Econ Unit 2
Rent control.
A price ceiling placed on rent.
A
A shortage will develop when _____. (A) The equilibrium quantity supplied is lower than the actual quantity supplied. (B) The quantity supplied of a good is greater than the quantity demanded of that good. (C) The market price is below the equilibrium price. (D) The government provides subsidies to producers.
By ensuring that resources go to the uses that consumers value most.
How do prices lead to a more efficient allocation of resources?
Since everyone is familiar with prices and understands how to use them, prices work in a practical way as a natural regulator of the quantity of goods produced and their distribution. Also, free market pricing, unlike central planning, costs nothing to administer.
How does free market pricing benefit the distribution of goods?
Both the equilibrium price and quantity increase.
How does the market return to equilibrium when there is excess demand caused by a fad?
B
How is an increase in demand represented? (A) By a shift to the left of the demand curve. (B) By a shift to the right of the demand curve. (C) By a downward movement along the demand curve. (D) By an upward movement along the demand curve.
C
If a bookstore manager prices a book higher than the equilibrium price, then _____. (A) There will be an excess demand for these books. (B) The manager should expect to sell all of the books. (C) There will be an excess supply of these books. (D) The market price of the book will become higher.
B
If for a certain market, the quantity demanded is 200 units and the quantity supplied is 250 units, then there is _____. (A) A price ceiling in this market. (B) Excess supply in this market. (C) Equilibrium in this market. (D) Excess demand in this market.
D
If the demand for a certain toy was higher than expected and the demand curve shifted outward to the right, causing a shortage, then _____. (A) The supply curve would eventually shift to the left, reestablishing equilibrium. (B) There would be an eventual downward movement along the supply curve, reestablishing equilibrium. (C) The supply curve would eventually shift to the right, reestablishing equilibrium. (D) There would be an eventual upward movement along the supply curve, reestablishing equilibrium.
C
If the equilibrium quantity demanded for a new sports watch is 900 truckloads of watches, and the equilibrium price is $70 per watch, then a drop in the price of watches to $40 _____. (A) Would lower the quantity demanded of these sports watches. (B) Could raise the demand for all sports watches. (C) Could raise the quantity demanded of these sports watches. (D) Would lower the demand for all sports watches.
The price will rise and the quantity demanded will decrease.
If the price of steel rises, what will happen to the equilibrium price and quantity demanded for automobiles?
D
If the quantity demanded of a new mountain bike is 8,000 and the quantity supplied is 6,000, then _____. (A) There is a shortage of 14,000 bikes. (B) There is a surplus of 1,000 bikes. (C) There is a surplus of 2,000 bikes. (D) There is a shortage of 2,000 bikes.
B
In a free market, prices lead to an efficient allocation of resources. In other words, _____. (A) Consumers can buy unlimited amounts of any good they like at a price of their choice. (B) Resources are used in the most productive way, based on the needs of consumers and producers. (C) People who own resources are unable to bargain with people who wish to buy resources. (D) The government decides who controls natural resources.
C
In a free market, prices lead to an efficient allocation of resources. In other words, _____. (A) People who own resources are unable to bargain with people who wish to buy resources. (B) Consumers can buy unlimited amounts of any good they like at a price of their choice. (C) Resources are used in the most productive way, based on the needs of consumers and producers. (D) The government decides who controls natural resources.
Price ceiling.
Maximum price that can be legally charged for a good or service.
Price floor.
Minimum price for a good or service.
Equilibrium.
Point at which quantity demanded and quantity supplied are equal:
C
Rationing is a common form of distribution in a _____. (A) Free market economy. (B) Price-based system. (C) Centrally-planned economy. (D) Market based on competition.
C
Rent control is a type of _____. (A) Price floor (B) Rationing (C) Price ceiling (D) Surplus
Surplus.
Situation in which quantity supplied is greater than quantity demanded; also known as excess supply:
D
What happens first when the demand for a fad peaks and falls? (A) The surplus ends up for sale on the black market. (B) The price goes down, and the quantity supplied goes up. (C) The quantity supplied and the price both go up. (D) The quantity supplied goes down, and the price goes up.
D
What happens to a market in equilibrium when there is an increase in supply? (A) Quantity demanded will exceed quantity supplied, so the price will drop. (B) Excess supply means that producers will make less of the good. (C) Undersupply means that the good will become very expensive. (D) Quantity supplied will exceed quantity demanded, so the price will drop.
B
What happens when any market is in disequilibrium and prices are flexible? (A) Excess demand is created. (B) Market forces push toward equilibrium. (C) Unsold perishable goods are thrown out. (D) Sellers waste their resources.
A
What happens when wages are set above the equilibrium level by law? (A) Firms employ fewer workers than they would at the equilibrium wage. (B) Firms hire more workers but for fewer hours than they would at the equilibrium wage. (C) Firms employ more workers than they would at the equilibrium wage. (D) Firms tend to try to break the law and hire people at the equilibrium level.
C
What happens when wages are set above the equilibrium level by law? (A) Firms employ more workers than they would at the equilibrium wage. (B) Firms tend to try to break the law and hire people at the equilibrium level. (C) Firms employ fewer workers than they would at the equilibrium wage. (D) Firms hire more workers but for fewer hours than they would at the equilibrium wage.
B
What is it called when the government uses some tool other than money to allocate goods? (A) Supply management (B) Rationing (C) Disequilibrium (D) Resource allocation
B
What is one reason for rationing? (A) The good is being sold on the black market. (B) There is a shortage of a particular good. (C) The price of a particular good has gone down. (D) There is a surplus of a particular good.
D
What is the condition that has been reached when buyers purchase exactly as much as sellers have to sell? (A) Excess demand (B) Price floor (C) Supply and demand (D) Equilibrium
Bd
What is the main principle of Adam Smith's The Wealth of Nations? (A) A price-based system sets some goods, such as food or housing, out of the reach of some people. (B) Business prospers by finding out what people want and providing it. (C) Although goods are inexpensive, people do not always get what they need. (D) Profits are in what people need rather than what they want.
D
What is the quickest way to resolve problems from a supply shock? (A) Rationing. (B) Decrease supply. (C) Lower prices. (D) Raise prices.
C
What prompts efficient resource allocation in a well-functioning market system? (A) The need to buy goods regardless of price. (B) The need for fair allocation of resources. (C) Businesses operating for a profit. (D) Government regulation.
Disequilibrium.
When any price or quantity is not at equilibrium; when quantity supplied is not equal to quantity demanded in a market:
Excess supply.
When quantity supplied is more than quantity demanded:
D
When the government sets a price floor on earnings, it is called which of the following? (A) Base-level wage (B) Employment guarantee (C) Market equilibrium rate (D) Minimum wage
B
When there is excess demand, there is _____. (A) Excess supply. (B) Disequilibrium. (C) A price floor. (D) An equilibrium.
A
Which of the following correctly illustrates how prices serve as signals to consumers? (A) A low price signals to consumers that they should buy a good. (B) A low price signals to consumers that the good is not well-made. (C) A high price signals to consumers that the good is well-made. (D) A high price signals to consumers that they should buy a good.
D
Which of the following does not apply to a market system? (A) It ensures that sellers decide to stay in business based on their profits. (B) It ensures that sellers respond to changing needs and tastes of customers. (C) It ensures the availability of products that consumers want. (D) It ensures that government intervention is always present.
A
Which of the following is a situation that makes the market behave inefficiently? (A) When consumers do not have enough information to make good choices. (B) When the market is in perfect competition and prices are high. (C) When producers have the power to find out exactly what to produce. (D) When both consumers and producers are fully informed about a product.
D
Which of the following is an example of imperfect competition? (A) Too many firms are selling a product. (B) Spillover costs are paid by consumers. (C) Buyers and sellers do not have enough information to make informed choices. (D) Too few firms are selling a product.
A
Which of the following is an example of search costs? (A) Driving to a faraway place to find available goods. (B) Selling extra goods for a discount price. (C) Paying a premium cost for goods. (D) Buying goods in some special way that is outside the normal channels.
A
Which of the following is not an advantage of a price-based system? (A) Prices can easily be set by the government. (B) Prices are flexible. (C) Prices act as an incentive for buyers and sellers. (D) Prices act as signals for buyers and sellers.
D
Which of the four main advantages of price in a free market economy would best represent the statement, "Prices can be easily increased to solve a problem of excess demand"? (A) Price as an incentive (B) Prices as signals (C) Price system is "free" (D) Flexibility
A
Which statement explains why prices rise in a market? (A) There is excess demand in the market. (B) Producers produce a quantity greater than consumers want to buy. (C) Consumers buy much less of a good than they have in previous years. (D) New producers enter the market.
Because rent control creates excess demand by setting prices below equilibrium.
Why are there long waiting lists for rent-controlled apartments?
B
Why did the U.S. government use rationing for some foods and consumer goods during World War II? (A) To earn more money to support the military. (B) To guarantee each civilian a minimum standard of living in wartime. (C) Because the English government had also decided on rationing. (D) To keep sellers from raising prices on necessary goods.
B
Why do fads often lead to shortages, at least in the short term? (A) Laws prevent stores from responding to excess demand in time to prevent a shortage. (B) Demand increases so quickly that time is needed for the quantity and price to reach a new equilibrium point. (C) Buyers and sellers are unable to agree on a price for the good. (D) Manufacturers charge extremely high prices for the goods that stores are unwilling to pay.
C
Why does a government place price ceilings on some "essential" goods? (A) To reduce demand for these goods. (B) To keep business people from making large profits. (C) To keep the goods from becoming too expensive. (D) To prevent inflation during boom times.
D
With advances of technology and increased availability for compact disc players, _____. (A) The supply curve for compact disc players has shifted left. (B) Prices of compact disc players have risen. (C) Compact disc players have become less expensive and are lower quality. (D) The supply curve for compact disc players has shifted right.
C
During a housing crisis in the early 1940s, which of the following was used by some local governments to prevent inflation? (A) Minimum wage (B) Price supports (C) Price ceilings (D) Price floors
Supply shock.
Sudden shortage of a good:
The quantity demanded will rise and the market will move toward equilibrium.
What happens when there is excess supply and the seller lowers the price?
Shortage.
A situation in which quantity demanded is greater than quantity supplied:
Rationing.
A system of allocating scarce goods and services using criteria other than price:
B
Advances in production, such as new technology, can do which of the following to a good? (A) Change it from a necessity to an expensive nonessential. (C) Transform it from an expensive luxury to a mid-priced good. (C) Raise the price as more features become available. (D) Make the production so simple that it becomes unnecessary.
C
An increase in quantity supplied is represented by _____. (A) A downward movement along the supply curve. (B) A shift to the right of the supply curve. (C) An upward movement along the supply curve. (D) A shift to the left of the supply curve.
B
As the supply of compact disc players has increased over the years and the price of compact disc players has dropped, the _____. (A) Demand for compact disc players has increased. (B) Quantity demanded of compact disc players has decreased. (C) Demand for compact disc players has decreased. (D) Quantity demanded of compact disc players has increased.
D
Elena is looking for an apartment. Which of the following is an example of her search costs? (A) Elena pays movers $400 to help her transfer her belongings to the new apartment. (B) Elena pays $300 to stay at a hotel for four nights before the apartment is ready. (C) Elena must pay the first and last months' rent before she can move into a new apartment. (D) Elena misses two days of work to visit several different apartments available for rent.
Look for the price at which the quantity demanded and the quantity supplied are equal.
How can you find the equilibrium price and quantity on a supply schedule?
B
How do falling prices affect supply? (A) The supply curve moves to the right. (B) The supply curve moves to the left. (C) The quantity supplied rises. (D) The quantity demanded rises.
A
How do price changes affect equilibrium? (A) By serving as a tool for distributing goods and services. (B) By preventing inflation or deflation from affecting the supply of goods. (C) By limiting the market to people who have the most money. (D) By assisting the centrally planned economy.
B
If automobile workers went on strike causing a decreased supply of cars, the supply curve would shift inward to the left, and _____. (A) The demand curve would eventually shift to the left, reestablishing equilibrium. (B) There would be an eventual upward movement along the demand curve, reestablishing equilibrium. (C) There would be an eventual downward movement along the demand curve, reestablishing equilibrium. (D) The demand curve would eventually shift to the right, reestablishing equilibrium.
Black market.
Market in which goods are sold illegally:
A
Suppliers will keep raising prices in a certain market as long as _____. (A) There is excess demand and quantity demanded exceeds the quantity supplied. (B) There is excess supply and quantity supplied exceeds the quantity demanded. (C) There is excess supply and quantity demanded exceeds the quantity supplied. (D) There is excess demand and quantity supplied exceeds the quantity demanded.
D
Technological progress has reduced the cost of manufacturing MP3 players. What happens if demand is unchanged? (A) Fewer MP3 players will be sold at a higher price. (B) Fewer MP3 players will be sold at a lower price. (C) More MP3 players will be sold at a higher price. (D) More MP3 players will be sold at a lower price.
Search costs.
The financial and opportunity costs consumers pay when looking for a good or service:
C
What do you have when the actual price in a market is below the equilibrium price? (A) A price ceiling (B) Excess supply (C) A price floor (D) Equilibrium
It indicates that the good is overproduced, so suppliers should produce less of that good.
What does a low price indicate to suppliers?
D
What happens first when the demand for a fad peaks and falls? (A) The quantity supplied goes down, and the price goes up. (B) The quantity supplied and the price both go up. (C) The surplus ends up for sale on the black market. (D) The price goes down, and the quantity supplied goes up.
Prices rise.
What happens to prices when there are not enough firms selling a product?
Excess demand.
When quantity demanded is more than quantity supplied:
The price is lower and the output is higher.
When the supply curve shifts to the right, how does the price and output of the new equilibrium compare to the old equilibrium?
Raise the price of the good.
When there is excess demand for a good, what should the supplier do to maximize profits?
Spillover costs.
costs of production that affect people who have no control over how much of a good is produced: