Question 1

A decrease in demand leads to a(n):

Accepted Answer

A)  increased equilibrium price and an increased equilibrium quantity. 
B)  decreased equilibrium price and a decreased equilibrium quantity. 
C)  decreased equilibrium price and an increased equilibrium quantity. 
D)  increased equilibrium price and a decreased equilibrium quantity. 
A)  increased equilibrium price and an increased equilibrium quantity. 
B)  decreased equilibrium price and a decreased equilibrium quantity. 
C)  decreased equilibrium price and an increased equilibrium quantity. 
D)  increased equilibrium price and a decreased equilibrium quantity.

Question 2

Which of the following is not an example of an externality?

Accepted Answer

A)  Drunk drivers raise everyone's auto insurance premiums. 
B)  The price of lumber increases as lumberjacks' wages increase. 
C)  The neighbor's beautiful front yard increases your home value. 
D)  Someone drives a car that emits thick black smoke. 
E)  People who live near a bakery enjoy the smell of baked bread. 
A)  Drunk drivers raise everyone's auto insurance premiums. 
B)  The price of lumber increases as lumberjacks' wages increase. 
C)  The neighbor's beautiful front yard increases your home value. 
D)  Someone drives a car that emits thick black smoke. 
E)  People who live near a bakery enjoy the smell of baked bread.

Question 3

A cost imposed on people other than the consumers of a good or service is a:

Accepted Answer

A)  price floor. 
B)  negative externality. 
C)  positive externality. 
D)  price externality. 
A)  price floor. 
B)  negative externality. 
C)  positive externality. 
D)  price externality.

Question 4

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that a below-equilibrium price established by rent control:

Accepted Answer

A)  creates a surplus of rental housing. 
B)  promotes a rapid increase in the future supply of housing. 
C)  results in poor service and quality deterioration of many rental units. 
D)  leads to a reduction in housing discrimination against minorities. 
A)  creates a surplus of rental housing. 
B)  promotes a rapid increase in the future supply of housing. 
C)  results in poor service and quality deterioration of many rental units. 
D)  leads to a reduction in housing discrimination against minorities.

Question 5

Suppose the market for "soda X" is in equilibrium. If the FDA announced today that this soda has been proven to cause a fatal disease, what would be most likely to happen to the equilibrium price and equilibrium quantity of soda X?

Accepted Answer

A)  Price increases and quantity increases 
B)  Price decreases and quantity increases. 
C)  Price increases and quantity increases. 
D)  Price decreases and quantity decreases 
E)  No change in price and quantity 
A)  Price increases and quantity increases 
B)  Price decreases and quantity increases. 
C)  Price increases and quantity increases. 
D)  Price decreases and quantity decreases 
E)  No change in price and quantity

Question 6

A good example of a price floor is:

Accepted Answer

A)  rent controls on apartments in major cities. 
B)  general admission tickets to concerts. 
C)  the minimum wage law. 
D)  food stamp regulations. 
E)  rock concert tickets. 
A)  rent controls on apartments in major cities. 
B)  general admission tickets to concerts. 
C)  the minimum wage law. 
D)  food stamp regulations. 
E)  rock concert tickets.

Question 7

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

Accepted Answer

A)  An increase in quantity of unskilled labor demanded. 
B)  A decrease in the quantity of unskilled labor supplied. 
C)  A shortage of unskilled labor. 
D)  A surplus of unskilled labor (unemployment). 
A)  An increase in quantity of unskilled labor demanded. 
B)  A decrease in the quantity of unskilled labor supplied. 
C)  A shortage of unskilled labor. 
D)  A surplus of unskilled labor (unemployment).

Question 8

Exhibit 4-4  Supply and demand curves for good X   An increase in the wage rate paid to workers producing good X would be represented by which of the graphs in Exhibit 4-4?

Accepted Answer

A)  Graph A. 
B)  Graph B. 
C)  Graph C. 
D)  None of the above. 
A)  Graph A. 
B)  Graph B. 
C)  Graph C. 
D)  None of the above.

Question 9

Goods whose benefits to society are not diminished as more people consume them and whose benefits cannot be withheld from anyone are:

Accepted Answer

A)  impossible since resources are limited. 
B)  examples of negative externalities. 
C)  public goods. 
D)  food and other necessities. 
E)  provided by free markets to free riders. 
A)  impossible since resources are limited. 
B)  examples of negative externalities. 
C)  public goods. 
D)  food and other necessities. 
E)  provided by free markets to free riders.

Question 10

When the government imposes a price ceiling on a good whose price is too high,

Accepted Answer

A)  surpluses are created. 
B)  supply will increase to meet the demand. 
C)  rationing is not necessary. 
D)  quantity demanded of the good will fall. 
E)  chronic excess demand occurs. 
A)  surpluses are created. 
B)  supply will increase to meet the demand. 
C)  rationing is not necessary. 
D)  quantity demanded of the good will fall. 
E)  chronic excess demand occurs.

Question 11

If the supply of 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 12

If we observe a decrease in the price of a good and a decrease in the amount of the good bought and sold, this could be explained by a(n):

Accepted Answer

A)  increase in the supply of the good. 
B)  increase in the demand for the good. 
C)  decrease in the demand for the good. 
D)  decrease in the supply of the good. 
A)  increase in the supply of the good. 
B)  increase in the demand for the good. 
C)  decrease in the demand for the good. 
D)  decrease in the supply of the good.

Question 13

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

Accepted Answer

A)  A Japanese company begins to produce cars, which causes American workers to lose their jobs. 
B)  An employee of a chemical company spills acid on his arm, causing severe damage. 
C)  John plants fruit trees in his front yard, which attracts bees, which sting neighbor Mary. 
D)  Sally buys coffee at McDonald's, spills some on her, and burns her arm. 
E)  Jack attempts to fix his roof, falls off, and breaks his leg. 
A)  A Japanese company begins to produce cars, which causes American workers to lose their jobs. 
B)  An employee of a chemical company spills acid on his arm, causing severe damage. 
C)  John plants fruit trees in his front yard, which attracts bees, which sting neighbor Mary. 
D)  Sally buys coffee at McDonald's, spills some on her, and burns her arm. 
E)  Jack attempts to fix his roof, falls off, and breaks his leg.

Question 14

Nonsmoking sections in restaurants are designed to remove ____ from a market ____.

Accepted Answer

A)  smoke; with food service 
B)  third parties; for food service 
C)  externalities; with public goods 
D)  third parties; externality 
E)  nonsmokers; for food service 
A)  smoke; with food service 
B)  third parties; for food service 
C)  externalities; with public goods 
D)  third parties; externality 
E)  nonsmokers; for food service

Question 15

Price floors are used as a method to:

Accepted Answer

A)  ensure buyers that goods won't be cheaper tomorrow. 
B)  see that production levels don't fall too low. 
C)  guarantee there will be enough food for everyone. 
D)  combat excess demand in the market. 
E)  ensure sellers a minimum price for their goods. 
A)  ensure buyers that goods won't be cheaper tomorrow. 
B)  see that production levels don't fall too low. 
C)  guarantee there will be enough food for everyone. 
D)  combat excess demand in the market. 
E)  ensure sellers a minimum price for their goods.

Question 16

Which of the following is a property of a public good?

Accepted Answer

A)  A public good is free from externalities. 
B)  Many individuals benefit simultaneously. 
C)  A public good is not subject to free riders. 
D)  A public good is established by law. 
A)  A public good is free from externalities. 
B)  Many individuals benefit simultaneously. 
C)  A public good is not subject to free riders. 
D)  A public good is established by law.

Question 17

Which of the following is the best example of a public good?

Accepted Answer

A)  Cars. 
B)  Education. 
C)  Radios. 
D)  Air traffic control. 
A)  Cars. 
B)  Education. 
C)  Radios. 
D)  Air traffic control.

Question 18

A price floor that sets the price of a good above market equilibrium will cause:

Accepted Answer

A)  a decrease in quantity demanded of the good. 
B)  an increase in quantity supplied of the good. 
C)  a surplus of the good. 
D)  all of the above. 
A)  a decrease in quantity demanded of the good. 
B)  an increase in quantity supplied of the good. 
C)  a surplus of the good. 
D)  all of the above.

Question 19

A competitive market economy is unlikely to provide an efficient quantity of some public goods because:

Accepted Answer

A)  only the government has the vast resources necessary to produce public goods. 
B)  the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers. 
C)  the technology involved in the production of public goods makes it difficult for private firms to produce them even though, once produced, they could be marketed efficiently. 
D)  private production of public goods generally results in a large amount of profit, which is difficult for a firm to effectively pay out to shareholders. 
A)  only the government has the vast resources necessary to produce public goods. 
B)  the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers. 
C)  the technology involved in the production of public goods makes it difficult for private firms to produce them even though, once produced, they could be marketed efficiently. 
D)  private production of public goods generally results in a large amount of profit, which is difficult for a firm to effectively pay out to shareholders.

Question 20

A hurricane destroyed the peach crop in South Carolina. Shortly thereafter the price of peaches rose significantly. These events suggest that a(n):

Accepted Answer

A)  decrease in the supply of peaches caused the price of peaches to rise. 
B)  increase in the supply of peaches caused the price of peaches to rise. 
C)  increase in demand caused the price of peaches to rise. 
D)  decrease in demand caused the price of peaches to rise. 
A)  decrease in the supply of peaches caused the price of peaches to rise. 
B)  increase in the supply of peaches caused the price of peaches to rise. 
C)  increase in demand caused the price of peaches to rise. 
D)  decrease in demand caused the price of peaches to rise.

Exam 4: Markets in Action

A decrease in demand leads to a(n):

Which of the following is not an example of an externality?

A cost imposed on people other than the consumers of a good or service is a:

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that a below-equilibrium price established by rent control:

Suppose the market for "soda X" is in equilibrium. If the FDA announced today that this soda has been proven to cause a fatal disease, what would be most likely to happen to the equilibrium price and equilibrium quantity of soda X?

A good example of a price floor is:

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

Exhibit 4-4 Supply and demand curves for good X An increase in the wage rate paid to workers producing good X would be represented by which of the graphs in Exhibit 4-4?

Goods whose benefits to society are not diminished as more people consume them and whose benefits cannot be withheld from anyone are:

When the government imposes a price ceiling on a good whose price is too high,

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

If we observe a decrease in the price of a good and a decrease in the amount of the good bought and sold, this could be explained by a(n):

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

Nonsmoking sections in restaurants are designed to remove ____ from a market ____.

Price floors are used as a method to:

Which of the following is a property of a public good?

Which of the following is the best example of a public good?

A price floor that sets the price of a good above market equilibrium will cause:

A competitive market economy is unlikely to provide an efficient quantity of some public goods because:

A hurricane destroyed the peach crop in South Carolina. Shortly thereafter the price of peaches rose significantly. These events suggest that 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

Nonsmoking sections in restaurants are designed to remove from a market .