Question 1

Which of the following is a property of a public good?

Accepted Answer

A)  It is established by legislation. 
B)  Free riders are excluded. 
C)  Users collectively consume benefits. 
D)  It is determined by positive economics. 
A)  It is established by legislation. 
B)  Free riders are excluded. 
C)  Users collectively consume benefits. 
D)  It is determined by positive economics.

Question 2

Exhibit 4-3 Supply and demand curves
 
The market shown in Exhibit 4-3 is initially in equilibrium at E4. Changes in market conditions result in a new equilibrium at E3. 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 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 an increase in supply.

Question 3

What are market failures? Discuss examples of market failures. What can government do to improve the results of market failures?

Accepted Answer

Market failures are undesirable social r

Question 4

Exhibit 4-2 Supply and demand curves
 
The market shown in Exhibit 4-2 is initially in equilibrium at point E3. Union negotiations for workers producing good X result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

Accepted Answer

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

Question 5

Exhibit 4-3 Supply and demand curves
 
In Exhibit 4-3, which of the following might cause a shift from S2 to S1?

Accepted Answer

A)  A decrease in input prices. 
B)  An improvement in technology. 
C)  An increase in input prices. 
D)  An increase in consumer income. 
A)  A decrease in input prices. 
B)  An improvement in technology. 
C)  An increase in input prices. 
D)  An increase in consumer income.

Question 6

Price floors are used as a method to:

Accepted Answer

A)  ensure buyers that goods won't be cheaper tomorrow. 
B)  see that production levels don't fall too low. 
C)  guarantee there will be enough food for everyone. 
D)  ensure sellers a minimum price for their goods. 
A)  ensure buyers that goods won't be cheaper tomorrow. 
B)  see that production levels don't fall too low. 
C)  guarantee there will be enough food for everyone. 
D)  ensure sellers a minimum price for their goods.

Question 7

The government would use production taxes to remedy the problem of substantial:

Accepted Answer

A)  external costs of consumption. 
B)  external benefits of production. 
C)  external costs of production. 
D)  external benefits of consumption 
A)  external costs of consumption. 
B)  external benefits of production. 
C)  external costs of production. 
D)  external benefits of consumption

Question 8

Which of the following is the most likely effect of lower apple juice prices on the price and quantity purchased of orange juice, a substitute product?

Accepted Answer

A)  The price of orange juice will increase, and the quantity purchased will fall. 
B)  The price of orange juice will fall, and the quantity purchased will increase. 
C)  The price of orange juice will increase, and the quantity purchased will increase. 
D)  The price of orange juice will fall, and the quantity purchased will fall. 
A)  The price of orange juice will increase, and the quantity purchased will fall. 
B)  The price of orange juice will fall, and the quantity purchased will increase. 
C)  The price of orange juice will increase, and the quantity purchased will increase. 
D)  The price of orange juice will fall, and the quantity purchased will fall.

Question 9

Suppose the market for "soda X" is in equilibrium. If the FDA announced today that this soda has been proven to cause a fatal disease, what would be most likely to happen to the equilibrium price and equilibrium quantity of soda X?

Accepted Answer

A)  Price increases and quantity decreases 
B)  Price decreases and quantity increases 
C)  Price increases and quantity increases 
D)  Price decreases and quantity decreases 
A)  Price increases and quantity decreases 
B)  Price decreases and quantity increases 
C)  Price increases and quantity increases 
D)  Price decreases and quantity decreases

Question 10

Exhibit 4-6 Demand and supply curves
 
In Exhibit 4-6, the demand curve has shifted from D1 to D2 and, simultaneously, the supply curve has shifted from S1 to S2. Describe these actions in this market.

Accepted Answer

A)  Market supply has decreased, and market demand has increased. 
B)  Market supply has increased, and market demand has decreased. 
C)  Market supply has decreased, and market demand has decreased. 
D)  Market supply has increased, and market demand has increased. 
A)  Market supply has decreased, and market demand has increased. 
B)  Market supply has increased, and market demand has decreased. 
C)  Market supply has decreased, and market demand has decreased. 
D)  Market supply has increased, and market demand has increased.

Question 11

A competitive market economy is unlikely to provide an efficient quantity of some public goods because:

Accepted Answer

A)  only the government has the vast resources necessary to produce public goods. 
B)  the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers. 
C)  the technology involved in the production of public goods makes it difficult for private firms to produce them even though, once produced, they could be marketed efficiently. 
D)  private production of public goods generally results in a large amount of profit, which is difficult for a firm to effectively pay out to shareholders. 
A)  only the government has the vast resources necessary to produce public goods. 
B)  the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers. 
C)  the technology involved in the production of public goods makes it difficult for private firms to produce them even though, once produced, they could be marketed efficiently. 
D)  private production of public goods generally results in a large amount of profit, which is difficult for a firm to effectively pay out to shareholders.

Question 12

If the demand for 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 13

If there is a decrease in demand for lettuce, we would expect:

Accepted Answer

A)  both the price and quantity sold to increase. 
B)  both the price and quantity sold to decrease. 
C)  the price to decrease and the quantity sold to increase. 
D)  the price to increase and the quantity sold to decrease. 
A)  both the price and quantity sold to increase. 
B)  both the price and quantity sold to decrease. 
C)  the price to decrease and the quantity sold to increase. 
D)  the price to increase and the quantity sold to decrease.

Question 14

Exhibit 4-3 Supply and demand curves
 
Beginning from an equilibrium at point E2 in Exhibit 4-3, an increase in demand for good X, other things being equal, would move the equilibrium point to:

Accepted Answer

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

Question 15

Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:

Accepted Answer

A)  price and quantity would be too high. 
B)  price would be too low and quantity would be too high. 
C)  price and quantity would be too low. 
D)  price would be too high and quantity would be too low. 
A)  price and quantity would be too high. 
B)  price would be too low and quantity would be too high. 
C)  price and quantity would be too low. 
D)  price would be too high and quantity would be too low.

Question 16

The positive externality associated with education is:

Accepted Answer

A)  producers can get higher prices for their goods and services. 
B)  less crowding in the classrooms. 
C)  increases in societal well-being and economic growth. 
D)  technological progress slows as basic research increases. 
A)  producers can get higher prices for their goods and services. 
B)  less crowding in the classrooms. 
C)  increases in societal well-being and economic growth. 
D)  technological progress slows as basic research increases.

Question 17

Which of the following is not a market failure?

Accepted Answer

A)  A lack of competition in some markets. 
B)  Prices determined in competitive markets, which consumers, as individuals, have no control over. 
C)  The presence of externalities in some markets. 
D)  A lack of public goods desired by a majority of citizens. 
A)  A lack of competition in some markets. 
B)  Prices determined in competitive markets, which consumers, as individuals, have no control over. 
C)  The presence of externalities in some markets. 
D)  A lack of public goods desired by a majority of citizens.

Question 18

The city of Logan Square needs $40 million for a network of streetlights. There are 20,000 residents in the Logan Square neighborhood, meaning the cost for each resident is $2,000. Mr. Miller refuses to donate $2,000 towards the project. This is an example of the problems encountered with:

Accepted Answer

A)  consumer goods. 
B)  capital goods. 
C)  private goods. 
D)  public goods. 
A)  consumer goods. 
B)  capital goods. 
C)  private goods. 
D)  public goods.

Question 19

A free rider is a person who:

Accepted Answer

A)  is harmed by another's actions. 
B)  is subject to a negative externality. 
C)  receives benefits from someone else's action but does not pay for them. 
D)  pays less than the full value for a product. 
A)  is harmed by another's actions. 
B)  is subject to a negative externality. 
C)  receives benefits from someone else's action but does not pay for them. 
D)  pays less than the full value for a product.

Question 20

If a government imposed price ceiling legally sets the price of beef below market equilibrium, which of the following will most likely happen?

Accepted Answer

A)  The quantity of beef demanded will decrease. 
B)  The quantity of beef supplied will increase. 
C)  There will be a surplus of beef. 
D)  There will be a shortage of beef. 
A)  The quantity of beef demanded will decrease. 
B)  The quantity of beef supplied will increase. 
C)  There will be a surplus of beef. 
D)  There will be a shortage of beef.

Exam 4: Markets in Action

Which of the following is a property of a public good?

Exhibit 4-3 Supply and demand curves The market shown in Exhibit 4-3 is initially in equilibrium at E4. Changes in market conditions result in a new equilibrium at E3. This change is stated as a(n):

What are market failures? Discuss examples of market failures. What can government do to improve the results of market failures?

Exhibit 4-2 Supply and demand curves The market shown in Exhibit 4-2 is initially in equilibrium at point E3. Union negotiations for workers producing good X result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

Exhibit 4-3 Supply and demand curves In Exhibit 4-3, which of the following might cause a shift from S2 to S1?

Price floors are used as a method to:

The government would use production taxes to remedy the problem of substantial:

Which of the following is the most likely effect of lower apple juice prices on the price and quantity purchased of orange juice, a substitute product?

Suppose the market for "soda X" is in equilibrium. If the FDA announced today that this soda has been proven to cause a fatal disease, what would be most likely to happen to the equilibrium price and equilibrium quantity of soda X?

Exhibit 4-6 Demand and supply curves In Exhibit 4-6, the demand curve has shifted from D1 to D2 and, simultaneously, the supply curve has shifted from S1 to S2. Describe these actions in this market.

A competitive market economy is unlikely to provide an efficient quantity of some public goods because:

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

If there is a decrease in demand for lettuce, we would expect:

Exhibit 4-3 Supply and demand curves Beginning from an equilibrium at point E2 in Exhibit 4-3, an increase in demand for good X, other things being equal, would move the equilibrium point to:

Most economists believe that there are positive externalities in education. One can conclude that a free market would fail to give the socially optimal outcome because the equilibrium:

The positive externality associated with education is:

Which of the following is not a market failure?

The city of Logan Square needs $40 million for a network of streetlights. There are 20,000 residents in the Logan Square neighborhood, meaning the cost for each resident is $2,000. Mr. Miller refuses to donate $2,000 towards the project. This is an example of the problems encountered with:

A free rider is a person who:

If a government imposed price ceiling legally sets the price of beef below market equilibrium, which of the following will most likely happen?

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 4-3 Supply and demand curves The market shown in Exhibit 4-3 is initially in equilibrium at E₄. Changes in market conditions result in a new equilibrium at E₃. This change is stated as a(n):

Exhibit 4-2 Supply and demand curves The market shown in Exhibit 4-2 is initially in equilibrium at point E₃. Union negotiations for workers producing good X result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

Exhibit 4-3 Supply and demand curves In Exhibit 4-3, which of the following might cause a shift from S₂ to S₁?

Exhibit 4-6 Demand and supply curves In Exhibit 4-6, the demand curve has shifted from D₁ to D₂ and, simultaneously, the supply curve has shifted from S₁ to S₂. Describe these actions in this market.

Exhibit 4-3 Supply and demand curves Beginning from an equilibrium at point E₂ in Exhibit 4-3, an increase in demand for good X, other things being equal, would move the equilibrium point to: