Question 1

Which of the following would be an external cost to the consumption of cigarettes?

Accepted Answer

A)  Price of a pack of cigarettes. 
B)  Loss of income resulting from extra missed days of work. 
C)  Higher life insurance premiums due the practice of smoking. 
D)  The loss in utility received because the smoker must stand outside her office building in the winter to smoke. 
E)  Increased risk of cancer to the nonsmoking passengers in the smoker's carpool.

Question 2

Exhibit 4-3 Supply and demand curves 
-Initially the market shown in Exhibit 4-3 is in equilibrium at P3, Q3 (E3). Changes in market conditions result in a new equilibrium at P2, Q2 (E2). This change is stated as a:

Accepted Answer

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

Question 3

​Examples of market failure include lack of competition, externalities, public goods, and income inequality.

Accepted Answer

A) True 
 B)False

Question 4

A price ceiling:

Accepted Answer

A)  is the lowest price that the law will allow to be charged in the market. 
B)  is the highest price that the law will allow to be charged in the market. 
C)  is the price that must be charged in the market. 
D)  would be imposed if the government believes the market equilibrium price is too low. 
E)  would only be applicable in the case of non-essential goods.

Question 5

Suppose prices for new homes have risen, yet sales of new homes have also risen. We can conclude that:

Accepted Answer

A)  the demand for new homes has risen. 
B)  the law of demand has been violated. 
C)  new firms have entered the construction industry. 
D)  construction firms must be facing higher costs.

Question 6

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(an):

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.

Question 7

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.

Question 8

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.

Question 9

If the equilibrium price of natural gas is $4 per thousand cubic feet and a price ceiling is imposed at $3 per thousand cubic feet, the result will be:

Accepted Answer

A)  a surplus of natural gas. 
B)  a shortage of natural gas. 
C)  an accumulation of inventories of unsold gas. 
D)  None of these.

Question 10

Third-party beneficiaries are called:

Accepted Answer

A)  polluters. 
B)  property owners. 
C)  free riders. 
D)  efficient market. 
E)  losers.

Question 11

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.

Question 12

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

Accepted Answer

The answer of What are market failures? Discuss examples of...

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

Question 14

Assume no price ceiling exists and a market is in equilibrium. Then a price ceiling is established which is below the market equilibrium. What would result?

Accepted Answer

A)  Shortage. 
B)  Equilibrium. 
C)  Surplus. 
D)  Equity.

Question 15

Exhibit 4-11 Data on supply and demand
​ $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Bushels demanded } \
\text { per month }
\end{array} & \begin{array} { c } 
\text { Price per } \
\text { bushel }
\end{array} & \begin{array} { c } 
\text { Bushels supplied } \
\text { per month }
\end{array} \
\hline 45 & \$ 5 & 77 \
50 & 4 & 73 \
56 & 3 & 68 \
61 & 2 & 61 \
67 & 1 & 57 \
\hline
\end{array}$$
-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.

Question 16

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 these.

Question 17

Consider the market for grapes. An increase in the wage paid to grape pickers will cause the:

Accepted Answer

A)  demand curve for grapes to shift to the right, resulting in a higher equilibrium price for grapes and a reduction in the quantity consumed. 
B)  demand curve for grapes to shift to the left, resulting in a lower equilibrium price for grapes and an increase in the quantity consumed. 
C)  supply curve for grapes to shift to the left, resulting in a lower equilibrium price for grapes and a decrease in the quantity consumed. 
D)  supply curve for grapes to shift to the left, resulting in a higher equilibrium price for grapes and a decrease in the quantity consumed.

Question 18

Market failure can result from market outcomes that:

Accepted Answer

A)  result in too few resources devoted to a good. 
B)  result in too many resources devoted to a good. 
C)  may justify government intervention. 
D)  all of these.

Question 19

​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 many resources devoted to its production.

Accepted Answer

A) True 
 B)False

Question 20

​ A black market may arise when government imposes a price ceiling.

Accepted Answer

A) True 
 B)False

Exam 4: Markets in Action

Which of the following would be an external cost to the consumption of cigarettes?

Exhibit 4-3 Supply and demand curves -Initially the market shown in Exhibit 4-3 is in equilibrium at P₃, Q₃ (E₃) . Changes in market conditions result in a new equilibrium at P₂, Q₂ (E₂) . This change is stated as a:

Examples of market failure include lack of competition, externalities, public goods, and income inequality.

A price ceiling:

Suppose prices for new homes have risen, yet sales of new homes have also risen. We can conclude that:

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(an) :

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) :

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

If the equilibrium price of natural gas is $4 per thousand cubic feet and a price ceiling is imposed at $3 per thousand cubic feet, the result will be:

Third-party beneficiaries are called:

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

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

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 .

Assume no price ceiling exists and a market is in equilibrium. Then a price ceiling is established which is below the market equilibrium. What would result?

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

Consider the market for grapes. An increase in the wage paid to grape pickers will cause the:

Market failure can result from market outcomes that:

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 many resources devoted to its production.

A black market may arise when government imposes a price ceiling.

Exam 4: Markets in Action

Which of the following would be an external cost to the consumption of cigarettes?

Exhibit 4-3 Supply and demand curves -Initially the market shown in Exhibit 4-3 is in equilibrium at P3, Q3 (E3) . Changes in market conditions result in a new equilibrium at P2, Q2 (E2) . This change is stated as a:

​Examples of market failure include lack of competition, externalities, public goods, and income inequality.

A price ceiling:

Suppose prices for new homes have risen, yet sales of new homes have also risen. We can conclude that:

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(an) :

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) :

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

If the equilibrium price of natural gas is $4 per thousand cubic feet and a price ceiling is imposed at $3 per thousand cubic feet, the result will be:

Third-party beneficiaries are called:

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

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

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 ____.

Assume no price ceiling exists and a market is in equilibrium. Then a price ceiling is established which is below the market equilibrium. What would result?

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

Consider the market for grapes. An increase in the wage paid to grape pickers will cause the:

Market failure can result from market outcomes that:

​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 many resources devoted to its production.

​ A black market may arise when government imposes a price ceiling.

Exhibit 4-3 Supply and demand curves -Initially the market shown in Exhibit 4-3 is in equilibrium at P₃, Q₃ (E₃) . Changes in market conditions result in a new equilibrium at P₂, Q₂ (E₂) . This change is stated as a:

Examples of market failure include lack of competition, externalities, public goods, and income inequality.

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) :

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 .

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 many resources devoted to its production.

A black market may arise when government imposes a price ceiling.