Question 1

Exhibit 4-2  Supply and demand curves   In Exhibit 4-2 an increase in supply 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 2

Assume a price floor is set above the equilibrium price. The result is a surplus.

Accepted Answer

A) True 
 B)False

Question 3

If it costs $2,000 to pick up the litter along a highway, then the cost of the externality is:

Accepted Answer

A)  $0. 
B)  more than $0, but less than $2,000. 
C)  $2,000. 
D)  more than $2,000, but finite. 
E)  infinite. 
A)  $0. 
B)  more than $0, but less than $2,000. 
C)  $2,000. 
D)  more than $2,000, but finite. 
E)  infinite.

Question 4

Exhibit 4-1  Supply and demand data   Exhibit 4-1 shows that at a price of $3.00,

Accepted Answer

A)  the market is in equilibrium. 
B)  there will be excess quantity demanded. 
C)  there will be excess quantity supplied. 
D)  there is a price ceiling in effect. 
A)  the market is in equilibrium. 
B)  there will be excess quantity demanded. 
C)  there will be excess quantity supplied. 
D)  there is a price ceiling in effect.

Question 5

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. 
E)  Price and quantity will stay the same. 
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. 
E)  Price and quantity will stay the same.

Question 6

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

Accepted Answer

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

Question 7

If the cost of producing a good rises for sellers, then how will this affect the market equilibrium for that good?

Accepted Answer

A)  ​Price will rise and quantity will fall. 
B)  ​Price will fall and quantity will rise. 
C)  ​Price and quantity will both rise. 
D)  ​Price and quantity will both fall. 
A)  ​Price will rise and quantity will fall. 
B)  ​Price will fall and quantity will rise. 
C)  ​Price and quantity will both rise. 
D)  ​Price and quantity will both fall.

Question 8

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 9

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. 
E)  the firms will earn excess profit. 
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. 
E)  the firms will earn excess profit.

Question 10

If the government imposes a price ceiling below the market equilibrium price, then:

Accepted Answer

A)  c and d. 
B)  there will be excess supply. 
C)  there will be excess demand. 
D)  the intent is to benefit consumers. 
E)  the intent is to benefit producers. 
A)  c and d. 
B)  there will be excess supply. 
C)  there will be excess demand. 
D)  the intent is to benefit consumers. 
E)  the intent is to benefit producers.

Question 11

When the consumption of a good generates an external benefit:

Accepted Answer

A)  the private benefit consumers receive from the good will be higher than the true social benefit. 
B)  too much of the good will tend to be produced from the viewpoint of economic efficiency. 
C)  the community generally suffers an exactly offsetting external cost from the production of the good. 
D)  the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed. 
A)  the private benefit consumers receive from the good will be higher than the true social benefit. 
B)  too much of the good will tend to be produced from the viewpoint of economic efficiency. 
C)  the community generally suffers an exactly offsetting external cost from the production of the good. 
D)  the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed.

Question 12

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)  people watering each other's lawns. 
E)  government subsidies for lawn watering. 
A)  not enough lawn watering. 
B)  too much lawn watering. 
C)  the socially optimal level of lawn watering. 
D)  people watering each other's lawns. 
E)  government subsidies for lawn watering.

Question 13

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 14

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)  The quantity supplied has decreased, and the quantity demanded has increased. 
E)  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)  The quantity supplied has decreased, and the quantity demanded has increased. 
E)  Market supply has increased, and market demand has increased.

Question 15

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 16

Which of the following would be an external cost associated with the manufacture of cigarettes?

Accepted Answer

A)  Price of a pack of cigarettes. 
B)  Price of leaf tobacco. 
C)  Cost to the government of the hospital expenses of indigent smokers. 
D)  Cost to the employer of the higher health insurance premiums due to the hiring of a smoker. 
E)  Cost to the employer of the extra effort lost due to the increased missed days of work as a result of smoking. 
A)  Price of a pack of cigarettes. 
B)  Price of leaf tobacco. 
C)  Cost to the government of the hospital expenses of indigent smokers. 
D)  Cost to the employer of the higher health insurance premiums due to the hiring of a smoker. 
E)  Cost to the employer of the extra effort lost due to the increased missed days of work as a result of smoking.

Question 17

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 18

A third party is a person, or persons, who:

Accepted Answer

A)  consume goods produced from at least two intermediate inputs. 
B)  avoids the transactions of the two principal parties. 
C)  takes risks to avoid externalities. 
D)  internalizes the costs of market failure. 
E)  is imposed upon by the activity of others. 
A)  consume goods produced from at least two intermediate inputs. 
B)  avoids the transactions of the two principal parties. 
C)  takes risks to avoid externalities. 
D)  internalizes the costs of market failure. 
E)  is imposed upon by the activity of others.

Question 19

Which of the following statements is true of a market?

Accepted Answer

A)  An increase in demand, with no change in supply, will increase the equilibrium price and quantity. 
B)  An increase in supply, with no change in demand, will decrease the equilibrium price and the equilibrium quantity. 
C)  A decrease in supply, with no change in demand, will decrease the equilibrium price and increase the equilibrium quantity. 
D)  All of the above. 
A)  An increase in demand, with no change in supply, will increase the equilibrium price and quantity. 
B)  An increase in supply, with no change in demand, will decrease the equilibrium price and the equilibrium quantity. 
C)  A decrease in supply, with no change in demand, will decrease the equilibrium price and increase the equilibrium quantity. 
D)  All of the above.

Question 20

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. 
E)  decrease in the quantity demanded and a decrease in supply. 
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. 
E)  decrease in the quantity demanded and a decrease in supply.

Exam 4: Markets in Action

Exhibit 4-2 Supply and demand curves In Exhibit 4-2 an increase in supply would cause a movement from which equilibrium point to another, other things being equal?

Assume a price floor is set above the equilibrium price. The result is a surplus.

If it costs $2,000 to pick up the litter along a highway, then the cost of the externality is:

Exhibit 4-1 Supply and demand data Exhibit 4-1 shows that at a price of $3.00,

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

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

If the cost of producing a good rises for sellers, then how will this affect the market equilibrium for that good?

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

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

If the government imposes a price ceiling below the market equilibrium price, then:

When the consumption of a good generates an external benefit:

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

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

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.

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:

Which of the following would be an external cost associated with the manufacture of cigarettes?

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

A third party is a person, or persons, who:

Which of the following statements is true of a market?

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

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Money Creation

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Filters

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.