Question 1

When there are positive externalities associated with the consumption of a good, we can expect the market:

Accepted Answer

A) demand curve to lie above the social demand curve. 
B) demand curve to lie below the social demand curve. 
C) supply curve to lie above the social supply curve. 
D) supply curve to lie below the social supply curve. 
E) demand curve to lie below the social supply curve. 
A) demand curve to lie above the social demand curve. 
B) demand curve to lie below the social demand curve. 
C) supply curve to lie above the social supply curve. 
D) supply curve to lie below the social supply curve. 
E) demand curve to lie below the social supply curve.

Question 2

Suppose a wallet firm has been dumping its wastes into the local river. The government finds out and insists that the firm pay for the cost of the river cleanup. As a result, we can expect:

Accepted Answer

A) more wallets to be produced at a lower price. 
B) more wallets to be produced at a higher price. 
C) fewer wallets to be produced at a lower price. 
D) fewer wallets to be produced at a higher price. 
E) the same number of wallets to be produced at a higher price. 
A) more wallets to be produced at a lower price. 
B) more wallets to be produced at a higher price. 
C) fewer wallets to be produced at a lower price. 
D) fewer wallets to be produced at a higher price. 
E) the same number of wallets to be produced at a higher price.

Question 3

Exhibit 4-3 Supply and demand curves   Initially the market shown in Exhibit 4-3 is in equilibrium at P2, Q2 (E2). Changes in market conditions result in a new equilibrium at P2, Q4 (E4). This change is stated as a(n):

Accepted Answer

A) increase in supply and an increase in demand. 
B) increase in supply and a decrease in demand. 
C) decrease in demand and a decrease in supply. 
D) increase in demand with supply held constant at S2. 
A) increase in supply and an increase in demand. 
B) increase in supply and a decrease in demand. 
C) decrease in demand and a decrease in supply. 
D) increase in demand with supply held constant at S2.

Question 4

Discuss the impact of demand and supply changes on market equilibrium price and quantity. Express this graphically.

Accepted Answer

An increase in demand will increase equi

Question 5

Exhibit 4-9 Data on supply and demand   In Exhibit 4-9, which of the following would occur at a price of $2.00?

Accepted Answer

A) Inventories would put upward pressure on price. 
B) Quantity demanded exceeds quantity supplied, putting downward pressure on price. 
C) Inventories would put downward pressure on price. 
D) The surplus would be so small that there would be only slight downward pressure on price. 
A) Inventories would put upward pressure on price. 
B) Quantity demanded exceeds quantity supplied, putting downward pressure on price. 
C) Inventories would put downward pressure on price. 
D) The surplus would be so small that there would be only slight downward pressure on price.

Question 6

A price floor would be established in cases where the government believed the market equilibrium price would:

Accepted Answer

A) result in a surplus. 
B) be too high. 
C) result in a shortage. 
D) be too low. 
E) yield excess profits. 
A) result in a surplus. 
B) be too high. 
C) result in a shortage. 
D) be too low. 
E) yield excess profits.

Question 7

Suppose the government imposes rent control (a price ceiling)below the equilibrium price for rental housing. Which of the following could result?

Accepted Answer

A) Tenants risk breaking rent control law. 
B) The quality of existing rental housing deteriorates. 
C) Shortages. 
D) All of these. 
A) Tenants risk breaking rent control law. 
B) The quality of existing rental housing deteriorates. 
C) Shortages. 
D) All of these.

Question 8

From the standpoint of economic efficiency, competitive markets provide:

Accepted Answer

A) less of a public good than would be efficient. 
B) more of a public good than would be efficient. 
C) exactly the amount of a public good that is efficient. 
D) none of these. 
A) less of a public good than would be efficient. 
B) more of a public good than would be efficient. 
C) exactly the amount of a public good that is efficient. 
D) none of these.

Question 9

A public good will:

Accepted Answer

A) be efficiently provided by the free market as long as its total benefits exceed its total costs. 
B) be efficiently provided by the free market as long as its marginal benefits exceed its marginal costs. 
C) be provided in less than efficient quantities by the free market. 
D) be provided in efficient quantities by voluntary contributions. 
E) not be provided by the government. 
A) be efficiently provided by the free market as long as its total benefits exceed its total costs. 
B) be efficiently provided by the free market as long as its marginal benefits exceed its marginal costs. 
C) be provided in less than efficient quantities by the free market. 
D) be provided in efficient quantities by voluntary contributions. 
E) not be provided by the government.

Question 10

Higher gasoline prices would likely raise the price of large, gas-guzzling automobiles.

Accepted Answer

A) True 
 B)False

Question 11

An economic justification for government providing public goods and services is that many people can benefit regardless of whether they pay or not.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is not true ?

Accepted Answer

A) If marginal social cost and marginal private cost are the same, any externality that exists will be positive. 
B) If marginal externality costs are not zero, externalities exist. 
C) An expansion of property rights to include air quality and scenic beauty would bring some private markets close to a socially optimal equilibrium. 
D) The existence of pollution as the byproduct of a production or exchange process indicates a market failure. 
E) When municipal water supplies have heavy concentration of agricultural chemicals, it is probable that agricultural output from the area is produced in quantities greater than the socially optimal level. 
A) If marginal social cost and marginal private cost are the same, any externality that exists will be positive. 
B) If marginal externality costs are not zero, externalities exist. 
C) An expansion of property rights to include air quality and scenic beauty would bring some private markets close to a socially optimal equilibrium. 
D) The existence of pollution as the byproduct of a production or exchange process indicates a market failure. 
E) When municipal water supplies have heavy concentration of agricultural chemicals, it is probable that agricultural output from the area is produced in quantities greater than the socially optimal level.

Question 13

How would a decrease in consumer income affect the market for new automobiles?

Accepted Answer

A) Demand would decrease, leading to an increase in price and a reduction in quantity sold. 
B) Demand would decrease, leading to a reduction in price and a reduction in quantity sold. 
C) Demand would increase, leading to an increase in price and an increase in quantity sold. 
D) Demand would increase, leading to a reduction in price and an increase in quantity sold. 
A) Demand would decrease, leading to an increase in price and a reduction in quantity sold. 
B) Demand would decrease, leading to a reduction in price and a reduction in quantity sold. 
C) Demand would increase, leading to an increase in price and an increase in quantity sold. 
D) Demand would increase, leading to a reduction in price and an increase in quantity sold.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 4-3 Supply and demand curves   In Exhibit 4-3, an increase in demand 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) E1 to E4. 
A) E1 to E2. 
B) E1 to E3. 
C) E4 to E1. 
D) E1 to E4.

Question 16

There was an extensive black market (illegal market)for many consumer products in the United States during World War II. A likely explanation of the black market is that:

Accepted Answer

A) the prices of goods were artificially held down by price controls. 
B) black markets were legal during the war. 
C) goods were not subject to price controls. 
D) gasoline rationing greatly restricted civilians from driving to stores. 
A) the prices of goods were artificially held down by price controls. 
B) black markets were legal during the war. 
C) goods were not subject to price controls. 
D) gasoline rationing greatly restricted civilians from driving to stores.

Question 17

Exhibit 4-11 Data on supply and demand   Which of the following would occur if the government imposed a price floor (support price)of $4 per bushel in the wheat market shown in Exhibit 4-11?

Accepted Answer

A) Buyers would want to purchase more wheat than is supplied. 
B) Buyers would not purchase all of the wheat grown. 
C) Shortage of wheat would increase the price of wheat. 
D) Farmers would grow less wheat. 
A) Buyers would want to purchase more wheat than is supplied. 
B) Buyers would not purchase all of the wheat grown. 
C) Shortage of wheat would increase the price of wheat. 
D) Farmers would grow less wheat.

Question 18

Which of the following is a public good?

Accepted Answer

A) Air traffic control. 
B) National defense. 
C) Clean air. 
D) All of these. 
A) Air traffic control. 
B) National defense. 
C) Clean air. 
D) All of these.

Question 19

Many student government candidates at colleges and universities propose rent controls on local rental housing as a way to help students afford rental housing. Economic theory suggests that this policy would harm students as a whole despite the fact that some students who are able to find housing at the reduced price would benefit. Which of the following are some of the offsetting secondary effects of the rent controls that would work to the disadvantage of students?

Accepted Answer

A) There would be a shortage of rental housing, making it very difficult for students to find places to rent and causing increased discrimination in the rental housing market. 
B) There would be a reduction in the quality of rental housing. 
C) There would be a reduction in the future supply of rental housing. 
D) All of these would be secondary effects of the rent controls. 
A) There would be a shortage of rental housing, making it very difficult for students to find places to rent and causing increased discrimination in the rental housing market. 
B) There would be a reduction in the quality of rental housing. 
C) There would be a reduction in the future supply of rental housing. 
D) All of these would be secondary effects of the rent controls.

Question 20

Minimum wage legislation:

Accepted Answer

A) sets a price ceiling above the market-clearing price. 
B) has no impact if the minimum wage is above the market-clearing price. 
C) has the same impact in all labor markets. 
D) creates unemployment when the minimum wage is above the equilibrium wage. 
E) is opposed by organized labor. 
A) sets a price ceiling above the market-clearing price. 
B) has no impact if the minimum wage is above the market-clearing price. 
C) has the same impact in all labor markets. 
D) creates unemployment when the minimum wage is above the equilibrium wage. 
E) is opposed by organized labor.

Exam 4: Markets in Action

When there are positive externalities associated with the consumption of a good, we can expect the market:

Suppose a wallet firm has been dumping its wastes into the local river. The government finds out and insists that the firm pay for the cost of the river cleanup. As a result, we can expect:

Exhibit 4-3 Supply and demand curves Initially the market shown in Exhibit 4-3 is in equilibrium at P2, Q2 (E2). Changes in market conditions result in a new equilibrium at P2, Q4 (E4). This change is stated as a(n):

Discuss the impact of demand and supply changes on market equilibrium price and quantity. Express this graphically.

Exhibit 4-9 Data on supply and demand In Exhibit 4-9, which of the following would occur at a price of $2.00?

A price floor would be established in cases where the government believed the market equilibrium price would:

Suppose the government imposes rent control (a price ceiling)below the equilibrium price for rental housing. Which of the following could result?

From the standpoint of economic efficiency, competitive markets provide:

A public good will:

Higher gasoline prices would likely raise the price of large, gas-guzzling automobiles.

An economic justification for government providing public goods and services is that many people can benefit regardless of whether they pay or not.

Which of the following statements is not true ?

How would a decrease in consumer income affect the market for new automobiles?

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

Exhibit 4-3 Supply and demand curves In Exhibit 4-3, an increase in demand would cause a movement from which equilibrium point to another, other things being equal?

There was an extensive black market (illegal market)for many consumer products in the United States during World War II. A likely explanation of the black market is that:

Exhibit 4-11 Data on supply and demand Which of the following would occur if the government imposed a price floor (support price)of $4 per bushel in the wheat market shown in Exhibit 4-11?

Which of the following is a public good?

Minimum wage legislation:

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 4-3 Supply and demand curves Initially the market shown in Exhibit 4-3 is in equilibrium at P₂, Q₂ (E₂). Changes in market conditions result in a new equilibrium at P₂, Q₄ (E₄). This change is stated as a(n):