Question 1

Higher gasoline prices would likely raise the price of large,gas-guzzling automobiles.

Accepted Answer

A) True 
 B)False

Question 2

John paints the exterior of his house and,as a result,his neighbor Christine is able to sell her home for $5,000 more than she could have before.John's house painting:

Accepted Answer

A)  creates a negative externality for Christine. 
B)  shows John is a free rider. 
C)  results in an efficient market outcome for both. 
D)  creates a positive externality for Christine. 
E)  was poorly done. 
A)  creates a negative externality for Christine. 
B)  shows John is a free rider. 
C)  results in an efficient market outcome for both. 
D)  creates a positive externality for Christine. 
E)  was poorly done.

Question 3

Market failure occurs when supply and demand curves only reflect:

Accepted Answer

A)  private or market costs and benefits. 
B)  external costs and benefits. 
C)  external benefits. 
D)  external costs. 
A)  private or market costs and benefits. 
B)  external costs and benefits. 
C)  external benefits. 
D)  external costs.

Question 4

A price floor (support price)set above equilibrium:

Accepted Answer

A)  is a minimum legal price set by government above equilibrium. 
B)  causes the quantity supplied to exceed the quantity demanded. 
C)  creates a surplus. 
D)  can represent the effect of a minimum wage. 
E)  all of the above. 
A)  is a minimum legal price set by government above equilibrium. 
B)  causes the quantity supplied to exceed the quantity demanded. 
C)  creates a surplus. 
D)  can represent the effect of a minimum wage. 
E)  all of the above.

Question 5

Exhibit 4-1 Supply and demand data
  
-Exhibit 4-1 shows that at a price of $3.00,

Accepted Answer

A)  the market is in equilibrium. 
B)  there will be excess quantity demanded. 
C)  there will be excess quantity supplied. 
D)  there is a price ceiling in effect. 
A)  the market is in equilibrium. 
B)  there will be excess quantity demanded. 
C)  there will be excess quantity supplied. 
D)  there is a price ceiling in effect.

Question 6

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

Accepted Answer

A)  The demand for beef would increase, increasing beef prices. 
B)  The demand for beef would decrease, decreasing beef prices. 
C)  The supply of beef would increase, decreasing beef prices. 
D)  The supply of beef would decrease, increasing beef prices. 
A)  The demand for beef would increase, increasing beef prices. 
B)  The demand for beef would decrease, decreasing beef prices. 
C)  The supply of beef would increase, decreasing beef prices. 
D)  The supply of beef would decrease, increasing beef prices.

Question 7

If a government-imposed price floor legally sets the price of milk above market equilibrium,which of the following will most likely happen?

Accepted Answer

A)  The quantity of milk demanded will increase. 
B)  The quantity of milk supplied will decrease. 
C)  There will be a surplus of milk. 
D)  There will be a shortage of milk. 
A)  The quantity of milk demanded will increase. 
B)  The quantity of milk supplied will decrease. 
C)  There will be a surplus of milk. 
D)  There will be a shortage of milk.

Question 8

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 9

If the demand for 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 10

Exhibit 4-2 Supply and demand curves
  
-In Exhibit 4-2,a decrease in quantity demanded would cause a movement from which equilibrium point to another,other things being equal?

Accepted Answer

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

Question 11

Exhibit 4-11 Data on supply and demand
  
-Which of the following is not a market failure?

Accepted Answer

A)  A lack of competition in some markets. 
B)  Prices determined in competitive markets, which consumers, as individuals, have no control over. 
C)  The presence of externalities in some markets. 
D)  A lack of public goods desired by a majority of citizens. 
E)  Income inequality. 
A)  A lack of competition in some markets. 
B)  Prices determined in competitive markets, which consumers, as individuals, have no control over. 
C)  The presence of externalities in some markets. 
D)  A lack of public goods desired by a majority of citizens. 
E)  Income inequality.

Question 12

Denise is thinking about setting up a butterfly garden in her backyard.She estimates that it will cost her $2,000 to purchase and install special plants and an irrigation system to attract butterflies.The benefit she expects to receive is $1,800.In addition,neighbor Billy will receive a benefit of $150 and neighbor Sammy will receive a benefit of $100.From this,we can conclude that:

Accepted Answer

A)  butterflies are a negative externality for Billy and Sammy. 
B)  Denise will set up the butterfly garden without any help from her free-rider neighbors. 
C)  if Sammy refuses to contribute to the butterfly garden, he will be unable to enjoy its benefits if it is built. 
D)  if Billy refuses to contribute to the butterfly garden, Denise will not have one. 
E)  if Billy and Sammy contribute the amounts at which they value the butterfly garden, Denise will set it up. 
A)  butterflies are a negative externality for Billy and Sammy. 
B)  Denise will set up the butterfly garden without any help from her free-rider neighbors. 
C)  if Sammy refuses to contribute to the butterfly garden, he will be unable to enjoy its benefits if it is built. 
D)  if Billy refuses to contribute to the butterfly garden, Denise will not have one. 
E)  if Billy and Sammy contribute the amounts at which they value the butterfly garden, Denise will set it up.

Question 13

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 14

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 15

Exhibit 4-8 Demand and supply curves
  
-In Exhibit 4-8,a movement from A to D is best described as a(n):

Accepted Answer

A)  increase in the quantity demanded and an increase in supply. 
B)  increase in supply and demand. 
C)  increase in both the quantity demanded and supplied. 
D)  increase in the quantity supplied and in the demand. 
E)  decrease in the quantity demanded and a decrease in supply. 
A)  increase in the quantity demanded and an increase in supply. 
B)  increase in supply and demand. 
C)  increase in both the quantity demanded and supplied. 
D)  increase in the quantity supplied and in the demand. 
E)  decrease in the quantity demanded and a decrease in supply.

Question 16

What are market failures? Discuss examples of market failures.What can government do to improve the results of market failures?

Accepted Answer

Market failures are undesirable social r

Question 17

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 18

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 19

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 20

A good that provides external benefits to society has:

Accepted Answer

A)  too few resources devoted to its production. 
B)  too many resources devoted to its production. 
C)  the optimal resources devoted to its production. 
D)  not provided profits to producers of the good. 
A)  too few resources devoted to its production. 
B)  too many resources devoted to its production. 
C)  the optimal resources devoted to its production. 
D)  not provided profits to producers of the good.

Exam 4: Markets in Action

Higher gasoline prices would likely raise the price of large,gas-guzzling automobiles.

John paints the exterior of his house and,as a result,his neighbor Christine is able to sell her home for $5,000 more than she could have before.John's house painting:

Market failure occurs when supply and demand curves only reflect:

A price floor (support price)set above equilibrium:

Exhibit 4-1 Supply and demand data -Exhibit 4-1 shows that at a price of $3.00,

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

If a government-imposed price floor legally sets the price of milk above market equilibrium,which of the following will most likely happen?

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):

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

Exhibit 4-2 Supply and demand curves -In Exhibit 4-2,a decrease in quantity demanded would cause a movement from which equilibrium point to another,other things being equal?

Exhibit 4-11 Data on supply and demand -Which of the following is not a market failure?

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

One likely result of a price ceiling is that:

Exhibit 4-8 Demand and supply curves -In Exhibit 4-8,a movement from A to D is best described as a(n):

What are market failures? Discuss examples of market failures.What can government do to improve the results of market failures?

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

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?

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

A good that provides external benefits to society has:

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