costs and benefits. 
B) external costs and benefits. 
C) external benefits. 
D) external costs. 
A) private or market costs and benefits. 
B) external costs and benefits. 
C) external benefits. 
D) external costs.

Question 4

Exhibit 4-8 Demand and supply curves   In Exhibit 4-8, a movement from A to B is best explained by:

Accepted Answer

A) an increase in income and in the number of suppliers. 
B) an increase in the price of other goods. 
C) an increase in the population. 
D) a decrease in income and an improvement in the technology used to produce the good. 
E) equilibrium quantity increases and the equilibrium price change is indeterminate. 
A) an increase in income and in the number of suppliers. 
B) an increase in the price of other goods. 
C) an increase in the population. 
D) a decrease in income and an improvement in the technology used to produce the good. 
E) equilibrium quantity increases and the equilibrium price change is indeterminate.

Question 5

Exhibit 4-7 Demand and supply schedules for movie tickets   In Exhibit 4-7, a 100 decrease in quantity demanded at every price level would cause the new equilibrium price to become:

Accepted Answer

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

Question 6

A price ceiling is set at $10, and the equilibrium market price is $8. Consumers will actually pay $8.

Accepted Answer

A) True 
 B)False

Question 7

Exhibit 4-2 Supply and demand curves   The market shown in Exhibit 4-2 is initially in equilibrium at point E1. Union negotiations for workers producing good X result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

Accepted Answer

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

Question 8

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

Accepted Answer

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

Question 9

Albert, Betty, Christine and David are all very good students. When they hold their study sessions, they often discuss very difficult concepts in great detail. Christine's roommate, Elizabeth, who takes completely different classes, still learns from the discussions of the others. This is the case of a(n)____, which ____ a ____.

Accepted Answer

A) public good; benefits; third party 
B) externality; imposes a cost on; free rider 
C) market failure; results from; third party 
D) free rider; benefits from; third party 
E) Externalities; benefits; third party 
A) public good; benefits; third party 
B) externality; imposes a cost on; free rider 
C) market failure; results from; third party 
D) free rider; benefits from; third party 
E) Externalities; benefits; third party

Question 10

Which of the following is a free rider?

Accepted Answer

A) Butch breeds the feared pit bulls, and his neighbors now erect fences around their property. 
B) Fred watches many public television programs, but he has never sent in a contribution. 
C) Barry steals candy from the store where he works. 
D) Betty regularly uses the local public library. 
E) Joe drives 20,000 miles a year on public streets, but he pays no more in taxes than Sam, who only drives 1,000 miles. 
A) Butch breeds the feared pit bulls, and his neighbors now erect fences around their property. 
B) Fred watches many public television programs, but he has never sent in a contribution. 
C) Barry steals candy from the store where he works. 
D) Betty regularly uses the local public library. 
E) Joe drives 20,000 miles a year on public streets, but he pays no more in taxes than Sam, who only drives 1,000 miles.

Question 11

Public goods are usually provided by:

Accepted Answer

A) private industry. 
B) the government. 
C) private citizens. 
D) internal markets 
E) local industry. 
A) private industry. 
B) the government. 
C) private citizens. 
D) internal markets 
E) local industry.

Question 12

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will result in an output that is too:

Accepted Answer

A) large and a price that is too high. 
B) large and a price that is too low. 
C) small and a price that is too high. 
D) small and a price that is too low. 
A) large and a price that is too high. 
B) large and a price that is too low. 
C) small and a price that is too high. 
D) small and a price that is too low.

Question 13

Which of the following is an example of market failure?

Accepted Answer

A) Public goods. 
B) Externalities. 
C) Lack of competition. 
D) all of these. 
A) Public goods. 
B) Externalities. 
C) Lack of competition. 
D) all of these.

Question 14

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

Accepted Answer

A) Planting flowers in your front yard. 
B) Talking loudly when others are trying to study economics. 
C) People donating money to charity. 
D) The price of bread increases. 
E) Accidentally pushing someone as you try to cross the street. 
A) Planting flowers in your front yard. 
B) Talking loudly when others are trying to study economics. 
C) People donating money to charity. 
D) The price of bread increases. 
E) Accidentally pushing someone as you try to cross the street.

Question 15

In a market without government interference, the price is free to move the equilibrium.

Accepted Answer

A) True 
 B)False

Question 16

One likely result of a price ceiling is that:

Accepted Answer

A) a surplus of product would result. 
B) the price charged in the market would be above the equilibrium price. 
C) the price charged in the market would be the equilibrium price. 
D) the available product must be rationed. 
E) the market supply curve will shift to the right. 
A) a surplus of product would result. 
B) the price charged in the market would be above the equilibrium price. 
C) the price charged in the market would be the equilibrium price. 
D) the available product must be rationed. 
E) the market supply curve will shift to the right.

Question 17

Examples of market failure include lack of competition, externalities, public goods, and income inequality.

Accepted Answer

A) True 
 B)False

Question 18

Which if the following is the best example of a public good?

Accepted Answer

A) Bread. 
B) Fish in the ocean. 
C) Scrambled satellite broadcasts. 
D) National defense. 
A) Bread. 
B) Fish in the ocean. 
C) Scrambled satellite broadcasts. 
D) National defense.

Question 19

A legally mandated minimum wage is an example of:

Accepted Answer

A) the invisible hand principle. 
B) a price floor. 
C) a price ceiling. 
D) a fringe benefit. 
A) the invisible hand principle. 
B) a price floor. 
C) a price ceiling. 
D) a fringe benefit.

Question 20

A public good is any good or service that users collectively consume and there is no way to bar free riders.

Accepted Answer

A) True 
 B)False

Exam 4: Markets in Action

Exhibit 4-4 Supply and demand curves for good X An increase in the price of a complementary good would be represented in which of the graphs in Exhibit 4-4?

Assume demand is held constant and supply increases. The result is a decrease in the equilibrium price and an increase in the equilibrium quantity of the item bought and sold.

Market failure occurs when supply and demand curves only reflect:

Exhibit 4-8 Demand and supply curves In Exhibit 4-8, a movement from A to B is best explained by:

Exhibit 4-7 Demand and supply schedules for movie tickets In Exhibit 4-7, a 100 decrease in quantity demanded at every price level would cause the new equilibrium price to become:

A price ceiling is set at $10, and the equilibrium market price is $8. Consumers will actually pay $8.

Exhibit 4-2 Supply and demand curves The market shown in Exhibit 4-2 is initially in equilibrium at point E1. Union negotiations for workers producing good X result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

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

Which of the following is a free rider?

Public goods are usually provided by:

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will result in an output that is too:

Which of the following is an example of market failure?

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

In a market without government interference, the price is free to move the equilibrium.

One likely result of a price ceiling is that:

Examples of market failure include lack of competition, externalities, public goods, and income inequality.

Which if the following is the best example of a public good?

A legally mandated minimum wage is an example of:

A public good is any good or service that users collectively consume and there is no way to bar free riders.

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 point E₁. Union negotiations for workers producing good X result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?