Econ 2301 Ch. 3-5 Bishop

Which of the following would not shift the supply curve for swordfish?*

an increase in the price of swordfish

Whenever the price of Good A decreases, the demand for Good B increases. Good A and B appear to be

complements

The consumption of public goods is

non-excludable and non-rivalrous

To an economist, a decrease in supply means

none of the above

Which of the following would most likely feature elastic demand?

fresh green beans

A free-rider problem arises whenever:

goods cannot be provided exclusively to those who pay for them.

A surplus will result whenever the:

government imposes a price floor above the equilibrium price.

An externality occurs when:

people other than those making the demand and supply decisions share the benefits or the costs of an activity.

The elasticity of supply is defined as the ____ change in quantity supplied divided by the ____ change in price

percentage; percentage

A change in which of the following variables does not cause a change in demand?

prices of unrelated goods

The market system fails to provide the efficient output of public goods because:

private firms cannot restrict the benefits from those goods to consumers who are willing to pay for them.

The free rider problem suggests that competitive markets will tend to

produce less than the optimal quantity of a public good.

If there is a surplus, ____ will be frustrated by their inability to exchange at the current price, and they will ____ the prices as a result.

sellers; lower.

Costs that accrue to the total population are called ____ costs. Costs incurred by the producer or consumer who makes the decision are called ____ costs.

social; private

The market supply schedule reflects the total quantity:

supplied at each price by all of the producers

An upward-sloping supply curve shows that:

suppliers are willing to increase production of their goods if they receive higher prices for them.

If a company offers a medical and dental care plan that offers benefits to all of the members of each employee's family for a given monthly premium, an employee who is a mother of five children and who has bad teeth who elects that plan would be an illustration of:

the adverse selection problem.

Graphically, consumer surplus is measured by:

the area below the demand curve, but above the market price

Assume that coffee and tea are substitutes for each other. If weather conditions cause a substantial portion of the available coffee crop to be destroyed, then most probably:

the demand for tea will increase.

If the price of tennis rackets were to increase, we would expect

the demand for tennis balls to decrease.

Consumer surplus is:

the difference between what consumers are willing to pay and what they are required to pay for a good.

The practice of potential buyers offering lower prices for a product of uncertain quality than they would for a product of certain quality is known as:

the lemon problem.

In the market for insurance, the moral hazard problem leads:

those who buy insurance to take fewer precautions to avoid the insured risk.

If the elasticity of supply of a good was 2, how much would the price have to increase to lead to an increase in output of 6 percent?

3%

Fantastic Cuts Hair Salon knows that a 15% increase in the price of their haircuts will result in a 5% decrease in the number of haircuts sold. What is the elasticity of demand facing Fantastic Cuts?

.33

Which of the following is a rival good that is nonexcludable?

.a common resource

If a corrective tax equal to the external cost imposed on third parties is levied on polluters it will:

.force polluters to internalize the external cost resulting from their actions

Which of the following is false?

All of the above are true.

Which of the following is not true of adverse selection?

All of the above are true.

Which of the following is the correct way to describe equilibrium in a market?

At equilibrium, quantity demanded equals quantity supplied

Elasticity of demand will ____ as the availability of substitutes ____.

Both c. and d. are correct answers (increase; increases)

Which of the below is true?

Both price floors and price ceilings generally reduce the quantity exchanged in the market.

Which of the following is true of a competitive market?

Buyers and sellers have little market power.

Which of the following statements is true?

Externalities can never refer to costs borne by the seller.

Which of the following is true?

In the case of public goods, when people act as free-riders, some goods and services having benefits greater than costs will not be produced.

Which of the following is true?

It is extremely difficult to limit the benefits of a public good to only the people who pay for it.

Which of the following best explains the source of consumer surplus for Good A?

Many consumers would be willing to pay more than the market price for some units of Good A.

Which of the following activities, if any, represents an external cost?

None of the above

In a market where firms are able to reduce their private costs by shifting costs onto others, which of the following will NOT happen?

Output of the good being produced will be too low.

Which of the following statements best summarizes the essence of public choice analysis?

Public choice analysis applies economic principles to political science issues.

If the price of music downloads decreases, which of the following is most likely to occur?

Quantity demanded will increase.

A shortage currently exists in the market for strawberries. Which of the following statements is correct?

The quantity of strawberries demanded exceeds the quantity supplied and the market price is below the equilibrium price.

Interpret the following statement: "Demand exceeds the available quantity of apartment housing. If the price of apartment rentals were increased, demand would decrease and an equilibrium could be achieved."

The statement is incorrect because it confuses "demand" with "quantity demanded."

Which of the following would NOT cause a change in the supply of milk?

an increase in the price of milk

Which of the following is most likely to be an inferior good?

Used clothing.

If the price elasticity of demand was 4.0 (in absolute terms), a 10% off sale would lead to:

a 40% increase in purchases by customers.

Which of the following is most likely to be an example of asymmetric information?

a collectible baseball card purchased on eBay

Which of the following would increase the quantity of LCD TVs demanded but would not increase the demand for LCD TVs?

a decrease in the current price of LCD TVs

Which of the following goods is least likely to be provided by the private sector?

a good characterized by nonrivalry in consumption from which nonpaying customers cannot be excluded

A public good is:

a good or service that can be consumed by both paying and nonpaying customers.

Which of the following is an example of an unintended consequence?

a price ceiling on gasoline that causes a gas shortage

To internalize a negative externality:

a producer's costs could be increased by an amount equal to the external cost resulting from the production of a good.

The imposition of a price ceiling on a market often results in:

a shortage

A warranty offered by a seller is one way to overcome

an adverse selection problem.

If consumers were able to receive the full social benefits associated with the consumption of goods involving positive externalities, other things being equal, there would probably be:

an increase in consumption.

Which of the following would be most likely to cause a reduction in the supply of Nintendo video games?

an increase in the price of computer chips used to make Nintendo games

At the equilibrium price for gasoline

both a. and d. are correct.

The median voter model implies that:

both b. and c. could be common.

If Don paints the outside of his house a horrendous color:

both b. and d. are true.

Public goods are characterized by:

both b. and d; nonrivalry in consumption & nonexcludability of nonpayers.

When there is an excess quantity supplied of a product at the current price, then:

both c. and d. will occur.

Without government intervention, society is likely to get too little production of:

both private goods that generate external benefits and public goods.

Sellers may choose not to sell in certain markets because:

buyers are unable to accurately perceive the quality of their goods and are, therefore, less willing to pay an appropriate price for them.

Public goods are those that are consumed:

by the paying and nonpaying public alike.

Which of the following is an example of a public good?

clean air

Ceteris paribus, an increase in the price of a good will cause the:

consumer surplus derived from the good to decrease.

When a good is nonrivalrous in consumption, then:

consumption by an additional individual does not prevent others from benefiting from a public good.

Negative externalities are:

costs incurred by individuals other than buyers and sellers in a particular market.

If the elasticity of demand for bangles is equal to 1, an increase in price will:

decrease the quantity demanded but leave total revenue unchanged.

A 10% decrease in the price of energy bars leads to a 20% increase in the quantity of energy bars demanded. It appears that:

demand is elastic and total revenue will increase.

A decrease in consumer incomes will:

do none of the above.

As an additional consumer obtains the benefits of a public good such as national defense, the benefits to existing consumers:

do not change.

If a negative externality results from the refining of oil, the cost of production as seen by the oil refinery:

does not include the external cost.

A price cut will increase the total revenue a firm receives if the demand for its product is:

elastic

A steel mill raises the price of steel by 7%, which results in a 20% reduction in the quantity of steel demanded. The demand curve facing this firm is:

elastic

Demand is said to be ____ when the quantity demanded is very responsive to changes in price.

elastic

The Shoe Emporium reduces the price of its shoes by 50% and finds that the quantity demanded for its shoes more than doubles. The demand for shoes from The Shoe Emporium appears to be:

elastic

If the supply curve for a product is vertical, then the elasticity of supply is:

equal to zero

Where a free-rider problem exists, goods tend to be:

high-priced and available only to the rich.

A perfectly elastic supply curve is

horizontal

A supply schedule shows:

how many units producers are willing and able to sell at various prices.

The supply curve shows

how the quantity produced varies with price.

If the production of a particular good involves significant external benefits, to force the externality to be internalized the government might:

impose a tax on production of the good in order to decrease production.

If the production of a particular good involves significant external costs, to force the externality to be internalized the government might:

impose a tax on production of the good in order to decrease production.

The longer the time period considered, the elasticity of supply tends to

increase

If the elasticity of supply of bangles is equal to 1, an increase in the price of bangles will:

increase the quantity supplied and increase total revenue.

The demand schedule for a good

indicates the quantities that will be purchased at alternative market prices.

The law of demand refers to the:

inverse relationship between the price of a good and the quantity demanded.

If a positive externality results from the consumption of higher education, then the marginal benefit students receive from education:

is less than the marginal social benefit.

If the demand for apples is highly elastic and the supply is highly inelastic, then if a tax is imposed on apples it will be paid:

largely by the sellers of apples.

The tendency of those who are insured to take more risks is a problem of:

moral hazard

If negative externalities are created in the production of a good, then society will:

produce too much of the good since the marginal private cost to firms is less than the marginal social cost.

If the production of a good created both external costs and external benefits, but the external costs were greater, without government intervention, a market economy will

produce too much of the product

Which of the following will most likely generate positive externalities?

public education

If the demand is perfectly inelastic, what would happen to the quantity demanded if there is a tiny increase in price?

quantity demanded will remain the same

Each point on the supply curve shows the

quantity supplied at that price

The difference between a change in quantity supplied and a change in supply is that a change in:

quantity supplied is caused by a change in a good's own, current price, while a change in supply is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes.

If there are important spillover benefits from consumption of a good,

the market demand curve for the good understates the value of the product to society and resources are therefore underallocated to its production

The view that those whose preferences represent the middle position on an issue will tend to determine the outcome of an election is called:

the median voter model

If, after she buys a car with air bags, Maria Andretti starts to drive recklessly, that would be an illustration of:

the moral hazard problem.

The U.S. government establishing a policy that it will bail out troubled financial institutions and a resulting increase in the number of bank failures is an example of

the moral hazard problem.

Price elasticity of demand is defined as

the percentage change in quantity demanded divided by the percentage change in price.

When there is an excess quantity demanded of a product at the current price, then:

the price will tend to rise.

The Book Nook reduces prices by 20%. If the dollar value of The Book Nook's sales remain constant, it indicates that:

the quantity of books sold increases by 20%.

Assume a price floor is imposed at the current equilibrium price in the market for lettuce. If the demand for lettuce then increases:

the quantity of lettuce supplied will increase.

Ceteris paribus, if the vacancy rate in an apartment complex increased from 5% to 20% over the past two years, we would expect to see

the rent decrease leading to an increase in quantity demanded.

In a competitive economy with no government sector

there will be too few public goods produced.

If a good that features a positive externality is produced in an unregulated free market, the good will be:

under-produced and under-priced.

If there are significant external costs associated with the production of a product, it can be said that the private cost of production to the firm ____ the cost to society associated with this product and output should ____ to move toward the efficient situation.

understates; decrease

The determination of which goods are public goods depends on:

whether it is possible to exclude additional users from consuming the good if they do not pay for it.

In economics, the demand for a good refers to the amount of the good people:

will buy at various prices.

A situation in which the winner of an auction is worse off than the loser because of inaccurate valuation is known as:

winner's curse.