Question 1

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 2

Which of the following is the best example of an action that imposes an external cost?

Accepted Answer

A)  Wear and tear on your car as the result of frequent use. 
B)  Deterioration in the average quality of a house you own as the result of poor maintenance. 
C)  Water pollution from an upstream factory that increases the cost of providing clean water to downstream residents. 
D)  A rose garden on your property from which your neighbor gets much enjoyment. 
A)  Wear and tear on your car as the result of frequent use. 
B)  Deterioration in the average quality of a house you own as the result of poor maintenance. 
C)  Water pollution from an upstream factory that increases the cost of providing clean water to downstream residents. 
D)  A rose garden on your property from which your neighbor gets much enjoyment.

Question 3

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 if X is a normal good and an improvement in the technology used to produce the good. 
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 if X is a normal good and an improvement in the technology used to produce the good.

Question 4

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

Accepted Answer

A)  market price will decrease, and market quantity exchanged could increase, decrease, or remain unchanged. 
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 could increase, decrease, or remain unchanged. 
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 5

An increase in both supply and demand causes which of the following?

Accepted Answer

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

Question 6

Public goods differ from private goods in that:

Accepted Answer

A)  they produce negative externalities. 
B)  they are not scarce. 
C)  their benefits cannot be denied to anyone. 
D)  their consumption must be regulated by the government. 
A)  they produce negative externalities. 
B)  they are not scarce. 
C)  their benefits cannot be denied to anyone. 
D)  their consumption must be regulated by the government.

Question 7

Which of the following would be an example of a public good?

Accepted Answer

A)  A candy bar. 
B)  A painting by Monet. 
C)  A taxi cab. 
D)  A sunset. 
A)  A candy bar. 
B)  A painting by Monet. 
C)  A taxi cab. 
D)  A sunset.

Question 8

Which of the following would decrease the price of packaged hot dogs?

Accepted Answer

A)  A decrease in the price of hot dog buns, a complement to packaged hot dogs. 
B)  An increase in the price of hamburger meat, a substitute for packaged hot dogs. 
C)  A technological advance that lowers the cost of producing packaged hot dogs. 
D)  An increase in the price of beef used to produce packaged hot dogs. 
A)  A decrease in the price of hot dog buns, a complement to packaged hot dogs. 
B)  An increase in the price of hamburger meat, a substitute for packaged hot dogs. 
C)  A technological advance that lowers the cost of producing packaged hot dogs. 
D)  An increase in the price of beef used to produce packaged hot dogs.

Question 9

Which of the following is not a solution to the problem of negative externalities due to pollution?

Accepted Answer

A)  Create private property rights. 
B)  Levy pollution taxes. 
C)  Create obligatory controls. 
D)  Reward the production of these products through subsidies. 
A)  Create private property rights. 
B)  Levy pollution taxes. 
C)  Create obligatory controls. 
D)  Reward the production of these products through subsidies.

Question 10

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. 
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.

Question 11

An externality is:

Accepted Answer

A)  always a benefit to the recipient. 
B)  always a detriment to the recipient. 
C)  an activity that occurs in a business which is unknown to management. 
D)  unintended benefits or costs imposed on third parties as a result of economic activity. 
A)  always a benefit to the recipient. 
B)  always a detriment to the recipient. 
C)  an activity that occurs in a business which is unknown to management. 
D)  unintended benefits or costs imposed on third parties as a result of economic activity.

Question 12

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

Accepted Answer

A)  A Japanese company begins to produce cars, which causes American workers to lose their jobs. 
B)  An employee of a chemical company spills acid on his arm, causing severe damage. 
C)  John plants fruit trees in his front yard, which attracts bees, which sting neighbor Mary. 
D)  Sally buys coffee at McDonald's, spills some on her, and burns her arm. 
A)  A Japanese company begins to produce cars, which causes American workers to lose their jobs. 
B)  An employee of a chemical company spills acid on his arm, causing severe damage. 
C)  John plants fruit trees in his front yard, which attracts bees, which sting neighbor Mary. 
D)  Sally buys coffee at McDonald's, spills some on her, and burns her arm.

Question 13

A cost or benefit of a good imposed on people other than the consumers or producer of a good is called a(n):

Accepted Answer

A)  public good. 
B)  merit good. 
C)  private good. 
D)  externality. 
A)  public good. 
B)  merit good. 
C)  private good. 
D)  externality.

Question 14

If the equilibrium price of bread is $2 and the government imposes a $1.50 price ceiling on the price of bread, then:

Accepted Answer

A)  more bread will be produced. 
B)  there will be a shortage of bread. 
C)  the demand for bread will decrease. 
D)  producers will charge $0.50 for bread. 
A)  more bread will be produced. 
B)  there will be a shortage of bread. 
C)  the demand for bread will decrease. 
D)  producers will charge $0.50 for bread.

Question 15

An increase in the wages paid to fishermen will have what effect on the fish market equilibrium?

Accepted Answer

A)  Price will decrease, and quantity will decrease. 
B)  Price will increase, and quantity will increase. 
C)  Price will decrease, and quantity will increase. 
D)  Price will increase, and quantity will decrease. 
A)  Price will decrease, and quantity will decrease. 
B)  Price will increase, and quantity will increase. 
C)  Price will decrease, and quantity will increase. 
D)  Price will increase, and quantity will decrease.

Question 16

If the supply of a good decreased, what would be the effect on the equilibrium price and quantity?

Accepted Answer

A)  Price would increase, and quantity would decrease. 
B)  Price would decrease, and quantity would decrease. 
C)  Price would increase, and quantity would increase. 
D)  Price would decrease, and quantity would increase. 
A)  Price would increase, and quantity would decrease. 
B)  Price would decrease, and quantity would decrease. 
C)  Price would increase, and quantity would increase. 
D)  Price would decrease, and quantity would increase.

Question 17

Bobby's neighbor is growing a tree that is blocking Bobby's ocean view. Bobby is considering taking his neighbor to court. This is most likely an example of a:

Accepted Answer

A)  negative externality. 
B)  public good. 
C)  free rider. 
D)  positive externality. 
A)  negative externality. 
B)  public good. 
C)  free rider. 
D)  positive externality.

Question 18

If a chemical factory causes noxious fumes to be emitted in the neighborhood, a third party would be:

Accepted Answer

A)  workers at the factory. 
B)  owners of the factory. 
C)  chemical customers. 
D)  local homeowners. 
A)  workers at the factory. 
B)  owners of the factory. 
C)  chemical customers. 
D)  local homeowners.

Question 19

A price floor is:

Accepted Answer

A)  the lowest price a producer will accept. 
B)  the lowest price a consumer will pay. 
C)  a minimum price set by the government above equilibrium price. 
D)  a maximum price set by the government above equilibrium price 
A)  the lowest price a producer will accept. 
B)  the lowest price a consumer will pay. 
C)  a minimum price set by the government above equilibrium price. 
D)  a maximum price set by the government above equilibrium price

Question 20

Why do negative externalities like pollution result in inefficiency?

Accepted Answer

A)  Because producers artificially restrict their supply. 
B)  Because producers ignore the external costs they impose on third-parties. 
C)  Because producers manufacture more goods than people can afford to buy. 
D)  Because producers will receive an unequal distribution of profits. 
A)  Because producers artificially restrict their supply. 
B)  Because producers ignore the external costs they impose on third-parties. 
C)  Because producers manufacture more goods than people can afford to buy. 
D)  Because producers will receive an unequal distribution of profits.

Exam 4: Markets in Action

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

Which of the following is the best example of an action that imposes an external cost?

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

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

An increase in both supply and demand causes which of the following?

Public goods differ from private goods in that:

Which of the following would be an example of a public good?

Which of the following would decrease the price of packaged hot dogs?

Which of the following is not a solution to the problem of negative externalities due to pollution?

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:

An externality is:

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

A cost or benefit of a good imposed on people other than the consumers or producer of a good is called a(n):

If the equilibrium price of bread is $2 and the government imposes a $1.50 price ceiling on the price of bread, then:

An increase in the wages paid to fishermen will have what effect on the fish market equilibrium?

If the supply of a good decreased, what would be the effect on the equilibrium price and quantity?

Bobby's neighbor is growing a tree that is blocking Bobby's ocean view. Bobby is considering taking his neighbor to court. This is most likely an example of a:

If a chemical factory causes noxious fumes to be emitted in the neighborhood, a third party would be:

A price floor is:

Why do negative externalities like pollution result in inefficiency?

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