Question 1

A good example of a price floor is:

Accepted Answer

A)  rent controls on apartments in major cities. 
B)  general admission tickets to concerts. 
C)  the minimum wage law. 
D)  food stamp regulations. 
A)  rent controls on apartments in major cities. 
B)  general admission tickets to concerts. 
C)  the minimum wage law. 
D)  food stamp regulations.

Question 2

Which of the following would generate positive externalities?

Accepted Answer

A)  Flu vaccinations. 
B)  Farmers' use of pesticides. 
C)  Cigarette smoking in elevators. 
D)  Litter left at the beach. 
A)  Flu vaccinations. 
B)  Farmers' use of pesticides. 
C)  Cigarette smoking in elevators. 
D)  Litter left at the beach.

Question 3

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. 
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.

Question 4

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that a below-equilibrium price established by rent control:

Accepted Answer

A)  creates a surplus of rental housing. 
B)  promotes a rapid increase in the future supply of housing. 
C)  results in poor service and quality deterioration of many rental units. 
D)  leads to a reduction in housing discrimination against minorities. 
A)  creates a surplus of rental housing. 
B)  promotes a rapid increase in the future supply of housing. 
C)  results in poor service and quality deterioration of many rental units. 
D)  leads to a reduction in housing discrimination against minorities.

Question 5

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 6

Exhibit 4-2 Supply and demand curves
 
The market shown in Exhibit 4-2 is initially in equilibrium at E1. Changes in market conditions result in a new equilibrium at E2. This change is stated as a(n):

Accepted Answer

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

Question 7

Which of the following would be a private cost to a cigarette manufacturer?

Accepted Answer

A)  Price of leaf tobacco. 
B)  Cost to the government of the hospital expenses of indigent smokers. 
C)  Increased risk of cancer to the nonsmoking passengers in the smoker's carpool. 
D)  Price of a pack of cigarettes. 
A)  Price of leaf tobacco. 
B)  Cost to the government of the hospital expenses of indigent smokers. 
C)  Increased risk of cancer to the nonsmoking passengers in the smoker's carpool. 
D)  Price of a pack of cigarettes.

Question 8

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. 
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.

Question 9

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)  have used a command-and-control policy rather than a market-based policy. 
C)  underproduce the good that is resulting in the negative externality. 
D)  reduce the costs to the buyers and sellers of the good. 
A)  have internalized all costs and benefits. 
B)  have used a command-and-control policy rather than a market-based policy. 
C)  underproduce the good that is resulting in the negative externality. 
D)  reduce the costs to the buyers and sellers of the good.

Question 10

People who enjoy the benefits of a public good without paying for them are called:

Accepted Answer

A)  spillover parties. 
B)  external consumers. 
C)  free riders. 
D)  antitrust violators. 
A)  spillover parties. 
B)  external consumers. 
C)  free riders. 
D)  antitrust violators.

Question 11

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 12

Ceteris paribus , an increase in the supply of a good causes which of the following?

Accepted Answer

A)  Lowers the equilibrium price, and reduces the quantity bought and sold. 
B)  Raises the equilibrium price, and raises the quantity bought and sold. 
C)  Raises the equilibrium price, and increases the quantity bought and sold. 
D)  Lowers the equilibrium price, and increases the quantity bought and sold. 
A)  Lowers the equilibrium price, and reduces the quantity bought and sold. 
B)  Raises the equilibrium price, and raises the quantity bought and sold. 
C)  Raises the equilibrium price, and increases the quantity bought and sold. 
D)  Lowers the equilibrium price, and increases the quantity bought and sold.

Question 13

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

Accepted Answer

A)  The flu shot is cheaper than the cost of treatment when you get the flu. 
B)  The income of doctors increases when you get the flu shot. 
C)  The flu shot reduces the likelihood others will catch the flu. 
D)  The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income. 
A)  The flu shot is cheaper than the cost of treatment when you get the flu. 
B)  The income of doctors increases when you get the flu shot. 
C)  The flu shot reduces the likelihood others will catch the flu. 
D)  The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income.

Question 14

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

Accepted Answer

A)  The demand for beef would increase, increasing beef prices. 
B)  The demand for beef would decrease, decreasing beef prices. 
C)  The supply of beef would increase, decreasing beef prices. 
D)  The supply of beef would decrease, increasing beef prices. 
A)  The demand for beef would increase, increasing beef prices. 
B)  The demand for beef would decrease, decreasing beef prices. 
C)  The supply of beef would increase, decreasing beef prices. 
D)  The supply of beef would decrease, increasing beef prices.

Question 15

Exhibit 4-6 Demand and supply curves
 
If the market demand and supply curves shift as given in Exhibit 4-6, the resulting new equilibrium will show a(n):

Accepted Answer

A)  increase in market price and a decrease in the quantity exchanged. 
B)  decrease in market price and a decrease in the quantity exchanged. 
C)  increase in market price and an increase in the quantity exchanged. 
D)  decrease in market price and an increase in the quantity exchanged. 
A)  increase in market price and a decrease in the quantity exchanged. 
B)  decrease in market price and a decrease in the quantity exchanged. 
C)  increase in market price and an increase in the quantity exchanged. 
D)  decrease in market price and an increase in the quantity exchanged.

Question 16

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 17

Price floors are instituted because the government wants to:

Accepted Answer

A)  help consumers. 
B)  help producers. 
C)  raise tax revenue. 
D)  increase demand. 
A)  help consumers. 
B)  help producers. 
C)  raise tax revenue. 
D)  increase demand.

Question 18

Stuart tells his student government representative at his college to propose rent controls on local rental housing as a way to help students afford rental housing. Maria disagrees with Stuart, saying rent controls will make students worse off. Who is correct and why?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)  Stuart is correct. All students will be better off with a lower price of rental housing. 
B)  Maria is correct. All students will be worse off with a shortage of rental housing. 
C)  Neither are correct. Imposing rent controls will have no effect on the rental housing market. 
D)  Both are correct in part. Rent controls will be better for the students who are able to find housing at the reduced price but worse for students as a whole because there will be a shortage of rental housing, a lower future supply, and the quality will deteriorate. 
A)  Stuart is correct. All students will be better off with a lower price of rental housing. 
B)  Maria is correct. All students will be worse off with a shortage of rental housing. 
C)  Neither are correct. Imposing rent controls will have no effect on the rental housing market. 
D)  Both are correct in part. Rent controls will be better for the students who are able to find housing at the reduced price but worse for students as a whole because there will be a shortage of rental housing, a lower future supply, and the quality will deteriorate.

Question 19

If we observe a decrease in the price of a good and an increase in the amount of the good bought and sold, this could be explained by a(n):

Accepted Answer

A)  increase in the supply of the good. 
B)  increase in the demand for the good. 
C)  decrease in the demand for the good. 
D)  decrease in the supply of the good. 
A)  increase in the supply of the good. 
B)  increase in the demand for the good. 
C)  decrease in the demand for the good. 
D)  decrease in the supply of the good.

Question 20

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

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.

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

Exam 4: Markets in Action

A good example of a price floor is:

Which of the following would generate positive externalities?

A public good will:

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that a below-equilibrium price established by rent control:

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?

Exhibit 4-2 Supply and demand curves The market shown in Exhibit 4-2 is initially in equilibrium at E1. Changes in market conditions result in a new equilibrium at E2. This change is stated as a(n):

Which of the following would be a private cost to a cigarette manufacturer?

Which of the following is a free rider?

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:

People who enjoy the benefits of a public good without paying for them are called:

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?

Ceteris paribus , an increase in the supply of a good causes which of the following?

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

Exhibit 4-6 Demand and supply curves If the market demand and supply curves shift as given in Exhibit 4-6, the resulting new equilibrium will show a(n):

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

Price floors are instituted because the government wants to:

If we observe a decrease in the price of a good and an increase in the amount of the good bought and sold, this could be explained by a(n):

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

Exhibit 4-2 Supply and demand curves The market shown in Exhibit 4-2 is initially in equilibrium at E₁. Changes in market conditions result in a new equilibrium at E₂. This change is stated as a(n):