Question 1

When there are positive externalities associated with the consumption of a good, we can expect the market:

Accepted Answer

A)  demand curve to lie above the social demand curve. 
B)  demand curve to lie below the social demand curve. 
C)  supply curve to lie above the social supply curve. 
D)  supply curve to lie below the social supply curve. 
E)  demand curve to lie below the social supply curve. 
A)  demand curve to lie above the social demand curve. 
B)  demand curve to lie below the social demand curve. 
C)  supply curve to lie above the social supply curve. 
D)  supply curve to lie below the social supply curve. 
E)  demand curve to lie below the social supply curve.

Question 2

If a price ceiling is imposed, then:

Accepted Answer

A)  the market supply curve will shift to the right. 
B)  the market demand will shift to the left. 
C)  a shortage of product will result. 
D)  the government would be required to buy-up the surplus product. 
E)  the market equilibrium price is below the level the government wishes to achieve. 
A)  the market supply curve will shift to the right. 
B)  the market demand will shift to the left. 
C)  a shortage of product will result. 
D)  the government would be required to buy-up the surplus product. 
E)  the market equilibrium price is below the level the government wishes to achieve.

Question 3

If the government imposes a price ceiling, then:

Accepted Answer

A)  producers must charge the ceiling price. 
B)  the price offered by producers must be at or above the ceiling price. 
C)  the price offered by producers must be at or below the ceiling price. 
D)  producers would be inclined to increase the quantity supplied. 
E)  the market supply curve will shift to the right. 
A)  producers must charge the ceiling price. 
B)  the price offered by producers must be at or above the ceiling price. 
C)  the price offered by producers must be at or below the ceiling price. 
D)  producers would be inclined to increase the quantity supplied. 
E)  the market supply curve will shift to the right.

Question 4

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)  The price of bread increases. 
E)  Accidentally pushing someone as you try to cross the street. 
A)  Planting flowers in your front yard. 
B)  Talking loudly when others are trying to study economics. 
C)  People donating money to charity. 
D)  The price of bread increases. 
E)  Accidentally pushing someone as you try to cross the street.

Question 5

Albert, Betty, Christine and David are all very good students. When they hold their study sessions, they often discuss very difficult concepts in great detail. Christine's roommate, Elizabeth, who takes completely different classes, still learns from the discussions of the others. This is the case of a(n) ____, which ____ a ____.

Accepted Answer

A)  public good; benefits; third party 
B)  externality; imposes a cost on; free rider 
C)  market failure; results from; third party 
D)  free rider; benefits from; third party 
E)  Externalities; benefits; third party 
A)  public good; benefits; third party 
B)  externality; imposes a cost on; free rider 
C)  market failure; results from; third party 
D)  free rider; benefits from; third party 
E)  Externalities; benefits; third party

Question 6

When there is market failure due to a negative externality,

Accepted Answer

A)  innocent people will suffer since it cannot be corrected. 
B)  setting price equal to marginal social cost will solve it. 
C)  the free market produces too little output. 
D)  externalities have been taken into account. 
E)  the best solution eliminates the externality entirely. 
A)  innocent people will suffer since it cannot be corrected. 
B)  setting price equal to marginal social cost will solve it. 
C)  the free market produces too little output. 
D)  externalities have been taken into account. 
E)  the best solution eliminates the externality entirely.

Question 7

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

Accepted Answer

A)  The flu shot is cheaper than the cost of treatment when you get the flu. 
B)  The income of doctors increases when you get the flu shot. 
C)  The flu shot reduces the likelihood others will catch the flu. 
D)  The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income. 
A)  The flu shot is cheaper than the cost of treatment when you get the flu. 
B)  The income of doctors increases when you get the flu shot. 
C)  The flu shot reduces the likelihood others will catch the flu. 
D)  The flu shot reduces the likelihood you will miss work as the result of sickness; therefore, you will earn more income.

Question 8

Suppose a price floor is set by the government above the market equilibrium price. Which of the following will result?

Accepted Answer

A)  There will be a surplus. 
B)  The quantity demanded will exceed the quantity supplied. 
C)  The demand curve will shift to the left. 
D)  None of the above. 
A)  There will be a surplus. 
B)  The quantity demanded will exceed the quantity supplied. 
C)  The demand curve will shift to the left. 
D)  None of the above.

Question 9

One method of correcting for ____ externalities is to create a ____ to make sure the market accounts for all costs and benefits.

Accepted Answer

A)  market failure; tax 
B)  negative; tax 
C)  positive; mechanism 
D)  positive; tax 
E)  negative; free market 
A)  market failure; tax 
B)  negative; tax 
C)  positive; mechanism 
D)  positive; tax 
E)  negative; free market

Question 10

Price ceilings are imposed if the government believes:

Accepted Answer

A)  the market will not achieve an equilibrium price. 
B)  the market equilibrium price is too low. 
C)  an excess supply of the product exists. 
D)  the market equilibrium price is too high. 
E)  the demand will be less than the supply of the product. 
A)  the market will not achieve an equilibrium price. 
B)  the market equilibrium price is too low. 
C)  an excess supply of the product exists. 
D)  the market equilibrium price is too high. 
E)  the demand will be less than the supply of the product.

Question 11

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. 
E)  the market supply curve will shift to the right. 
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. 
E)  the market supply curve will shift to the right.

Question 12

Exhibit 4-3  Supply and demand curves   The market shown in Exhibit 4-3 is initially in equilibrium at point E4. Union negotiations result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

Accepted Answer

A)  E1. 
B)  E2. 
C)  E3. 
D)  E4. 
A)  E1. 
B)  E2. 
C)  E3. 
D)  E4.

Question 13

When airplanes take off and land at Logan airport, residents of East Boston complain about the noise. The same planes make the same noise during the trip to Boston from Paris, but there are no ____ for most of the trip because ____.

Accepted Answer

A)  jet sounds; noise doesn't travel at high altitudes 
B)  third parties; there are no externalities 
C)  externalities; there are no third parties 
D)  complaints; airplanes are insulated 
E)  free riders; passengers must pay to board the plane 
A)  jet sounds; noise doesn't travel at high altitudes 
B)  third parties; there are no externalities 
C)  externalities; there are no third parties 
D)  complaints; airplanes are insulated 
E)  free riders; passengers must pay to board the plane

Question 14

Ceteris paribus , if consumer tastes change so that more people are eating broccoli, then what will happen to the market equilibrium for cabbage, a substitute good for broccoli?

Accepted Answer

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

Question 15

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. 
E)  actually efficient because prices are higher for suppliers. 
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. 
E)  actually efficient because prices are higher for suppliers.

Question 16

​ A legally established maximum price a seller can charge is a price floor.

Accepted Answer

A) True 
 B)False

Question 17

The possibility of a free rider exists:

Accepted Answer

A)  in the presence of external costs and benefits. 
B)  only in the presence of external costs. 
C)  only in the presence of external benefits. 
D)  only in the presence of internal costs. 
E)  only in the presence of a government-produced good. 
A)  in the presence of external costs and benefits. 
B)  only in the presence of external costs. 
C)  only in the presence of external benefits. 
D)  only in the presence of internal costs. 
E)  only in the presence of a government-produced good.

Question 18

Many student government candidates at colleges and universities propose rent controls on local rental housing as a way to help students afford rental housing. Economic theory suggests that this policy would harm students as a whole despite the fact that some students who are able to find housing at the reduced price would benefit. Which of the following are some of the offsetting secondary effects of the rent controls that would work to the disadvantage of students?

Accepted Answer

A)  There would be a shortage of rental housing, making it very difficult for students to find places to rent and causing increased discrimination in the rental housing market. 
B)  There would be a reduction in the quality of rental housing. 
C)  There would be a reduction in the future supply of rental housing. 
D)  All of the above would be secondary effects of the rent controls. 
A)  There would be a shortage of rental housing, making it very difficult for students to find places to rent and causing increased discrimination in the rental housing market. 
B)  There would be a reduction in the quality of rental housing. 
C)  There would be a reduction in the future supply of rental housing. 
D)  All of the above would be secondary effects of the rent controls.

Question 19

An example of a price ceiling would be:

Accepted Answer

A)  a ration coupon. 
B)  a guarantee of a target price for farm products. 
C)  parity pricing. 
D)  rent control. 
E)  the soil bank program. 
A)  a ration coupon. 
B)  a guarantee of a target price for farm products. 
C)  parity pricing. 
D)  rent control. 
E)  the soil bank program.

Question 20

Which of the following would decrease the price of packaged hot dogs?

Accepted Answer

A)  An increase in the price of hot dog buns, a complement to packaged hot dogs. 
B)  A decrease in the price of hamburger meat, a substitute for packaged hot dogs. 
C)  A technological advance that lowers the cost of producing packaged hot dogs. 
D)  All of the above. 
A)  An increase in the price of hot dog buns, a complement to packaged hot dogs. 
B)  A decrease in the price of hamburger meat, a substitute for packaged hot dogs. 
C)  A technological advance that lowers the cost of producing packaged hot dogs. 
D)  All of the above.

Exam 4: Markets in Action

When there are positive externalities associated with the consumption of a good, we can expect the market:

If a price ceiling is imposed, then:

If the government imposes a price ceiling, then:

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

When there is market failure due to a negative externality,

Which of the following correctly describes the external benefit resulting from an individual's purchase of a winter flu shot?

Suppose a price floor is set by the government above the market equilibrium price. Which of the following will result?

One method of correcting for ____ externalities is to create a ____ to make sure the market accounts for all costs and benefits.

Price ceilings are imposed if the government believes:

One likely result of a price ceiling is that:

Exhibit 4-3 Supply and demand curves The market shown in Exhibit 4-3 is initially in equilibrium at point E4. Union negotiations result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

When airplanes take off and land at Logan airport, residents of East Boston complain about the noise. The same planes make the same noise during the trip to Boston from Paris, but there are no ____ for most of the trip because ____.

Ceteris paribus , if consumer tastes change so that more people are eating broccoli, then what will happen to the market equilibrium for cabbage, a substitute good for broccoli?

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

​ A legally established maximum price a seller can charge is a price floor.

The possibility of a free rider exists:

An example of a price ceiling would be:

Which of the following would decrease the price of packaged hot dogs?

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

One method of correcting for externalities is to create a to make sure the market accounts for all costs and benefits.

Exhibit 4-3 Supply and demand curves The market shown in Exhibit 4-3 is initially in equilibrium at point E₄. Union negotiations result in a wage increase. Other things being equal, which of the following is the new equilibrium after this wage increase is in effect?

When airplanes take off and land at Logan airport, residents of East Boston complain about the noise. The same planes make the same noise during the trip to Boston from Paris, but there are no for most of the trip because .

A legally established maximum price a seller can charge is a price floor.