Question 1

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 2

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 3

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

Accepted Answer

A)  Bread. 
B)  Fish in the ocean. 
C)  Scrambled satellite broadcasts. 
D)  National defense. 
A)  Bread. 
B)  Fish in the ocean. 
C)  Scrambled satellite broadcasts. 
D)  National defense.

Question 4

Dina is driving to work on an interstate highway at 90 MPH,well in excess of the legal speed of 65 MPH.Sandy is also driving to work at the same time,going 85 MPH.A state trooper pulls Dina over and gives her a speeding ticket.Sandy continues driving,but if Dina had not been speeding,the trooper would have ticketed Sandy instead.In terms of externalities,this story shows that:

Accepted Answer

A)  Sandy's actions gave Dina a positive externality. 
B)  Dina's actions gave Sandy a positive externality. 
C)  Sandy's actions gave Dina a negative externality. 
D)  Dina's actions gave Sandy a negative externality. 
E)  Dina's and Sandy's actions did not create any externalities. 
A)  Sandy's actions gave Dina a positive externality. 
B)  Dina's actions gave Sandy a positive externality. 
C)  Sandy's actions gave Dina a negative externality. 
D)  Dina's actions gave Sandy a negative externality. 
E)  Dina's and Sandy's actions did not create any externalities.

Question 5

If a good gives rise to substantial external benefits to society that are associated with its production and/or consumption then the good likely has too few resources devoted to its production.

Accepted Answer

A) True 
 B)False

Question 6

Exhibit 4-11 Data on supply and demand
  
-Which of the following would occur if the government imposed a price floor (support price)of $4 per bushel in the wheat market shown in Exhibit 4-11?

Accepted Answer

A)  Buyers would want to purchase more wheat than is supplied. 
B)  Buyers would not purchase all of the wheat grown. 
C)  Shortage of wheat would increase the price of wheat. 
D)  Farmers would grow less wheat. 
A)  Buyers would want to purchase more wheat than is supplied. 
B)  Buyers would not purchase all of the wheat grown. 
C)  Shortage of wheat would increase the price of wheat. 
D)  Farmers would grow less wheat.

Question 7

Which of the following is the most likely effect of lower apple juice prices on the price and quantity purchased of orange juice,a substitute product?

Accepted Answer

A)  The price of orange juice will increase, and the quantity purchased will fall. 
B)  The price of orange juice will fall, and the quantity purchased will increase. 
C)  The price of orange juice will increase, and the quantity purchased will increase. 
D)  The price of orange juice will fall, and the quantity purchased will fall. 
A)  The price of orange juice will increase, and the quantity purchased will fall. 
B)  The price of orange juice will fall, and the quantity purchased will increase. 
C)  The price of orange juice will increase, and the quantity purchased will increase. 
D)  The price of orange juice will fall, and the quantity purchased will fall.

Question 8

An increase in the wages paid to fishermen will have what effect on the fish market equilibrium?

Accepted Answer

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

Question 9

A community in a Southeastern state passed a beautification ordinance (law)prohibiting the placement of indoor furniture outside of homes (i.e.,no couches on the porch).The law represents a conflict between ____ and ____.

Accepted Answer

A)  the rich; the poor 
B)  third parties; market participants 
C)  victims; criminals 
D)  public goods; private goods 
E)  residents; visitors 
A)  the rich; the poor 
B)  third parties; market participants 
C)  victims; criminals 
D)  public goods; private goods 
E)  residents; visitors

Question 10

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 11

Exhibit 4-4 Supply and demand curves for good X
  
-Which of the graphs in Exhibit 4-4 represents a decrease in the price of a factor of production?

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 12

Bobby's neighbor is growing a tree that is blocking Bobby's ocean view.Bobby is considering taking his neighbor to court.This is most likely an example of a:

Accepted Answer

A)  considerate neighbor. 
B)  public good. 
C)  free rider. 
D)  positive externality. 
E)  negative externality. 
A)  considerate neighbor. 
B)  public good. 
C)  free rider. 
D)  positive externality. 
E)  negative externality.

Question 13

Exhibit 4-3 Supply and demand curves
  
-Initially the market shown in Exhibit 4-3 is in equilibrium at P₂,Q₂ (E₂).Changes in market conditions result in a new equilibrium at P₂,Q₄ (E₄).This change is stated as a(n):

Accepted Answer

A)  increase in supply and an increase in demand. 
B)  increase in supply and a decrease in demand. 
C)  decrease in demand and a decrease in supply. 
D)  increase in demand with supply held constant at S2. 
A)  increase in supply and an increase in demand. 
B)  increase in supply and a decrease in demand. 
C)  decrease in demand and a decrease in supply. 
D)  increase in demand with supply held constant at S2.

Question 14

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 15

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 16

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 17

Voluntary recycling is available in many parts of the country.If citizens of these areas have collected recyclable material at home,they can bring it to a recycling center.These materials reduce landfill space,reduce the need for virgin material extraction,and provide an inexpensive input in many production processes.The information in this question suggests what about areas without voluntary recycling?

Accepted Answer

A)  Externalities exist. 
B)  There is mandatory recycling. 
C)  Raw materials are less expensive. 
D)  The cost of production is higher. 
E)  Nothing. 
A)  Externalities exist. 
B)  There is mandatory recycling. 
C)  Raw materials are less expensive. 
D)  The cost of production is higher. 
E)  Nothing.

Question 18

If you were a government official and wanted to raise the price of wheat,which of the following actions would you take?

Accepted Answer

A)  Take wheat from government storage and sell it. 
B)  Encourage farmers to use more fertilizer. 
C)  Lower the price of rye. 
D)  Subsidize purchases of farm equipment. 
E)  Encourage farmers to grow less wheat. 
A)  Take wheat from government storage and sell it. 
B)  Encourage farmers to use more fertilizer. 
C)  Lower the price of rye. 
D)  Subsidize purchases of farm equipment. 
E)  Encourage farmers to grow less wheat.

Question 19

A third party is:

Accepted Answer

A)  the party to which a contractual agreement is meant to benefit. 
B)  a person, or persons, who are unintentionally affected by a market transaction. 
C)  the third person in a three-way contract. 
D)  the person who owns the property right in a contract. 
E)  when the government attempts to mediate a dispute between management and labor. 
A)  the party to which a contractual agreement is meant to benefit. 
B)  a person, or persons, who are unintentionally affected by a market transaction. 
C)  the third person in a three-way contract. 
D)  the person who owns the property right in a contract. 
E)  when the government attempts to mediate a dispute between management and labor.

Question 20

Sometimes the government deals with externalities by creating laws to regulate behavior instead of using taxes to correct the market failure.So,requiring auto manufacturers to install a device called a catalytic converter which removes some toxins from exhaust may be preferable to a gas tax that reduces driving levels.This route is often preferred because:

Accepted Answer

A) c and e. 
B) it requires less technological development. 
C) it doesn't penalize drivers of clean cars. 
D) only car drivers pay for the externality. 
E) the cost of the externality is unknown. 
A) c and e. 
B) it requires less technological development. 
C) it doesn't penalize drivers of clean cars. 
D) only car drivers pay for the externality. 
E) the cost of the externality is unknown.

Exam 4: Markets in Action

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

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

If a good gives rise to substantial external benefits to society that are associated with its production and/or consumption then the good likely has too few resources devoted to its production.

Exhibit 4-11 Data on supply and demand -Which of the following would occur if the government imposed a price floor (support price)of $4 per bushel in the wheat market shown in Exhibit 4-11?

Which of the following is the most likely effect of lower apple juice prices on the price and quantity purchased of orange juice,a substitute product?

An increase in the wages paid to fishermen will have what effect on the fish market equilibrium?

A community in a Southeastern state passed a beautification ordinance (law)prohibiting the placement of indoor furniture outside of homes (i.e.,no couches on the porch).The law represents a conflict between ____ and ____.

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):

Exhibit 4-4 Supply and demand curves for good X -Which of the graphs in Exhibit 4-4 represents a decrease in the price of a factor of production?

Bobby's neighbor is growing a tree that is blocking Bobby's ocean view.Bobby is considering taking his neighbor to court.This is most likely an example of a:

Exhibit 4-3 Supply and demand curves -Initially the market shown in Exhibit 4-3 is in equilibrium at P₂,Q₂ (E₂).Changes in market conditions result in a new equilibrium at P₂,Q₄ (E₄).This change is stated as a(n):

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?

The possibility of a free rider exists:

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?

If you were a government official and wanted to raise the price of wheat,which of the following actions would you take?

A third party is:

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: 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

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Money Creation

Monetary Policy

A: Appendix: 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

A community in a Southeastern state passed a beautification ordinance (law)prohibiting the placement of indoor furniture outside of homes (i.e.,no couches on the porch).The law represents a conflict between and .