Question 1

A good that provides external benefits to society has:

Accepted Answer

A)  too few resources devoted to its production. 
B)  too many resources devoted to its production. 
C)  the optimal resources devoted to its production. 
D)  not provided profits to producers of the good. 
A)  too few resources devoted to its production. 
B)  too many resources devoted to its production. 
C)  the optimal resources devoted to its production. 
D)  not provided profits to producers of the good.

Question 2

Exhibit 4-2 Supply and demand curves
 
Beginning from an equilibrium at point E1 in Exhibit 4-2, an increase in demand for good X, other things being equal, would move the equilibrium point to:

Accepted Answer

A)  E1, no change. 
B)  E2. 
C)  E3. 
D)  E4. 
A)  E1, no change. 
B)  E2. 
C)  E3. 
D)  E4.

Question 3

When the government imposes a price ceiling on a good whose price is too high,

Accepted Answer

A)  surpluses are created. 
B)  supply will increase to meet the demand. 
C)  chronic excess demand occurs. 
D)  quantity demanded of the good will fall. 
A)  surpluses are created. 
B)  supply will increase to meet the demand. 
C)  chronic excess demand occurs. 
D)  quantity demanded of the good will fall.

Question 4

Over a ten year period, the monthly charge for cellular phone service decreased from $120 per month to $30 per month. At the same time, the number of subscribers increased from less than 10 million to more than 75 million. Which of the following provides the best explanation for these changes?

Accepted Answer

A)  An increase in consumer income over this ten year period 
B)  A reduction in the price of residential phone service, a substitute for cellular phone service 
C)  An increase in the wages of workers in the cellular phone industry 
D)  Technological improvements that reduced the cost of supplying cellular phone service 
A)  An increase in consumer income over this ten year period 
B)  A reduction in the price of residential phone service, a substitute for cellular phone service 
C)  An increase in the wages of workers in the cellular phone industry 
D)  Technological improvements that reduced the cost of supplying cellular phone service

Question 5

One likely result of a price ceiling is that:

Accepted Answer

A)  a surplus of product would result. 
B)  the price charged in the market would be above the equilibrium price. 
C)  the price charged in the market would be the equilibrium price. 
D)  the available product must be rationed. 
A)  a surplus of product would result. 
B)  the price charged in the market would be above the equilibrium price. 
C)  the price charged in the market would be the equilibrium price. 
D)  the available product must be rationed.

Question 6

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

Accepted Answer

A)  accumulation of inventories of unsold gas. 
B)  shortage. 
C)  surplus. 
D)  quantity supplied that exceeds the quantity demanded. 
A)  accumulation of inventories of unsold gas. 
B)  shortage. 
C)  surplus. 
D)  quantity supplied that exceeds the quantity demanded.

Question 7

If the government imposes a price ceiling below the market equilibrium price, which of the following will result?

Accepted Answer

A)  There will be a surplus of the good. 
B)  The quantity demanded will exceed the quantity supplied. 
C)  The quantity supplied will exceed the quantity demanded. 
D)  The demand curve will shift to the left. 
A)  There will be a surplus of the good. 
B)  The quantity demanded will exceed the quantity supplied. 
C)  The quantity supplied will exceed the quantity demanded. 
D)  The demand curve will shift to the left.

Question 8

Goods whose benefits to society are not diminished as more people consume them and whose benefits cannot be withheld from anyone are:

Accepted Answer

A)  impossible since resources are limited. 
B)  examples of negative externalities. 
C)  public goods. 
D)  food and other necessities. 
A)  impossible since resources are limited. 
B)  examples of negative externalities. 
C)  public goods. 
D)  food and other necessities.

Question 9

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

Accepted Answer

A)  planting flowers in your front yard 
B)  talking loudly when others are trying to study economics 
C)  people donating money to charity 
D)  a smoker getting lung cancer 
A)  planting flowers in your front yard 
B)  talking loudly when others are trying to study economics 
C)  people donating money to charity 
D)  a smoker getting lung cancer

Question 10

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

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 11

Exhibit 4-2 Supply and demand curves
 
In Exhibit 4-2, which of the following might cause a shift from S1 to S2?

Accepted Answer

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

Question 12

A minimum wage that is set below the equilibrium wage will:

Accepted Answer

A)  cause increased unemployment. 
B)  have no effect on employment. 
C)  cause the overall wage to increase. 
D)  cause the overall wage to decrease. 
A)  cause increased unemployment. 
B)  have no effect on employment. 
C)  cause the overall wage to increase. 
D)  cause the overall wage to decrease.

Question 13

The excess supply created when governments impose a price floor is:

Accepted Answer

A)  shrinking as the floor rises. 
B)  the difference between the old quantity supplied and new quantity demanded. 
C)  the difference between the new quantity supplied and the old quantity demanded. 
D)  the difference between the new quantity supplied and the new quantity demanded. 
A)  shrinking as the floor rises. 
B)  the difference between the old quantity supplied and new quantity demanded. 
C)  the difference between the new quantity supplied and the old quantity demanded. 
D)  the difference between the new quantity supplied and the new quantity demanded.

Question 14

There was an extensive black market (illegal market) for many consumer products in the United States during World War II. A likely explanation of the black market is that:

Accepted Answer

A)  the prices of goods were artificially held down by price controls. 
B)  black markets were legal during the war. 
C)  goods were not subject to price controls. 
D)  gasoline rationing greatly restricted civilians from driving to stores. 
A)  the prices of goods were artificially held down by price controls. 
B)  black markets were legal during the war. 
C)  goods were not subject to price controls. 
D)  gasoline rationing greatly restricted civilians from driving to stores.

Question 15

Exhibit 4-3 Supply and demand curves
 
Initially the market shown in Exhibit 4-3 is in equilibrium at P3, Q3 (E3). Changes in market conditions result in a new equilibrium at P2, Q2 (E2). This change is stated as a:

Accepted Answer

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

Question 16

If each of us relied exclusively on the market to determine what to buy, we would probably end up with few, if any:

Accepted Answer

A)  streetlights. 
B)  strawberries. 
C)  televisions. 
D)  raincoats. 
A)  streetlights. 
B)  strawberries. 
C)  televisions. 
D)  raincoats.

Question 17

There are apartments in Chicago whose rooftops overlook Wrigley Field. On game day you can find free riders on the roof enjoying ____.

Accepted Answer

A)  free property rights 
B)  an externality 
C)  a public good 
D)  excess utility 
A)  free property rights 
B)  an externality 
C)  a public good 
D)  excess utility

Exam 4: Markets in Action

A good that provides external benefits to society has:

Exhibit 4-2 Supply and demand curves Beginning from an equilibrium at point E1 in Exhibit 4-2, an increase in demand for good X, other things being equal, would move the equilibrium point to:

When the government imposes a price ceiling on a good whose price is too high,

Over a ten year period, the monthly charge for cellular phone service decreased from $120 per month to $30 per month. At the same time, the number of subscribers increased from less than 10 million to more than 75 million. Which of the following provides the best explanation for these changes?

One likely result of a price ceiling is that:

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

If the government imposes a price ceiling below the market equilibrium price, which of the following will result?

Goods whose benefits to society are not diminished as more people consume them and whose benefits cannot be withheld from anyone are:

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

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

Exhibit 4-2 Supply and demand curves In Exhibit 4-2, which of the following might cause a shift from S1 to S2?

A minimum wage that is set below the equilibrium wage will:

The excess supply created when governments impose a price floor is:

There was an extensive black market (illegal market) for many consumer products in the United States during World War II. A likely explanation of the black market is that:

Exhibit 4-3 Supply and demand curves Initially the market shown in Exhibit 4-3 is in equilibrium at P3, Q3 (E3). Changes in market conditions result in a new equilibrium at P2, Q2 (E2). This change is stated as a:

If each of us relied exclusively on the market to determine what to buy, we would probably end up with few, if any:

There are apartments in Chicago whose rooftops overlook Wrigley Field. On game day you can find free riders on the roof enjoying ____.

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 Beginning from an equilibrium at point E₁ in Exhibit 4-2, an increase in demand for good X, other things being equal, would move the equilibrium point to:

Exhibit 4-2 Supply and demand curves In Exhibit 4-2, which of the following might cause a shift from S₁ to S₂?

Exhibit 4-3 Supply and demand curves Initially the market shown in Exhibit 4-3 is in equilibrium at P₃, Q₃ (E₃). Changes in market conditions result in a new equilibrium at P₂, Q₂ (E₂). This change is stated as a: