Question 1

Which of the following is not a characteristic of a public good?

Accepted Answer

A)  It is scarce. 
B)  It is not diminished in amount as additional people consume the product. 
C)  Its benefits cannot be withheld from anyone. 
D)  It is free. 
E)  It yields widespread benefits. 
A)  It is scarce. 
B)  It is not diminished in amount as additional people consume the product. 
C)  Its benefits cannot be withheld from anyone. 
D)  It is free. 
E)  It yields widespread benefits.

Question 2

A price ceiling:

Accepted Answer

A)  is the lowest price that the law will allow to be charged in the market. 
B)  is the highest price that the law will allow to be charged in the market. 
C)  is the price that must be charged in the market. 
D)  would be imposed if the government believes the market equilibrium price is too low. 
E)  would only be applicable in the case of non-essential goods. 
A)  is the lowest price that the law will allow to be charged in the market. 
B)  is the highest price that the law will allow to be charged in the market. 
C)  is the price that must be charged in the market. 
D)  would be imposed if the government believes the market equilibrium price is too low. 
E)  would only be applicable in the case of non-essential goods.

Question 3

A public good may be defined as any good or service that:

Accepted Answer

A)  must be provided to citizens who are most able to benefit from it. 
B)  must be distributed to all citizens in equal shares. 
C)  excludes free riders. 
D)  none of the above. 
A)  must be provided to citizens who are most able to benefit from it. 
B)  must be distributed to all citizens in equal shares. 
C)  excludes free riders. 
D)  none of the above.

Question 4

Which of the following is not an example of market failure?

Accepted Answer

A)  Lack of competition. 
B)  Externalities. 
C)  Equilibrium. 
D)  Extreme income inequality. 
A)  Lack of competition. 
B)  Externalities. 
C)  Equilibrium. 
D)  Extreme income inequality.

Question 5

A legally mandated minimum wage is an example of:

Accepted Answer

A)  the invisible hand principle. 
B)  a price floor. 
C)  a price ceiling. 
D)  a fringe benefit. 
A)  the invisible hand principle. 
B)  a price floor. 
C)  a price ceiling. 
D)  a fringe benefit.

Question 6

An increase in the price of plastic raises the cost of manufacturing DVDs. As a result, the market changes to a new equilibrium because of a(n):

Accepted Answer

A)  surplus of DVDs. 
B)  increase in the demand for DVDs. 
C)  leftward shift in the demand curve for DVDs. 
D)  leftward shift in the supply curve for DVDs. 
A)  surplus of DVDs. 
B)  increase in the demand for DVDs. 
C)  leftward shift in the demand curve for DVDs. 
D)  leftward shift in the supply curve for DVDs.

Question 7

The former Soviet Union was known for black markets. An explanation for the existence of these illegal markets is that:

Accepted Answer

A)  goods were not subject to price controls. 
B)  the government imposed a price ceiling below the equilibrium price. 
C)  the government imposed a price ceiling above the equilibrium price. 
D)  all of the above. 
A)  goods were not subject to price controls. 
B)  the government imposed a price ceiling below the equilibrium price. 
C)  the government imposed a price ceiling above the equilibrium price. 
D)  all of the above.

Question 8

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 9

The Yankee Candle Company, in Hatfield, Massachusetts, makes thousands of scented candles each day. The factory emits the odor of the candles it produces, some of which smell quite nice. On days when they make strawberry candles the townspeople really enjoy the smell. On days when they make potpourri scented candles, people close their windows and don't go outside. What can we infer about the scented candle market?

Accepted Answer

A)  b and c. 
B)  Strawberry candles are more expensive than is socially optimum. 
C)  Potpourri candles are priced too low to be socially optimum. 
D)  Candle production generates only negative externalities. 
E)  Candle production technologies are inefficient. 
A)  b and c. 
B)  Strawberry candles are more expensive than is socially optimum. 
C)  Potpourri candles are priced too low to be socially optimum. 
D)  Candle production generates only negative externalities. 
E)  Candle production technologies are inefficient.

Question 10

Exhibit 4-2  Supply and demand curves   The market shown in Exhibit 4-2 is initially in equilibrium at E1. Changes in market conditions result in a new equilibrium at E2. 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 and 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 and an increase in supply.

Question 11

Third-party beneficiaries are called:

Accepted Answer

A)  polluters. 
B)  property owners. 
C)  free riders. 
D)  efficient market. 
E)  losers. 
A)  polluters. 
B)  property owners. 
C)  free riders. 
D)  efficient market. 
E)  losers.

Question 12

An increase in consumers' incomes will have what effect on the equilibrium in the restaurant meals market?

Accepted Answer

A)  Price will increase, and quantity will increase. 
B)  Price will decrease, and quantity will increase. 
C)  Price will increase, and quantity will decrease. 
D)  Price will decrease, and quantity will decrease. 
E)  Price will increase, and quantity will stay the same. 
A)  Price will increase, and quantity will increase. 
B)  Price will decrease, and quantity will increase. 
C)  Price will increase, and quantity will decrease. 
D)  Price will decrease, and quantity will decrease. 
E)  Price will increase, and quantity will stay the same.

Question 13

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

Question 14

Exhibit 4-11  Data on supply and demand   In Exhibit 4-11, the equilibrium price per bushel of wheat is:

Accepted Answer

A)  $1. 
B)  $2. 
C)  $3. 
D)  $4. 
A)  $1. 
B)  $2. 
C)  $3. 
D)  $4.

Question 15

Price floors typically improve market efficiency.

Accepted Answer

A) True 
 B)False

Question 16

Suppose the government imposes rent control (a price ceiling) below the equilibrium price for rental housing. Which of the following could result?

Accepted Answer

A)  Tenants risk breaking rent control law. 
B)  The quality of existing rental housing deteriorates. 
C)  Shortages. 
D)  All of the above. 
A)  Tenants risk breaking rent control law. 
B)  The quality of existing rental housing deteriorates. 
C)  Shortages. 
D)  All of the above.

Question 17

Exhibit 4-10  Supply and demand data for apricots   Which of the following would occur if the government set a price ceiling of $1 in the market shown in Exhibit 4-10?

Accepted Answer

A)  There would be a shortage of apricots. 
B)  Buyers would not want to purchase all of the apricots that are supplied. 
C)  There would be a surplus of apricots. 
D)  Farmers would reduce the number of acres allocated to the growing of apricots. 
A)  There would be a shortage of apricots. 
B)  Buyers would not want to purchase all of the apricots that are supplied. 
C)  There would be a surplus of apricots. 
D)  Farmers would reduce the number of acres allocated to the growing of apricots.

Question 18

An economic justification for government providing public goods and services is that many people can benefit regardless of whether they pay or not.

Accepted Answer

A) True 
 B)False

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 
E)  usually set equal to 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 
E)  usually set equal to equilibrium price.

Exam 4: Markets in Action

Which of the following is not a characteristic of a public good?

A price ceiling:

A public good may be defined as any good or service that:

Which of the following is not an example of market failure?

A legally mandated minimum wage is an example of:

An increase in the price of plastic raises the cost of manufacturing DVDs. As a result, the market changes to a new equilibrium because of a(n):

The former Soviet Union was known for black markets. An explanation for the existence of these illegal markets is that:

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 E1. Changes in market conditions result in a new equilibrium at E2. This change is stated as a(n):

Third-party beneficiaries are called:

An increase in consumers' incomes will have what effect on the equilibrium in the restaurant meals market?

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

Exhibit 4-11 Data on supply and demand In Exhibit 4-11, the equilibrium price per bushel of wheat is:

Price floors typically improve market efficiency.

Suppose the government imposes rent control (a price ceiling) below the equilibrium price for rental housing. Which of the following could result?

Exhibit 4-10 Supply and demand data for apricots Which of the following would occur if the government set a price ceiling of $1 in the market shown in Exhibit 4-10?

An economic justification for government providing public goods and services is that many people can benefit regardless of whether they pay or not.

A price floor is:

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 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 E₁. Changes in market conditions result in a new equilibrium at E₂. This change is stated as a(n):