Question 1

Externalities get their name from the fact that they are:

Accepted Answer

A) b and d. 
B) unintended. 
C) short lived. 
D) outside of decisions. 
E) outside of marketplace. 
A) b and d. 
B) unintended. 
C) short lived. 
D) outside of decisions. 
E) outside of marketplace.

Question 2

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 3

If Congress decides to reduce the tax per pack paid by sellers of cigarettes,other things being equal,the equilibrium price of cigarettes will fall.This fall in the equilibrium price can be attributed to a(n):

Accepted Answer

A)  upward movement along the supply curve for cigarettes. 
B)  rightward shift of the supply curve for cigarettes. 
C)  upward movement along the demand curve for cigarettes. 
D)  leftward shift of the supply curve for cigarettes. 
A)  upward movement along the supply curve for cigarettes. 
B)  rightward shift of the supply curve for cigarettes. 
C)  upward movement along the demand curve for cigarettes. 
D)  leftward shift of the supply curve for cigarettes.

Question 4

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 5

A cost or benefit of a good imposed on people other than the consumers or producer of a good is called a(n):

Accepted Answer

A)  public good. 
B)  merit good. 
C)  private good. 
D)  externality. 
A)  public good. 
B)  merit good. 
C)  private good. 
D)  externality.

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

If the cost of fertilizer rises,then the price of corn will:

Accepted Answer

A)  rise. 
B)  fall. 
C)  remain unchanged. 
D)  react unpredictably. 
A)  rise. 
B)  fall. 
C)  remain unchanged. 
D)  react unpredictably.

Question 8

If the government imposes a price ceiling below the market equilibrium price,which of the following will result?

Accepted Answer

A)  There will be a surplus of the good. 
B)  The quantity demanded will exceed the quantity supplied. 
C)  The quantity supplied will exceed the quantity demanded. 
D)  The demand curve will shift to the left. 
A)  There will be a surplus of the good. 
B)  The quantity demanded will exceed the quantity supplied. 
C)  The quantity supplied will exceed the quantity demanded. 
D)  The demand curve will shift to the left.

Question 9

Exhibit 4-7 Demand and supply schedules for movie tickets
  
-In Exhibit 4-7,the equilibrium price of a movie ticket is:

Accepted Answer

A)  $10. 
B)  $8. 
C)  $6. 
D)  $4. 
E)  $2. 
A)  $10. 
B)  $8. 
C)  $6. 
D)  $4. 
E)  $2.

Question 10

Which of the following is the best description of the effects of an increase in the supply of bread?

Accepted Answer

A)  Consumers will pay more for bread. 
B)  Bread prices will fall, and bread sales will rise. 
C)  A permanent surplus of bread will remain on the market. 
D)  Bakers will have higher marginal costs. 
A)  Consumers will pay more for bread. 
B)  Bread prices will fall, and bread sales will rise. 
C)  A permanent surplus of bread will remain on the market. 
D)  Bakers will have higher marginal costs.

Question 11

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.

Question 12

A price ceiling set below the equilibrium price creates a shortage.

Accepted Answer

A) True 
 B)False

Question 13

A price floor is a price set below equilibrium by government and it creates a shortage.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is the best example of an action that imposes an external cost?

Accepted Answer

A)  Wear and tear on your car as the result of frequent use. 
B)  Deterioration in the average quality of a house you own as the result of poor maintenance. 
C)  Water pollution from an upstream factory that increases the cost of providing clean water to downstream residents. 
D)  A rose garden on your property from which your neighbor gets much enjoyment. 
A)  Wear and tear on your car as the result of frequent use. 
B)  Deterioration in the average quality of a house you own as the result of poor maintenance. 
C)  Water pollution from an upstream factory that increases the cost of providing clean water to downstream residents. 
D)  A rose garden on your property from which your neighbor gets much enjoyment.

Question 15

Negative externalities result in unfair,excessively high prices.

Accepted Answer

A) True 
 B)False

Question 16

Unintended costs that are imposed in third parties as a result of an economic activity are called:

Accepted Answer

A)  marginal costs. 
B)  direct costs. 
C)  negative externalities. 
D)  positive externalities. 
E)  positive costs. 
A)  marginal costs. 
B)  direct costs. 
C)  negative externalities. 
D)  positive externalities. 
E)  positive costs.

Question 17

A third party is a person,or persons,who:

Accepted Answer

A)  consume goods produced from at least two intermediate inputs. 
B)  avoids the transactions of the two principal parties. 
C)  takes risks to avoid externalities. 
D)  internalizes the costs of market failure. 
E)  is imposed upon by the activity of others. 
A)  consume goods produced from at least two intermediate inputs. 
B)  avoids the transactions of the two principal parties. 
C)  takes risks to avoid externalities. 
D)  internalizes the costs of market failure. 
E)  is imposed upon by the activity of others.

Question 18

A price floor is:

Accepted Answer

A)  the lowest price a producer will accept. 
B)  the lowest price a consumer will pay. 
C)  a minimum price set by the government above equilibrium price. 
D)  a maximum price set by the government above equilibrium price 
E)  usually set equal to equilibrium price. 
A)  the lowest price a producer will accept. 
B)  the lowest price a consumer will pay. 
C)  a minimum price set by the government above equilibrium price. 
D)  a maximum price set by the government above equilibrium price 
E)  usually set equal to equilibrium price.

Question 19

If the free market is called upon to provide public goods,then:

Accepted Answer

A)  there will more goods provided than is optimal. 
B)  there will be fewer goods provided than is optimal. 
C)  the market will provide the optimal number of goods. 
D)  the market price will be correct, but the optimal amount of output will not be produced. 
E)  the firms will earn excess profit. 
A)  there will more goods provided than is optimal. 
B)  there will be fewer goods provided than is optimal. 
C)  the market will provide the optimal number of goods. 
D)  the market price will be correct, but the optimal amount of output will not be produced. 
E)  the firms will earn excess profit.

Question 20

Exhibit 4-2 Supply and demand curves
  
-In Exhibit 4-2 an increase in supply 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.

Exam 4: Markets in Action

Externalities get their name from the fact that they are:

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

If Congress decides to reduce the tax per pack paid by sellers of cigarettes,other things being equal,the equilibrium price of cigarettes will fall.This fall in the equilibrium price can be attributed to a(n):

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

A cost or benefit of a good imposed on people other than the consumers or producer of a good is called a(n):

When there is market failure due to a negative externality,

If the cost of fertilizer rises,then the price of corn will:

If the government imposes a price ceiling below the market equilibrium price,which of the following will result?

Exhibit 4-7 Demand and supply schedules for movie tickets -In Exhibit 4-7,the equilibrium price of a movie ticket is:

Which of the following is the best description of the effects of an increase in the supply of bread?

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

A price ceiling set below the equilibrium price creates a shortage.

A price floor is a price set below equilibrium by government and it creates a shortage.

Which of the following is the best example of an action that imposes an external cost?

Negative externalities result in unfair,excessively high prices.

Unintended costs that are imposed in third parties as a result of an economic activity are called:

A third party is a person,or persons,who:

A price floor is:

If the free market is called upon to provide public goods,then:

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

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