Question 1

Which of the following would raise both the equilibrium price and the equilibrium quantity of strawberries?

Accepted Answer

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

Question 2

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

Accepted Answer

A)  Cost to the employer of the higher health insurance premiums due to the hiring of a smoker. 
B)  Cost to the employer of the extra effort lost due to the increased missed days of work as a result of smoking. 
C)  Cost to the city of extra park cleanup due to the presence of cigarette butts. 
D)  Price of the pack of cigarettes. 
A)  Cost to the employer of the higher health insurance premiums due to the hiring of a smoker. 
B)  Cost to the employer of the extra effort lost due to the increased missed days of work as a result of smoking. 
C)  Cost to the city of extra park cleanup due to the presence of cigarette butts. 
D)  Price of the pack of cigarettes.

Question 3

Exhibit 4-11 Data on supply and demand
    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

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 4

An example of a price ceiling would be:

Accepted Answer

A)  a ration coupon. 
B)  a guarantee of a target price for farm products. 
C)  parity pricing. 
D)  rent control. 
A)  a ration coupon. 
B)  a guarantee of a target price for farm products. 
C)  parity pricing. 
D)  rent control.

Question 5

Denise is thinking about setting up a butterfly garden in her backyard. She estimates that it will cost her $2,000 to purchase and install special plants and an irrigation system to attract butterflies. The benefit she expects to receive is $1,800. In addition, neighbor Billy will receive a benefit of $150 and neighbor Sammy will receive a benefit of $100. From this, we can conclude that:

Accepted Answer

A)  butterflies are a negative externality for Billy and Sammy. 
B)  Denise will set up the butterfly garden without any help from her free-rider neighbors. 
C)  if Sammy refuses to contribute to the butterfly garden, he will be unable to enjoy its benefits if it is built. 
D)  if Billy and Sammy contribute the amounts at which they value the butterfly garden, Denise will set it up. 
A)  butterflies are a negative externality for Billy and Sammy. 
B)  Denise will set up the butterfly garden without any help from her free-rider neighbors. 
C)  if Sammy refuses to contribute to the butterfly garden, he will be unable to enjoy its benefits if it is built. 
D)  if Billy and Sammy contribute the amounts at which they value the butterfly garden, Denise will set it up.

Question 6

Suppose a new law requires all piercing studios to pass tougher licensing tests and to begin using more costly sterilization methods. Other things constant, this law would cause:

Accepted Answer

A)  an increase in the supply of piercings and a lower price for piercings. 
B)  an increase in the supply of piercings and a higher price for piercings. 
C)  a decrease in the supply of piercings and a higher price for piercings. 
D)  a decrease in the supply of piercings and a lower price for piercings. 
A)  an increase in the supply of piercings and a lower price for piercings. 
B)  an increase in the supply of piercings and a higher price for piercings. 
C)  a decrease in the supply of piercings and a higher price for piercings. 
D)  a decrease in the supply of piercings and a lower price for piercings.

Question 7

If the free market is called upon to provide public goods, then:

Accepted Answer

A)  there will more goods provided than is optimal. 
B)  there will be fewer goods provided than is optimal. 
C)  the market will provide the optimal number of goods. 
D)  the market price will be correct, but the optimal amount of output will not be produced. 
A)  there will more goods provided than is optimal. 
B)  there will be fewer goods provided than is optimal. 
C)  the market will provide the optimal number of goods. 
D)  the market price will be correct, but the optimal amount of output will not be produced.

Question 8

Public goods are usually provided by:

Accepted Answer

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

Question 9

Rent controls create distortions in the housing market by:

Accepted Answer

A)  increasing the supply of housing in the long run. 
B)  raising property values. 
C)  encouraging landlords to overspend for maintenance. 
D)  discouraging new housing construction. 
A)  increasing the supply of housing in the long run. 
B)  raising property values. 
C)  encouraging landlords to overspend for maintenance. 
D)  discouraging new housing construction.

Question 10

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

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 11

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. 
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.

Question 12

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)  an efficient amount but at a higher cost. 
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)  an efficient amount but at a higher cost.

Question 13

When there is a positive externality associated with the watering of one's lawn, the free market results in:

Accepted Answer

A)  not enough lawn watering. 
B)  too much lawn watering. 
C)  the socially optimal level of lawn watering. 
D)  government subsidies for lawn watering. 
A)  not enough lawn watering. 
B)  too much lawn watering. 
C)  the socially optimal level of lawn watering. 
D)  government subsidies for lawn watering.

Question 14

Albert and Betty hire Christine to play music at their wedding. David, who lives behind the church, cannot study because of the loud music. The third party is:

Accepted Answer

A)  Albert. 
B)  Betty. 
C)  Christine. 
D)  David. 
A)  Albert. 
B)  Betty. 
C)  Christine. 
D)  David.

Question 15

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 16

The reason individual homeowners usually do not hire a private contractor to fill the potholes on their street is because:

Accepted Answer

A)  it costs too much. 
B)  the value to the neighborhood exceeds the cost of repair. 
C)  others who use the street will be free riders. 
D)  there are negative externalities associated with the repair. 
A)  it costs too much. 
B)  the value to the neighborhood exceeds the cost of repair. 
C)  others who use the street will be free riders. 
D)  there are negative externalities associated with the repair.

Question 17

If the equilibrium price of natural gas is $4 per thousand cubic feet and a price ceiling is imposed at $3 per thousand cubic feet, the result will be:

Accepted Answer

A)  a surplus of natural gas. 
B)  a shortage of natural gas. 
C)  an accumulation of inventories of unsold gas. 
D)  more natural gas available than what buyers want to buy. 
A)  a surplus of natural gas. 
B)  a shortage of natural gas. 
C)  an accumulation of inventories of unsold gas. 
D)  more natural gas available than what buyers want to buy.

Question 18

City streets, sewage systems, and police protection are all examples of:

Accepted Answer

A)  public goods. 
B)  private goods. 
C)  exclusive goods. 
D)  rival goods. 
A)  public goods. 
B)  private goods. 
C)  exclusive goods. 
D)  rival goods.

Question 19

In the presence of positive externalities, a free market will choose a price which is too ____ and produce an output which is too ____ compared with the social optimum.

Accepted Answer

A)  high; low 
B)  low; low 
C)  high; high 
D)  low; high 
A)  high; low 
B)  low; low 
C)  high; high 
D)  low; high

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

Which of the following would occur if the government set a price ceiling of $1 in the market shown in Exhibit 4-10?

Accepted Answer

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

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

Exam 4: Markets in Action

Which of the following would raise both the equilibrium price and the equilibrium quantity of strawberries?

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

An example of a price ceiling would be:

Suppose a new law requires all piercing studios to pass tougher licensing tests and to begin using more costly sterilization methods. Other things constant, this law would cause:

If the free market is called upon to provide public goods, then:

Public goods are usually provided by:

Rent controls create distortions in the housing market by:

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

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

From the standpoint of economic efficiency, competitive markets provide:

When there is a positive externality associated with the watering of one's lawn, the free market results in:

Albert and Betty hire Christine to play music at their wedding. David, who lives behind the church, cannot study because of the loud music. The third party is:

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

The reason individual homeowners usually do not hire a private contractor to fill the potholes on their street is because:

If the equilibrium price of natural gas is $4 per thousand cubic feet and a price ceiling is imposed at $3 per thousand cubic feet, the result will be:

City streets, sewage systems, and police protection are all examples of:

In the presence of positive externalities, a free market will choose a price which is too ____ and produce an output which is too ____ compared with the social optimum.

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 set a price ceiling of $1 in the market shown in Exhibit 4-10?

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

In the presence of positive externalities, a free market will choose a price which is too and produce an output which is too compared with the social optimum.

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 set a price ceiling of $1 in the market shown in Exhibit 4-10?