Question 1

Much of the nation's coal is extracted by strip mining. This process leaves a huge barren hole in the ground when complete, and the cost of replanting the trees is approximately $10 per ton of coal. Burning the coal for electricity causes air pollution. No one knows how much damage the air pollution causes, but we know that for another $10 per ton the power plant can be outfitted with a pollution control device. What is one measure of the true social cost of coal fired electricity, in dollars per ton?

Accepted Answer

A)   Private marginal cost plus the $10 replanting charge.
B)   Private marginal cost plus the $10 emission control charge.
C)   Only the $20 of replanting and emission control charges, because the other costs are private, not social.
D)   Private marginal cost plus the $20 of replanting and emission control charges. D

Question 2

If a price ceiling is imposed, then:

Accepted Answer

A)   the market supply curve will shift to the right.
B)   the market demand will shift to the left.
C)   a shortage of product will result.
D)   the market equilibrium price is below the level the government wishes to achieve. C

Question 3

Exhibit 4-7 Demand and supply schedules for movie tickets
     Price   Quantity Demanded   Quantity Supplied     $10   200   500         8   240   470         6   370   420         4   390   390         2   410   310

In Exhibit 4-7, a 100 unit decrease in quantity demanded at every price level would cause the new equilibrium price to become:

Accepted Answer

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

Question 4

The minimum price for a good set by the government above the equilibrium price is called a:

Accepted Answer

A)   price ceiling.
B)   price floor.
C)   parity price ratio.
D)   market-generated price.

Question 5

When the consumption of a good generates an external benefit:

Accepted Answer

A)   the private benefit consumers receive from the good will be higher than the true social benefit.
B)   too much of the good will tend to be produced from the viewpoint of economic efficiency.
C)   the community generally suffers an exactly offsetting external cost from the production of the good.
D)   the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed.

Question 6

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

Accepted Answer

A)   Price will increase, and quantity will decrease.
B)   Price will decrease, and quantity will decrease.
C)   Price will decrease, and quantity will increase.
D)   Price will increase, and quantity will increase.

Question 7

Exhibit 4-5 Supply and demand curves for computers

Which of the following changes could cause the computer market to change as shown in Exhibit 4-5?

Accepted Answer

A)   Lower costs for computer chips and motherboards.
B)   The failure of several computer manufacturers.
C)   Higher prices for computer software.
D)   More features and greater ease of use.

Question 8

Exhibit 4-3 Supply and demand curves

In Exhibit 4-3, an increase in demand 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)   E1 to E4.

Question 9

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 10

External benefits cause the market to:

Accepted Answer

A)   underallocate resources.
B)   be more efficient.
C)   set excessively high prices.
D)   have persistent shortages.

Question 11

Cindy discovers that when she goes to the beach, she does not have to bring her radio. She can put her blanket near someone who has a radio and listen all day (without having to carry her radio, get sand in her speakers, or buy new batteries). This is an example of:

Accepted Answer

A)   private property abuse.
B)   external costs.
C)   a negative externality.
D)   a positive externality.

Question 12

Exhibit 4-8 Demand and supply curves

In Exhibit 4-8, a movement from A to B in which price has decreased and quantity has increased is best explained by a(n):

Accepted Answer

A)   increase in supply and demand.
B)   decrease in supply and demand.
C)   increase in supply that dominates a decrease in demand.
D)   increase in demand that dominates a decrease supply.

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)   free riders; passengers must pay to board the plane
B)   third parties; there are no externalities
C)   externalities; there are no third parties
D)   complaints; airplanes are insulated

Question 14

Consider the market for chicken. Assuming that chicken and beef are substitutes, an increase in the price of beef will:

Accepted Answer

A)   decrease the demand for chicken creating a lower price and a smaller amount of chicken purchased in the market.
B)   decrease the supply of chicken creating a higher price and a smaller amount of chicken purchased in the market.
C)   increase the demand for chicken creating a higher price and a greater amount of chicken purchased in the market.
D)   increase the supply of chicken creating a lower price and a greater amount of chicken purchased in the market.

Question 15

Exhibit 4-1 Supply and demand data
     Price   Quantity demanded   Quantity supplied     $1.00   500     50       1.50   450   150       2.00   400   250       2.50   300   300       3.00   150    350

In Exhibit 4-1, suppose that a reduction in the price of an important input used to produce the good causes an increase in quantity supplied of 150 units at every price level. Assuming that demand does not change, the new equilibrium price will be:

Accepted Answer

A)   $1.00.
B)   $1.50.
C)   $2.00.
D)   $2.50.

Question 16

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 right, resulting in a lower equilibrium price for grapes and an increase 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 17

When there are positive externalities associated with the consumption of a good, we can expect the market:

Accepted Answer

A)   demand curve to lie above the social demand curve.
B)   demand curve to lie below the social demand curve.
C)   supply curve to lie above the social supply curve.
D)   supply curve to lie below the social supply curve.

Question 18

Ceteris paribus , if consumer tastes change so that more people are eating broccoli, then what will happen to the market equilibrium for cabbage, a substitute good for broccoli?

Accepted Answer

A)   Price will increase, and quantity will increase.
B)   Price will decrease, and quantity will decrease.
C)   Price will decrease, and quantity will increase.
D)   Price will increase, and quantity will decrease.

Question 19

Price ceilings set below the equilibrium create:

Accepted Answer

A)   externalities.
B)   unemployment.
C)   shortages.
D)   surpluses.

Question 20

If the equilibrium price of aspirin is $2.50 and a price ceiling is imposed at $3.00, the market will have a(n):

Accepted Answer

A)   surplus.
B)   shortage.
C)   accumulation of inventories.
D)   equilibrium.

Exam 4: Markets in Action

If a price ceiling is imposed, then:

The minimum price for a good set by the government above the equilibrium price is called a:

When the consumption of a good generates an external benefit:

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

Exhibit 4-5 Supply and demand curves for computers Which of the following changes could cause the computer market to change as shown in Exhibit 4-5?

Exhibit 4-3 Supply and demand curves In Exhibit 4-3, an increase in demand would cause a movement from which equilibrium point to another, other things being equal?

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) :

External benefits cause the market to:

Cindy discovers that when she goes to the beach, she does not have to bring her radio. She can put her blanket near someone who has a radio and listen all day (without having to carry her radio, get sand in her speakers, or buy new batteries) . This is an example of:

Exhibit 4-8 Demand and supply curves In Exhibit 4-8, a movement from A to B in which price has decreased and quantity has increased is best explained by 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 .

Consider the market for chicken. Assuming that chicken and beef are substitutes, an increase in the price of beef will:

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

When there are positive externalities associated with the consumption of a good, we can expect the market:

Ceteris paribus , if consumer tastes change so that more people are eating broccoli, then what will happen to the market equilibrium for cabbage, a substitute good for broccoli?

Price ceilings set below the equilibrium create:

If the equilibrium price of aspirin is $2.50 and a price ceiling is imposed at $3.00, the market will have a(n) :

Price	Quantity Demanded	Quantity Supplied
$10	200	500
8	240	470
6	370	420
4	390	390
2	410	310

Exam 4: Markets in Action

If a price ceiling is imposed, then:

Exhibit 4-7 Demand and supply schedules for movie tickets Price Quantity Demanded Quantity Supplied $10 200 500 8 240 470 6 370 420 4 390 390 2 410 310 In Exhibit 4-7, a 100 unit decrease in quantity demanded at every price level would cause the new equilibrium price to become:

The minimum price for a good set by the government above the equilibrium price is called a:

When the consumption of a good generates an external benefit:

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

Exhibit 4-5 Supply and demand curves for computers Which of the following changes could cause the computer market to change as shown in Exhibit 4-5?

Exhibit 4-3 Supply and demand curves In Exhibit 4-3, an increase in demand would cause a movement from which equilibrium point to another, other things being equal?

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) :

External benefits cause the market to:

Cindy discovers that when she goes to the beach, she does not have to bring her radio. She can put her blanket near someone who has a radio and listen all day (without having to carry her radio, get sand in her speakers, or buy new batteries) . This is an example of:

Exhibit 4-8 Demand and supply curves In Exhibit 4-8, a movement from A to B in which price has decreased and quantity has increased is best explained by 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 ____.

Consider the market for chicken. Assuming that chicken and beef are substitutes, an increase in the price of beef will:

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

When there are positive externalities associated with the consumption of a good, we can expect the market:

Ceteris paribus , if consumer tastes change so that more people are eating broccoli, then what will happen to the market equilibrium for cabbage, a substitute good for broccoli?

Price ceilings set below the equilibrium create:

If the equilibrium price of aspirin is $2.50 and a price ceiling is imposed at $3.00, the market will have a(n) :

Exhibit 4-7 Demand and supply schedules for movie tickets

Price

Quantity
Demanded

Quantity
Supplied

$10

200

500

8

240

470

6

370

420

4

390

390

2

410

310

In Exhibit 4-7, a 100 unit decrease in quantity demanded at every price level would cause the new equilibrium price to become:

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 .