Economics Today The Macro View Ch.4 Practice Quiz/Exam Questions

Markets which are temporarily out of equilibrium will always return to equilibrium immediately: A) True B) False

B

Rent control is a type of price floor: A) True B) False

B

The minimum wage is an example of a price ceiling: A) True B) False

B

The minimum wage is an example of: A) A price floor B) A price ceiling C) An input quota D) An effective wage rate

A

The publication Car and Driver reduces transactions costs for​ high-performance car buyers: A) By providing reliable information so that car buyers do not have to spend as much time doing their own research B) By offering​ dollars-off coupons to subscribers C) By lobbying car makers to hold the line on prices D) By advertising sales at discount dealerships

A

The total value of the gains from trade is equal to the difference between producer surplus and consumer surplus: A) True B) False

B

Figure​ 4-B1 shows the market for economics textbooks. What will be the value of consumer surplus if the market price is​ $10? A. ​$900. B. ​$450. C. ​$1500. D. ​$600.

B. ​$450. (The demand price is $25 and the new market price is $10, a difference of $15. Half of the price difference is $7.50, multiply by the total quantity sold of 60 is equal to $450.)

Scarcity implies that: A) There will always be shortages B) Middlemen perform no useful function in society C) There can never be surpluses for long periods of time D) A way of rationing supplies of goods must be found

D

A black market is a market in which a​ price-controlled good is sold at an illegally high price: A) True B) False

A

Middlemen specialize in lowering transaction costs: A) True B) False

A

The effect of a quantity restriction is: A) A higher price B) Higher taxes to pay for the quantities of the good that the government must buy and store C) In increase in quantity supplied D) A reduction in demand

A

When supply increases and the​ (downward-sloping) demand curve remains in the same​ position: A) Price rises and equilibrium quantity rises B) Price falls and equilibrium quantity rises C) Price falls and equilibrium quantity falls D) Price rises and equilibrium quantity falls

B

An import quota is an example of a A. tax on imported goods. B. quantity restriction. C. price floor. D. price ceiling. E. tariff. Restricting the quantity of a good that can be imported is likely to mean that the price of that good will ____.

B. quantity restriction rise

What is the economic effect of price​ floors: A) Surpluses B) Shortages C) There are no economic effects D) A black market will emerge

A

An import quota is a supply restriction that prohibits the importation of more than a specified quantity of a particular good in a​ one-year period: A) True B) False

A

Given the existence of relative​ scarcity, resources can be rationed by: A) A system of prices B) Political mandate C) Queuing, or standing in line D) All of the above

D

Black markets usually arise when there are: A) Price ceilings B) Price floors C) Price quotas D) Price subsidies

A

Consumer surplus is the difference between the total amount that consumers would have been willing to pay for an item and the total amount that they actually pay: A) True B) False

A

Gains from trade are: A) Equal to the sum of consumer surplus and producer surplus B) Equal to the product of consumer surplus and producer surplus C) Not realized by consumers and producers when they engage in voluntary exchange D) Equal to the difference between consumer surplus and producer surplus

A

Government-enforced prices such as price ceilings: A) Disrupt the rationing function performed by prices in a market system B) Aid in the rationing function performed by prices in a market system C) Are only imposed on goods where market price has no useful function D) Ration economic resources more efficiently than prices in a market system

A

Import quotas are an example of​ government-imposed: A) Quantity restrictions B) Price floors C) Price lotteries D) Price ceilings

A

In a market​ system, how are the terms of exchange​ established: A) The forces underlying supply and demand interact to set a price B) Consumer advocacy groups establish fair prices for​ items, and most firms comply because they​ don't want to anger their customers C) Federal and state legislation establish minimum and maximum prices D) Industry associations set up acceptable price ranges for their​ goods, and firms within each industry are required to set price within its relevant range

A

Once the market price exceeded the​ government's ceiling​ price, the quantity of the drug: A) Demanded rose above the quantity of the steroid solution that pharmaceuticals companies that normally manufactured the product were willing to supply and a shortage developed B) Demanded fell below the quantity of the steroid solution that pharmaceuticals companies that normally manufactured the product were willing to supply and a surplus developed C) Supplied fell below the quantity of the steroid solution that pharmaceuticals companies that normally manufactured the product were willing to supply and a surplus developed D) Supplied rose above the quantity of the steroid solution that pharmaceuticals companies that normally manufactured the product were willing to supply and a shortage developed

A

Opponents of minimum wage legislation argue that higher minimum wages serve to: A) Increase​ unemployment, particularly among unskilled minority teenagers B) Increase the quantity of labor demanded C) Increase​ unemployment, particularly among high income executives D) Decrease the quantity of labor supplied

A

Other things remaining​ equal, a decrease in the world oil supply like those that occurred in​ 1973-74 and 1979 would: A) Increase the price of airline travel and decrease its equilibrium quantity B) Increase the price of airline travel and increase its equilibrium quantity C) Decrease the price of airline travel and decrease its equilibrium quantity D) Decrease the price of airline travel and increase its equilibrium quantity

A

People often complain about price gouging after a natural disaster. Suppose the government imposed limitations on price increases in the aftermath of a disaster. One would expect: A) Reconstruction to take longer because the quantity supplied of new materials would increase more slowly B) Reconstruction to take less time because people will have more money to spend C) Reconstruction never to occur D) Reconstruction to take less time because the price controls reduce animosity and potential conflict

A

Rationing by the price system leads to the most efficient use of available resources: A) True B) False

A

Suppose that you are investigating the market for wheat. The price of corn​, a substitute​ good, has decreased. Which of the following would best describe the market reaction to this​ event: A) The demand for wheat ​decreases, which creates a surplus of wheat​, causing the price of wheat to decrease B) The demand for wheat ​decreases, creating a shortage and forcing the price of wheat to increase C) The supply of wheat decreases since the price of corn decreases D) The supply of corn increases since farmers must produce more corn to make up for the price decrease

A

Suppose the market price of corn is​ $5 a bushel but the government sets a price of​ $7. As a​ result: A) The government must purchase the surplus to maintain the price B) Farmers will reduce planting until the market price is​ $7 C) There is a shortage of corn D) The private demand will increase over time until​ $7 is the market price

A

The concept of consumer surplus is best described by the following situation: A) The maximum price that Jackie was willing to pay for an iphone was​ $400, but she bought it for​ $250 on black Friday B) Jamie bought twenty video games at​ $2 apiece, since these were on sale C) Kevin was surprised that he could sell his economics text for​ $26 on​ Amazon, although he was willing to accept​ $20 for it D) Ron purchased a laptop last month for​ $700, now it is selling for​ $550

A

Voluntary exchange refers to an act of trading between individuals that makes both parties to the trade subjectively better off: A) True B) False

A

Voluntary exchange: A) Makes both parties to a trade better off B) Is not part of the market system C) Makes one party better off while making the other party worse off D) Relates to price ceilings and price floors

A

Suppose the market price of corn is​ $5 a bushel but the government sets a price of​ $7. As a​ result, A. the government must purchase the surplus to maintain the price. B. farmers will reduce planting until the market price is​ $7. C. there is a shortage of corn. D. the private demand will increase over time until​ $7 is the market price.

A. the government must purchase the surplus to maintain the price.

According to the accompanying​ graph, when the government imposes a price ceiling of​ $25 A. the quantity of goods that will be traded is 100. B. the quantity of goods that will be traded is 0. C. the quantity of goods that will be traded is 150. D. the quantity of goods that will be traded is 200

A. the quantity of goods that will be traded is 100.

Producer surplus is the sum of the total amount that producers would have been willing to accept for supplying an item and the total amount that they actually receive: A) True B) False

B

The more flexible prices​ are: A) The larger the shifts in supply will be following a change in demand B) The more quickly a shock to the economy can be absorbed C) The greater the demand shifts necessary to bring about a new equilibrium D) The greater the hesitancy of sellers to change the nominal price

B

The​ government's imposition of a price control: A) Benefits only poor consumers B) Reduces gains from trade C) Increases gains from trade D) Harms producers and wealthy consumers

B

When both supply and demand curves​ change, the outcome is definite for both equilibrium price and equilibrium quantity: A) True B) False

B

​"The Massachusetts pharmacy owners offered to help fill the gap between the quantities demanded and supplied with its own version of the injectable steroid drug. The pharmacy could benefit from offering the steroid solution at the​ government's ceiling​ price, however, only by keeping its operating costs sufficiently low​ because, after demand had​ increased," because: A) The cost of production was rising B) The controlled price ceiling was below the market clearing price C) The controlled price ceiling was equal to the market clearing price D) The controlled price ceiling was above the market clearing price

B

Consider Figure​ 4B-3, that represents the market for​ long-stemmed roses. If the market clearing price is​ $15, what is the total value of gains from​ trade? A. ​$600. B.​$400. C. ​$200. D. ​$800.

B.​$400. (market price $25, new ceiling price is $15, thus the difference is $10 times the quantity sold of 40, equal $400)

As long as a price ceiling is​ ________ the market clearing​ price, imposing a price ceiling creates a​ ________: A) Above; surplus B) Below; surplus C) Below; shortage D) Above; shortage

C

If demand increases while supply remains​ unchanged, the equilibrium price of the product will​ ________ and the equilibrium quantity will​ ________: A) Increase; decrease B) Decrease; decrease C) Increase; increase D) Decrease; increase

C

In a price​ system, changes in prices: A) Make it difficult for the economy to function well B) Signal to policymakers what goods should and should not be taxed C) Signal to consumers that some goods are relatively more or less scarce D) Imply that people have made mistakes in the past

C

There are simultaneous changes in the demand for and supply of​ global-positioning-system (GPS)​ devices, with the consequences being an unambiguous increase in the market clearing price of these devices but no change in the equilibrium quantity. What changes in the demand for and supply of GPS devices could have generated these​ outcomes: A) Demand increases and supply increases B) Demand decreases and supply decreases C) Demand increases and supply decreases D) Demand decreases and supply increases

C

What happens in the market with an upward sloping supply curve when there is a shift in the demand curve due to an external​ shock: A) Production decisions will be unaffected B) Price will not change C) A new equilibrium price will be achieved over some period of time D) Price will immediately adjust to a new equilibrium.

C

The price of milk increases. Which of the following is NOT part of the likely chain of events that follows from this price​ change? A. Some consumers of milk reduce their consumption of milk. B. The demand for orange juice increases. C. The manufacturers of milking machines lay off some workers. D. Producers of milk increase their production of milk.

C. The manufacturers of milking machines lay off some workers.

Consider the figure​ 4B-2. If the price is​ $20, find the area that represents producer surplus. A. Upper A plus Upper B. B. Upper C plus Upper D. C. Upper A plus Upper B plus Upper C. D. Upper F plus Upper E plus Upper D.

C. Upper A plus Upper B plus Upper C. (the producer surplus is all of the areas above the surplus line, below the price of $20, which are Upper A, Upper B & Upper C.)

Figure​ 4B-4 shows the market for economics textbooks. Suppose the government thinks that the market clearing price is too high and tries to help the consumers by imposing a ceiling price of​ $10. What is the area in Figure​ 4B-4 that represents producer surplus after the imposition of the price​ ceiling? A. Upper A plus Upper B plus Upper E plus Upper F. B. Upper A plus Upper E. C. Upper C. D. Upper C plus Upper B plus Upper F.

C. Upper C. (the upper amount above the surplus line, under the new ceiling price of $10, which is label C, being the upper part of C.)

In a rent controlled​ market, we would expect to observe A. landlords encouraging tenants to sublet their apartments. B. greater ease on the part of potential tenants in finding an apartment to rent. C. renters moving into the market to take advantage of the lower rents. D. increased construction of apartment buildings.

C. renters moving into the market to take advantage of the lower rents.

A price ceiling is: A) A​ government-imposed minimum price that may be charged for a good or​ service, which can lead to shortages B) A government-imposed maximum price that may be charged for a good or​ service, which can lead to surpluses C) A government-imposed minimum price that may be charged for a good or​ service, which can lead to surpluses D) A government-imposed maximum price that may be charged for a good or​ service, which can lead to shortages

D

As long as a price floor is​ ________ the market clearing​ price, imposing a price floor creates a​ ________: A) Below; surplus B) Below; shortage C) Above; shortage D) Above; surplus

D

In a rent controlled​ market, we would expect to observe: A) Increased construction of apartment buildings B) Landlords encouraging tenants to sublet their apartments C) Greater ease on the part of potential tenants in finding an apartment to rent D) Renters moving into the market to take advantage of the lower rents

D

In a​ market-based economy, what is the role of a system of​ prices: A) To create shortages B) To create abundance and surpluses C) To make goods and services too expensive D) To address the problem of scarcity

D

Price​ ceilings, such as rent controls: A) Discourage the construction of new housing B) Lead to the deterioration of existing housing C) Reduce tenant mobility as people may be reluctant to change apartments D) All of the above

D

Ron advertised his car for sale for​ $6000, although he was willing to accept​ $4000. When he finally sells his car for​ $5500, his producer surplus from the sale is: A) ​$2000 B) ​$1000 C) $500 D) ​$1500

D

Suppose that a rap group called RG2 has released its first CD with Live Records at an intended list price of​ $14.99. Music stores have discovered that they can markup the price to​ $17.99 with continued strong sales. What information does this higher price convey to the recording​ label: A) The recording label should cut back on the production and distribution of RG2​'s first CD B) The price of the CD was too expensive to begin with C) The markup by music stores indicates a surplus of RG2​'s CD on store shelves. D) The recording label should expand the production and distribution of RG2​'s first CD

D

The price of soft drinks increases. Which of the following is not part of the likely chain of events that follows from this price​ change: A) Producers of soft drinks increase their production of soft drinks B) Some consumers of soft drinks reduce their consumption of soft drinks C) The demand for fruit juices increases D) The manufacturers of soda−canning machines lay off some workers

D

What is the economic effect of price​ ceilings: A) Resources will be allocated efficiently B) There are no economic effects C) An effective price ceiling will lead to a surplus D) An effective price ceiling will lead to a shortage

D

When both supply and demand​ decrease, the equilibrium price​ ________ and the equilibrium quantity​ ________: A) Decreases; change is uncertain B) Increases; change is uncertain C) Change is​ uncertain; increases D) Change is​ uncertain; decreases

D

When demand decreases and the​ (upward sloping) supply curve remains in the same​ position: A) Price rises and equilibrium quantity falls B) Price falls and equilibrium quantity rises C) Price rises and equilibrium quantity rises D) Price falls and equilibrium quantity falls

D

Which of the following is not an example of a transaction​ cost: A) The opportunity cost of time spent looking for stores selling the desired item B) The cost of returning a defective product C) The time and effort spent researching the product as well as its various sellers D) The enjoyment of using the good

D

Which of the following statements is TRUE concerning the consequences of rent​ controls? A) Low income earners are big winners since it is easier to obtain housing B) Property owners are big winners since they receive a guaranteed amount of rent C) Construction companies are big winners because more housing units are being built due to guaranteed rental income D) Upper income earners are big winners due to the fact that they can better exploit nonprice rationing devices E) All of the above

D

The federal government often aids farmers through systems of price supports. Suppose that the government sets a price support of ​$8 per bushel in the barley market. The graph on the right shows this situation. The price of barley would be ​$_____ per bushel if there was no price support. In order to maintain the price​ support, the government will have to purchase _____ bushels of barley. The cost of this program to the government is ​$_____.

$5 600 $4800

The following table depicts the quantity demanded and quantity supplied of​ one-bedroom apartments in a small college town. The market price will be $​_____ and the equilibrium quantity will be _____ apartments. If this town imposes a rent control of​ $450 per​ month, how many apartments are​ rented? _____.

$500; 2000 1800

An​ above-equilibrium minimum wage will result in​ ________ in the quantity of labor demanded and​ ________ in the quantity of labor supplied: A) An​ increase; an increase B) A​ decrease; an increase C) A​ decrease; a decrease D) An​ increase; a decrease

B

Buyers and sellers receive information about what should be bought and what should be produced: A) By listening to TV news programs B) From prices in a market system C) From newspaper gossip columns D) From friends and family

B

Economists assume that when there is a change in demand​ and/or supply, that prices reach a new equilibrium: A) Slowly B) After an adjustment period that varies C) Quickly D) After a protracted negotiation process

B

In​ general, the less organized the​ market, the lower the transaction costs: A) True B) False

B

Most of the benefits from agricultural price supports have gone to​ small, family-owned farms: A) True B) False

B

Producer surplus at any specific quantity is measured as the​ ________ distance between the supply curve and the level of the market clearing​ ________: A) Horizontal; quantity B) Vertical; price C) Vertical, quantity D) Horizontal; price

B

Consumer surplus at any specific quantity is measured as the​ ________ distance between the demand curve and the level of the market clearing​ ________: A) Vertical, quantity B) Horizontal; quantity C) Vertical; price D) Horizontal; price

C

Evidence indicates that the group which benefits most from rent ceilings is: A) Property owners B) Local municipalities C) Upper-income professionals D) Low-income individuals

C

All of the following are government imposed quantity restrictions EXCEPT: A) A ban on a good making it illegal to own the good B) Import quotas C) Licensing certain activities D) Rent controls

D

Labor is a key input at​ fast-food restaurants. Suppose that the government boosts the minimum wage above the equilibrium wage of​ fast-food workers. Which of the following best describes the response of the quantity of labor employed at​ restaurants: A) The same number of workers will be employed since a​ restaurant's operation requires a fixed amount of labor B) More workers will be employed since the wage increase encourages people to seek jobs at these restaurants C) More workers will be employed since the wage increase tells managers that more workers are available D) Fewer workers will be employed since the wage increase will induce managers to seek to substitute other inputs for the now relatively more expensive labor

D

Price ceilings tend to​ ________ gains from​ trade, and price floors tend to​ ________ gains from trade: A) Reduce; increase B) Increase; increase C) Increase; reduce D) Reduce; reduce

D