Question 1

Minimum wage legislation:

Accepted Answer

A)  sets a price ceiling above the market-clearing price. 
B)  has no impact if the minimum wage is above the market-clearing price. 
C)  has the same impact in all labor markets. 
D)  creates unemployment when the minimum wage is above the equilibrium wage. 
E)  is opposed by organized labor. 
A)  sets a price ceiling above the market-clearing price. 
B)  has no impact if the minimum wage is above the market-clearing price. 
C)  has the same impact in all labor markets. 
D)  creates unemployment when the minimum wage is above the equilibrium wage. 
E)  is opposed by organized labor.

Question 2

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 3

John paints the exterior of his house and, as a result, his neighbor Christine is able to sell her home for $5,000 more than she could have before. John's house painting:

Accepted Answer

A)  creates a negative externality for Christine. 
B)  shows John is a free rider. 
C)  results in an efficient market outcome for both. 
D)  creates a positive externality for Christine. 
E)  was poorly done. 
A)  creates a negative externality for Christine. 
B)  shows John is a free rider. 
C)  results in an efficient market outcome for both. 
D)  creates a positive externality for Christine. 
E)  was poorly done.

Question 4

If the cost of producing a good rises for sellers, equilibrium price rises because of a decrease in demand.

Accepted Answer

A) True 
 B)False

Question 5

One of the problems created by price floors set above the equilibrium is:

Accepted Answer

A)  consumers complain about high prices. 
B)  firms don't have incentives to reduce costs. 
C)  the creation of surplus. 
D)  how to cope with the shortages. 
E)  the impact on firm profitability. 
A)  consumers complain about high prices. 
B)  firms don't have incentives to reduce costs. 
C)  the creation of surplus. 
D)  how to cope with the shortages. 
E)  the impact on firm profitability.

Question 6

A technological breakthrough lowers the cost of manufacturing DVDs. As a result, the market changes to a new equilibrium because of a(n):

Accepted Answer

A)  upward movement along the demand curve for DVDs. 
B)  rightward shift in the demand curve for DVDs. 
C)  rightward shift in the supply curve for DVDs. 
D)  shortage of DVDs. 
A)  upward movement along the demand curve for DVDs. 
B)  rightward shift in the demand curve for DVDs. 
C)  rightward shift in the supply curve for DVDs. 
D)  shortage of DVDs.

Question 7

Examples of market failure include lack of competition, externalities, public goods, and income inequality.

Accepted Answer

A) True 
 B)False

Question 8

Negative externalities result in unfair, excessively high prices.

Accepted Answer

A) True 
 B)False

Question 9

A decrease in consumer income decreases the demand for compact discs. As a result of the change to a new equilibrium, there is a(n):

Accepted Answer

A)  leftward shift of the supply curve. 
B)  rightward shift of the supply curve. 
C)  upward movement along the supply curve. 
D)  downward movement along the supply curve. 
A)  leftward shift of the supply curve. 
B)  rightward shift of the supply curve. 
C)  upward movement along the supply curve. 
D)  downward movement along the supply curve.

Question 10

Which of the following is the best description of the effects of an increase in the supply of bread?

Accepted Answer

A)  Consumers will pay more for bread. 
B)  Bread prices will fall, and bread sales will rise. 
C)  A permanent surplus of bread will remain on the market. 
D)  Bakers will have higher marginal costs. 
A)  Consumers will pay more for bread. 
B)  Bread prices will fall, and bread sales will rise. 
C)  A permanent surplus of bread will remain on the market. 
D)  Bakers will have higher marginal costs.

Question 11

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. 
E)  the same number of 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. 
E)  the same number of wallets to be produced at a higher price.

Question 12

Exhibit 4-3  Supply and demand curves   In Exhibit 4-3, an increase in demand 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)  E1 to E4. 
A)  E1 to E2. 
B)  E1 to E3. 
C)  E4 to E1. 
D)  E1 to E4.

Question 13

Exhibit 4-10  Supply and demand data for apricots   In Exhibit 4-10, assume that the government initially sets a price floor of $4 for apricots, and then removes the $4 price floor. What effect will this price change have?

Accepted Answer

A)  The price of apricots will rise. 
B)  The quantity of apricots demanded will fall. 
C)  The quantity of apricots supplied will decline. 
D)  Quantity supplied will continue to exceed quantity demanded. 
A)  The price of apricots will rise. 
B)  The quantity of apricots demanded will fall. 
C)  The quantity of apricots supplied will decline. 
D)  Quantity supplied will continue to exceed quantity demanded.

Question 14

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

Question 15

Exhibit 4-9  Data on supply and demand   In Exhibit 4-9, which of the following would occur at a price of $2.00?

Accepted Answer

A)  Inventories would put upward pressure on price. 
B)  Quantity demanded exceeds quantity supplied, putting downward pressure on price. 
C)  Inventories would put downward pressure on price. 
D)  The surplus would be so small that there would be only slight downward pressure on price. 
A)  Inventories would put upward pressure on price. 
B)  Quantity demanded exceeds quantity supplied, putting downward pressure on price. 
C)  Inventories would put downward pressure on price. 
D)  The surplus would be so small that there would be only slight downward pressure on price.

Question 16

Which of the following is an example of market failure?

Accepted Answer

A)  Public goods. 
B)  Externalities. 
C)  Lack of competition. 
D)  all of the above. 
A)  Public goods. 
B)  Externalities. 
C)  Lack of competition. 
D)  all of the above.

Question 17

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 18

If you were a government official that wanted to raise the equilibrium price of milk, which of the following actions would you take?

Accepted Answer

A)  Take milk from government storage and sell it. 
B)  Encourage farmers to produce more milk. 
C)  Subsidize purchases of dairy equipment. 
D)  Encourage farmers to produce less milk. 
A)  Take milk from government storage and sell it. 
B)  Encourage farmers to produce more milk. 
C)  Subsidize purchases of dairy equipment. 
D)  Encourage farmers to produce less milk.

Question 19

A price ceiling set below the equilibrium price creates a shortage.

Accepted Answer

A) True 
 B)False

Question 20

If Congress decides to reduce the tax per pack paid by sellers of cigarettes, other things being equal, the equilibrium price of cigarettes will fall. This fall in the equilibrium price can be attributed to a(n):

Accepted Answer

A)  upward movement along the supply curve for cigarettes. 
B)  rightward shift of the supply curve for cigarettes. 
C)  upward movement along the demand curve for cigarettes. 
D)  leftward shift of the supply curve for cigarettes. 
A)  upward movement along the supply curve for cigarettes. 
B)  rightward shift of the supply curve for cigarettes. 
C)  upward movement along the demand curve for cigarettes. 
D)  leftward shift of the supply curve for cigarettes.

Exam 4: Markets in Action

Minimum wage legislation:

A good that provides external benefits to society has:

John paints the exterior of his house and, as a result, his neighbor Christine is able to sell her home for $5,000 more than she could have before. John's house painting:

If the cost of producing a good rises for sellers, equilibrium price rises because of a decrease in demand.

One of the problems created by price floors set above the equilibrium is:

A technological breakthrough lowers the cost of manufacturing DVDs. As a result, the market changes to a new equilibrium because of a(n):

Examples of market failure include lack of competition, externalities, public goods, and income inequality.

Negative externalities result in unfair, excessively high prices.

A decrease in consumer income decreases the demand for compact discs. As a result of the change to a new equilibrium, there is a(n):

Which of the following is the best description of the effects of an increase in the supply of bread?

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

Exhibit 4-3 Supply and demand curves In Exhibit 4-3, an increase in demand would cause a movement from which equilibrium point to another, other things being equal?

Exhibit 4-10 Supply and demand data for apricots In Exhibit 4-10, assume that the government initially sets a price floor of $4 for apricots, and then removes the $4 price floor. What effect will this price change have?

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

Exhibit 4-9 Data on supply and demand In Exhibit 4-9, which of the following would occur at a price of $2.00?

Which of the following is an example of market failure?

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

If you were a government official that wanted to raise the equilibrium price of milk, which of the following actions would you take?

A price ceiling set below the equilibrium price creates a shortage.

If Congress decides to reduce the tax per pack paid by sellers of cigarettes, other things being equal, the equilibrium price of cigarettes will fall. This fall in the equilibrium price can be attributed to 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 4-3 Supply and demand curves In Exhibit 4-3, which of the following might cause a shift from S₂ to S₁?