Question 1

An increased equilibrium price and a decreased equilibrium quantity results from a(n):

Accepted Answer

A)  decrease in demand. 
B)  increase in supply. 
C)  decrease in supply. 
D)  increase in demand. 
A)  decrease in demand. 
B)  increase in supply. 
C)  decrease in supply. 
D)  increase in demand.

Question 2

Which of the following is an example of a pure public good?

Accepted Answer

A)  A bus. 
B)  A mall. 
C)  A teddy bear. 
D)  An army. 
E)  An automobile. 
A)  A bus. 
B)  A mall. 
C)  A teddy bear. 
D)  An army. 
E)  An automobile.

Question 3

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(n):

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 4

How would a decrease in consumer income affect the market for new automobiles?

Accepted Answer

A)  Demand would decrease, leading to an increase in price and a reduction in quantity sold. 
B)  Demand would decrease, leading to a reduction in price and a reduction in quantity sold. 
C)  Demand would increase, leading to an increase in price and an increase in quantity sold. 
D)  Demand would increase, leading to a reduction in price and an increase in quantity sold. 
A)  Demand would decrease, leading to an increase in price and a reduction in quantity sold. 
B)  Demand would decrease, leading to a reduction in price and a reduction in quantity sold. 
C)  Demand would increase, leading to an increase in price and an increase in quantity sold. 
D)  Demand would increase, leading to a reduction in price and an increase in quantity sold.

Question 5

External benefits cause the market to:

Accepted Answer

A)  underallocate resources. 
B)  be more efficient. 
C)  set excessively high prices. 
D)  have persistent shortages. 
A)  underallocate resources. 
B)  be more efficient. 
C)  set excessively high prices. 
D)  have persistent shortages.

Question 6

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 7

Which of the following statements is not true ?

Accepted Answer

A)  If marginal social cost and marginal private cost are the same, any externality that exists will be positive. 
B)  If marginal externality costs are not zero, externalities exist. 
C)  An expansion of property rights to include air quality and scenic beauty would bring some private markets close to a socially optimal equilibrium. 
D)  The existence of pollution as the byproduct of a production or exchange process indicates a market failure. 
E)  When municipal water supplies have heavy concentration of agricultural chemicals, it is probable that agricultural output from the area is produced in quantities greater than the socially optimal level. 
A)  If marginal social cost and marginal private cost are the same, any externality that exists will be positive. 
B)  If marginal externality costs are not zero, externalities exist. 
C)  An expansion of property rights to include air quality and scenic beauty would bring some private markets close to a socially optimal equilibrium. 
D)  The existence of pollution as the byproduct of a production or exchange process indicates a market failure. 
E)  When municipal water supplies have heavy concentration of agricultural chemicals, it is probable that agricultural output from the area is produced in quantities greater than the socially optimal level.

Question 8

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 9

If the demand curve increases while the supply curve remains unchanged, the equilibrium price would increase.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not a solution to the problem of negative externalities due to pollution?

Accepted Answer

A)  Create private property rights. 
B)  Levy pollution taxes. 
C)  Create obligatory controls. 
D)  Reward the production of these products through subsidies. 
E)  Establish strict limits on the amount of pollution allowed. 
A)  Create private property rights. 
B)  Levy pollution taxes. 
C)  Create obligatory controls. 
D)  Reward the production of these products through subsidies. 
E)  Establish strict limits on the amount of pollution allowed.

Question 11

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..

Question 12

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

Question 13

If goods A and B are complements, and if the price of good B rises, how will this affect the market equilibrium for good A?

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 14

Exhibit 4-5  Supply and demand curves for computers   Which of the following changes could cause the computer market to change as shown in Exhibit 4-5?

Accepted Answer

A)  Lower costs for computer chips and motherboards. 
B)  The failure of several computer manufacturers. 
C)  Higher prices for computer software. 
D)  More features and greater ease of use. 
A)  Lower costs for computer chips and motherboards. 
B)  The failure of several computer manufacturers. 
C)  Higher prices for computer software. 
D)  More features and greater ease of use.

Question 15

If consumers switch away from eating margarine at the same time that the number of margarine suppliers increases, then:

Accepted Answer

A)  these two effects cancel each other out and there is no change in the margarine market equilibrium. 
B)  the demand curve shifts left and the supply curve shifts right. 
C)  there is a margarine price increase. 
D)  there is an excess demand for margarine. 
E)  the equilibrium quantity of margarine must increase. 
A)  these two effects cancel each other out and there is no change in the margarine market equilibrium. 
B)  the demand curve shifts left and the supply curve shifts right. 
C)  there is a margarine price increase. 
D)  there is an excess demand for margarine. 
E)  the equilibrium quantity of margarine must increase.

Question 16

A side effect of a price floor set above the equilibrium price is:

Accepted Answer

A)  the new price is below equilibrium price. 
B)  an excess supply of the good is created. 
C)  an excess demand for the good is created. 
D)  the supply of the good decreases. 
E)  the demand for the good increases. 
A)  the new price is below equilibrium price. 
B)  an excess supply of the good is created. 
C)  an excess demand for the good is created. 
D)  the supply of the good decreases. 
E)  the demand for the good increases.

Question 17

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will result in an output that is too:

Accepted Answer

A)  large and a price that is too high. 
B)  large and a price that is too low. 
C)  small and a price that is too high. 
D)  small and a price that is too low. 
A)  large and a price that is too high. 
B)  large and a price that is too low. 
C)  small and a price that is too high. 
D)  small and a price that is too low.

Question 18

Exhibit 4-8  Demand and supply curves   In Exhibit 4-8, a movement from A to B is best explained by:

Accepted Answer

A)  an increase in income and in the number of suppliers. 
B)  an increase in the price of other goods. 
C)  an increase in the population. 
D)  a decrease in income and an improvement in the technology used to produce the good. 
E)  equilibrium quantity increases and the equilibrium price change is indeterminate. 
A)  an increase in income and in the number of suppliers. 
B)  an increase in the price of other goods. 
C)  an increase in the population. 
D)  a decrease in income and an improvement in the technology used to produce the good. 
E)  equilibrium quantity increases and the equilibrium price change is indeterminate.

Question 19

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

Question 20

Cindy discovers that when she goes to the beach, she does not have to bring her radio. She can put her blanket near someone who has a radio and listen all day (without having to carry her radio, get sand in her speakers, or buy new batteries). This is an example of:

Accepted Answer

A)  private property abuse. 
B)  external costs. 
C)  a negative externality. 
D)  a positive externality. 
A)  private property abuse. 
B)  external costs. 
C)  a negative externality. 
D)  a positive externality.

Exam 4: Markets in Action

An increased equilibrium price and a decreased equilibrium quantity results from a(n):

Which of the following is an example of a pure public good?

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(n):

How would a decrease in consumer income affect the market for new automobiles?

External benefits cause the market to:

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

Which of the following statements is not true ?

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:

If the demand curve increases while the supply curve remains unchanged, the equilibrium price would increase.

Which of the following is not a solution to the problem of negative externalities due to pollution?

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

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

If goods A and B are complements, and if the price of good B rises, how will this affect the market equilibrium for good A?

Exhibit 4-5 Supply and demand curves for computers Which of the following changes could cause the computer market to change as shown in Exhibit 4-5?

If consumers switch away from eating margarine at the same time that the number of margarine suppliers increases, then:

A side effect of a price floor set above the equilibrium price is:

Compared to ideal economic efficiency, when the production of a good generates external costs, competitive markets will result in an output that is too:

Exhibit 4-8 Demand and supply curves In Exhibit 4-8, a movement from A to B is best explained by:

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

Cindy discovers that when she goes to the beach, she does not have to bring her radio. She can put her blanket near someone who has a radio and listen all day (without having to carry her radio, get sand in her speakers, or buy new batteries). This is an example of:

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 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(n):

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 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: