ECON MID TERM HW QUESTIONS 4(part 1)

(Figure: The Shrimp Market) Use Figure: The Shrimp Market. If the government imposes a quota limiting sales of shrimp to 250 pounds, the quota rent per pound is: -$0. -$7.50. -$10. -$17.50.

$10

(Table: Market for Butter) Use Table: Market for Butter. If the government imposes a price ceiling of $0.90 per pound of butter, the quantity of butter actually purchased will be _____ million pounds. -10.5 -1.5 -9.0 -10.0

9.0

Which statement illustrates the law of demand? -An increase in tuition encourages more students to enroll in college because the quality of education has risen. -Fewer people play golf because incomes are lower. -Consumers buy more personal computers because prices have fallen. -Oil companies drill for new sources because prices are higher.

Consumers buy more personal computers because prices have fallen.

Which factor will NOT cause an increase in demand for good X? -a decrease in the price of good X -a decrease in income if good X is an inferior good -an increase in the popularity of good X with consumers -an increase in income if good X is a normal good

a decrease in the price of good X

Suppose that the average cost of a doctor visit is $100. If the government imposes a price ceiling of $50 on the cost of a doctor visit, there will be: -an excess demand for doctor visits. -an excess supply of doctor visits. -no change in the number of doctor visits. -an increase in the equilibrium number of doctor visits.

an excess demand for doctor visits.

The market for salmon is in equilibrium. A binding price ceiling, a binding price floor, and a quota limit below the market equilibrium in this market would all cause: -a supply price that exceeds a demand price. -revenue collected by the government on each unit of salmon harvested. -deadweight loss arising from a quantity exchanged that is less than the equilibrium quantity. -deadweight loss arising from a transfer of surplus from consumers to producers.

deadweight loss arising from a quantity exchanged that is less than the equilibrium quantity.

If goods A and Z are complements, an increase in the price of good Z will: -decrease the demand for good A. -decrease the demand for good Z. -increase the demand for good A. -decrease the demand for both good A and good Z.

decrease the demand for good A.

A binding rent-control price ceiling does NOT result in: -inefficiently low transaction costs. -inefficient allocation of the good to consumers. -inefficiently high quality of the good being sold. -wasted resources of consumers caused by time spent searching for the good.

inefficiently high quality of the good being sold.

The persistent unwanted surplus that results from a binding price floor causes inefficiencies that do NOT include: -inefficiently low quality. -the temptation to break the law by selling below the legal price -inefficient allocation of sales among sellers. -wasted resources.

inefficiently low quality.

If steak and potatoes are complements, when the price of steak goes up, the demand curve for potatoes: -shifts to the right. -stays the same. -shifts to the left. -shifts to the right and then moves back.

shifts to the left.

(Figure: The Market for Economics Textbooks) Use Figure: The Market for Economics Textbooks. At a price ceiling of $40, the market outcome would be a _____ of _____ textbooks. -shortage; 30 -shortage; 10 -surplus; 10 -surplus; 30

shortage; 30

The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price floor in the market at a price of $0.40 per pound: -quantity demanded will decrease. -quantity supplied will increase. -the price floor will not affect the market price or output. -there will be a shortage of apples.

the price floor will not affect the market price or output.

A binding price floor is likely to cause deadweight loss because: -buyers incur additional search costs looking for the scarce good. -some buyers who want to buy at the controlled price are unable to find a seller willing to sell at that price. -the quantity of the good transacted is less than the equilibrium quantity transacted. -a black market emerges and the good sells at prices above the price floor.

the quantity of the good transacted is less than the equilibrium quantity transacted.

(Table: The Market for Taxi Rides) Use Table: The Market for Taxi Rides. If a government quota limit at 9 million rides is imposed, the quota rent that will accrue to the owner of a taxi medallion will be _____ per ride, but there will be a total missed opportunity (inefficiency) to consumers and producers of _____ million rides. -$3; 3 -$2; 2 -$1; 1 -$4; 4

$1; 1

Which statement is CORRECT? -A change in demand is a movement along the demand curve, and a change in quantity demanded is a shift of the demand curve. -Both a change in quantity demanded and a change in demand are movements along the demand curve, only in different directions. -A change in quantity demanded is a movement along the demand curve, and a change in demand is a shift of the demand curve. -Both a change in quantity demanded and a change in demand are shifts of the demand curve, only in different directions.

A change in quantity demanded is a movement along the demand curve, and a change in demand is a shift of the demand curve.

Which statement about the undesirable side effects of a quantity control is NOT correct? -Quantity controls do not lead to deadweight loss. -Quantity controls cause a wedge between the demand price and supply price. -Quantity controls provide incentives for illegal activities. -Some mutually beneficial transactions do not occur because of quantity controls.

Quantity controls do not lead to deadweight loss.

After graduation from college, you might have an increase in your income from a new job. If as a result you decide that you will purchase more T-bone steak and less hamburger, then for you hamburger is a(n) _____ good. inferior substitute complementary normal

inferior

A price ceiling will have NO immediate effect if: -it is set above the equilibrium price. -it creates a shortage. -the equilibrium price is above the price ceiling. -it is set below the equilibrium price.

it is set above the equilibrium price.

Farmers in developing countries want the United States to reduce the subsidies that it gives to U.S. farmers because subsidized agricultural products from the United States: -lead to agricultural surpluses and lower prices for farmers in developing countries. -have led to an increase in the demand for agricultural products from the developing world. -raise the world price of agricultural products. -have led to a global shortage of agricultural products.

lead to agricultural surpluses and lower prices for farmers in developing countries.

Which example is a quantity control? -unemployment insurance -the minimum wage -limits on the number of red snappers that can be caught in the Gulf of Mexico -the Medicare reimbursement schedule for physicians Score: 2 of 2

limits on the number of red snappers that can be caught in the Gulf of Mexico

If a quota is set above the equilibrium quantity, there will be: -incentives for illegal activities. -a supply price for the quantity transacted that exceeds the demand price of the quantity transacted. -no immediate effect. -missed opportunities in the form of mutually beneficial transactions that don't occur.

no immediate effect.

(Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent0: -there will be a surplus of rental units. -the shortage of rental units is the distance Q1 - Q3. -no one will have to pay a higher actual price than Rent0, nor will anyone be willing to do so. -some renters will be willing to pay a price as high as Rent4 for Q0 units.

some renters will be willing to pay a price as high as Rent4 for Q0 units.

The United States and the European Union impose price floors on many agricultural products. These price floors lead to unwanted surpluses. To deal with a surplus -the U.S. government holds auctions to sell the surplus to the highest bidder. -the European Union pays farm exporters to sell products for a profit overseas. -the U.S. government in some cases has destroyed the surplus production. -the U.S. government typically pays farmers to produce as much as possible.

the U.S. government in some cases has destroyed the surplus production.