Question 1

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 2

Collusive action among producers creates higher prices for consumers because it:

Accepted Answer

A)  causes overproduction and inefficiency. 
B)  creates negative externalities. 
C)  forces producers to be more competitive. 
D)  allows producers to artificially restrict their supply. 
A)  causes overproduction and inefficiency. 
B)  creates negative externalities. 
C)  forces producers to be more competitive. 
D)  allows producers to artificially restrict their supply.

Question 3

Bushels demanded per month   Price per bushel   Bushels supplied per month     45   $5   77     50     4   73     56     3   68     61     2   61     67     1   57   
-Exhibit 4-11 Data on supply and demand
 
In Exhibit 4-11, the equilibrium price per bushel of wheat is:

Accepted Answer

A)  $1. 
B)  $2. 
C)  $3. 
D)  $4. 
A)  $1. 
B)  $2. 
C)  $3. 
D)  $4.

Question 4

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

Accepted Answer

A)  An automobile 
B)  A mall 
C)  A teddy bear 
D)  An army 
A)  An automobile 
B)  A mall 
C)  A teddy bear 
D)  An army

Question 5

Exhibit 4-10 Supply and demand data for apricots
    Bushels demanded per month   Price per bushel   Bushels supplied per month     50   $5   80     55     4   75     60     3   70     65     2   65     70     1   55

Which of the following would occur if the government sets a price floor of $4 in the market shown in Exhibit 4-10?

Accepted Answer

A)  There would be a shortage of apricots. 
B)  Buyers would not purchase all of the apricots that are grown. 
C)  Buyers would purchase more apricots than are currently being supplied. 
D)  Farmers would reduce the number of acres allocated to the growing of apricots. 
A)  There would be a shortage of apricots. 
B)  Buyers would not purchase all of the apricots that are grown. 
C)  Buyers would purchase more apricots than are currently being supplied. 
D)  Farmers would reduce the number of acres allocated to the growing of apricots.

Question 6

Suppose prices for new homes have risen, yet sales of new homes have also risen. We can conclude that:

Accepted Answer

A)  the demand for new homes has risen. 
B)  the law of demand has been violated. 
C)  new firms have entered the construction industry. 
D)  construction firms must be facing higher costs. 
A)  the demand for new homes has risen. 
B)  the law of demand has been violated. 
C)  new firms have entered the construction industry. 
D)  construction firms must be facing higher costs.

Question 7

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

Accepted Answer

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

Question 8

One of the problems created by price floors set above the equilibrium is:

Accepted Answer

A)  the effect on firm profitability. 
B)  firms don't have incentives to reduce costs. 
C)  the creation of surplus. 
D)  how to cope with the shortages. 
A)  the effect on firm profitability. 
B)  firms don't have incentives to reduce costs. 
C)  the creation of surplus. 
D)  how to cope with the shortages.

Question 9

Sometimes the government deals with externalities by creating laws to regulate behavior instead of using taxes to correct the market failure. So, requiring auto manufacturers to install a device called a catalytic converter which removes some toxins from exhaust may be preferable to a gas tax that reduces driving levels. This route is often preferred because:

Accepted Answer

A)  the cost of the externality is unknown. 
B)  it requires less technological development. 
C)  it more heavily penalizes drivers who consume more gas than those who consume less. 
D)  only car drivers pay for the externality. 
A)  the cost of the externality is unknown. 
B)  it requires less technological development. 
C)  it more heavily penalizes drivers who consume more gas than those who consume less. 
D)  only car drivers pay for the externality.

Question 10

A price ceiling:

Accepted Answer

A)  is the lowest price that the law will allow to be charged in the market. 
B)  is the highest price that the law will allow to be charged in the market. 
C)  is the price that must be charged in the market. 
D)  would be imposed if the government believes the market equilibrium price is too low. 
A)  is the lowest price that the law will allow to be charged in the market. 
B)  is the highest price that the law will allow to be charged in the market. 
C)  is the price that must be charged in the market. 
D)  would be imposed if the government believes the market equilibrium price is too low.

Question 11

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

Accepted Answer

A)  market price will decrease, and market quantity exchanged will increase. 
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. 
A)  market price will decrease, and market quantity exchanged will increase. 
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.

Question 12

Exhibit 4-2 Supply and demand curves
 
The market shown in Exhibit 4-2 is initially in equilibrium at E3. Changes in market conditions result in a new equilibrium at E4. This change is stated as a(n):

Accepted Answer

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

Question 13

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 14

An increase in demand and a decrease in supply cause which of the following?

Accepted Answer

A)  Equilibrium price change is indeterminate. 
B)  Equilibrium quantity decreases. 
C)  Equilibrium price falls. 
D)  Equilibrium price rises. 
A)  Equilibrium price change is indeterminate. 
B)  Equilibrium quantity decreases. 
C)  Equilibrium price falls. 
D)  Equilibrium price rises.

Question 15

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

Accepted Answer

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

Question 16

Exhibit 4-9 Data on supply and demand
     Price   Quantity Demanded   Quantity Supplied     $2.00   100   300       1.50   150   250       1.00   200   200       0.50   250   150

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 17

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.

Question 18

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

Accepted Answer

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

Question 19

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 20

To avoid the free-rider problem, which of the following goods is best provided by the government and paid for with tax dollars?

Accepted Answer

A)  automobiles 
B)  lighthouses 
C)  bread 
D)  windows 
A)  automobiles 
B)  lighthouses 
C)  bread 
D)  windows

Bushels demanded per month	Price per bushel	Bushels supplied per month
45	$5	77
50	4	73
56	3	68
61	2	61
67	1	57

Price	Quantity Demanded	Quantity Supplied
$2.00	100	300
1.50	150	250
1.00	200	200
0.50	250	150

Exam 4: Markets in Action

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

Collusive action among producers creates higher prices for consumers because it:

Bushels demanded per month Price per bushel Bushels supplied per month 45 $5 77 50 4 73 56 3 68 61 2 61 67 1 57 -Exhibit 4-11 Data on supply and demand In Exhibit 4-11, the equilibrium price per bushel of wheat is:

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

Exhibit 4-10 Supply and demand data for apricots Bushels demanded per month Price per bushel Bushels supplied per month 50 $5 80 55 4 75 60 3 70 65 2 65 70 1 55 Which of the following would occur if the government sets a price floor of $4 in the market shown in Exhibit 4-10?

Suppose prices for new homes have risen, yet sales of new homes have also risen. We can conclude that:

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

One of the problems created by price floors set above the equilibrium is:

A price ceiling:

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

Exhibit 4-2 Supply and demand curves The market shown in Exhibit 4-2 is initially in equilibrium at E3. Changes in market conditions result in a new equilibrium at E4. This change is stated as a(n):

A legally mandated minimum wage is an example of:

An increase in demand and a decrease in supply cause which of the following?

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

Exhibit 4-9 Data on supply and demand Price Quantity Demanded Quantity Supplied $2.00 100 300 1.50 150 250 1.00 200 200 0.50 250 150 In Exhibit 4-9, if a price ceiling is set at $1.50 the market result after adjustment is:

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?

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

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

To avoid the free-rider problem, which of the following goods is best provided by the government and paid for with tax dollars?

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

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

Understanding Direct and Inverse Relationships between Variables

Filters

Bushels demanded
per month

Price per
bushel

Bushels supplied
per month

45

$5

77

50

4

73

56

3

68

61

2

61

67

1

57

-Exhibit 4-11 Data on supply and demand In Exhibit 4-11, the equilibrium price per bushel of wheat is:

Exhibit 4-10 Supply and demand data for apricots

Bushels demanded
per month

Price per
bushel

Bushels supplied
per month

50

$5

80

55

4

75

60

3

70

65

2

65

70

1

55

Which of the following would occur if the government sets a price floor of $4 in the market shown in Exhibit 4-10?

Exhibit 4-2 Supply and demand curves The market shown in Exhibit 4-2 is initially in equilibrium at E₃. Changes in market conditions result in a new equilibrium at E₄. This change is stated as a(n):

Exhibit 4-9 Data on supply and demand

Price

Quantity
Demanded

Quantity
Supplied

$2.00

100

300

1.50

150

250

1.00

200

200

0.50

250

150

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