Microeconomics Chapter 3, 4, 5, 6, 8, and 10 Exam 1

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(Figure: Costs of Price Ceilings 2) Refer to the figure. What is the dollar amount of lost producer surplus after the price ceiling of $4 has been implemented?

$10

(Figure: Price Ceilings and Consumer Surplus) Refer to the figure. There is a price ceiling of $20. What is the value of consumer surplus if all the goods are allocated randomly?

$120

(Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. If the goods sold are allocated only to the highest-value users, the total consumer surplus in the market would be:

$150

increases.

As demand becomes more elastic, ceteris paribus, the deadweight loss from a tax: A) increases. B) remains the same. C) decreases. D) changes unpredictably.

A market shortage can be defined as a situation in which the quantity supplied in a market is greater than the quantity demanded, at the given price. True False

False

A market shortage can be defined as a situation in which the quantity supplied in a market is greater than the quantity demanded, at the given price. True False

False

An increase in demand causes an increase in quantity supplied, which causes a decrease in price. True False

False

An increase in quantity demanded is a shift in the entire demand curve. True False

False

people usually perceive that the private cost of getting flu shots is higher than their private benefit.

Fewer people get flu shots than is efficient because: A) people usually perceive that the private cost of getting flu shots is higher than their private benefit. B) people usually perceive that the private benefit of getting flu shots is higher than their private cost. C) the cost of producing flu shots is too high in relation to profits. D) there are always more people getting flu shots than the amount of flu shots available.

A 4 percent increase in the price of beer will cause a 1 percent decline in the quantity of beer demanded. *The demand for beer is*:

inelastic (-1%/4 = -.25) < 1 is inelastic

When the supply curve in the Sudanese slave trade is perfectly ________, every slave bought by the redeemers results in/is ________ held in captivity.

inelastic; one less slave

(Table: Equilibrium Price, Quantity) Refer to the table. If the demand curve for the product shifted to the right such that 10 more units of the good are demanded at every price, what is the new equilibrium price? $12 $14 $16 $18

$16

(Figure: Costs of Price Ceilings) Refer to the figure. What is the dollar amount of the value of wasted time if a price ceiling of $4 is implemented?

$160

(Figure: Basic Supply and Demand) In the diagram, the market price is stable only at a price of: $2. $3. $4. $50.

$3.

(Figure: Supply and Demand 4) Refer to the figure. If the good is randomly allocated between those with the highest and lowest willingness to pay, what is the value of consumer surplus at the price ceiling of $8?

$36

(Figure: Demand and Supply) Refer to the figure. At the equilibrium quantity, total surplus is: $960. $480. $320. $240

$480.

(Figure: Supply and Demand 4) Refer to the figure. If the good is purchased by those with the highest willingness to pay, what is the value of consumer surplus in the figure at the price ceiling of $8?

$54

(Table: Equilibrium Adjustment) Refer to the table. The equilibrium price is: $2. $4. $6. $8.

$6.

(Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. What is the loss of consumer surplus due to the random allocation of price-controlled goods compared to the allocation only to the highest-value users?

$60

(Figure: Chocolate) What is the equilibrium price per pound in the diagram? $4 $6 $8 $10

Refer to the figure. When the demand curve shifts from D0 to D1, the equilibrium price rises to: $9 and the equilibrium quantity rises to 120. $9 and the equilibrium quantity rises to 160. $8 and the equilibrium quantity rises to 140. $8 and the equilibrium quantity rises to 160.

$8 and the equilibrium quantity rises to 140.

(Figure: Price Ceilings and Consumer Valuation) Refer to the figure. Suppose a price ceiling of $3 goes into effect. If the goods sold are allocated to buyers randomly, what is the total consumer surplus in this market?

$90

Elasticity of demand =

% change in Q/% change in $P

$1,200

(Figure: ABC Company) Refer to the figure. The figure depicts the market for a water cleaner for home aquariums. After use it gets washed down drains and enters into streams where it improves the mineral content of the water and thus leads to better water quality and better fish growth. If the users of the cleaner were given a subsidy to compensate them for the benefit they are creating for the ecological system, how much deadweight loss is removed from this market? A) $2,400 B) $3,000 C) $3,600 D) $1,200

$50

(Figure: Consumer and Producer Surplus) According to the figure, what is the value of the deadweight loss? A) The deadweight loss cannot be calculated. B) $900 C) $100 D) $50

B+E

(Figure: Deadweight Loss) Which of the areas in this figure represents the lost consumer surplus resulting from a $2 tax? A) A B) B C) B+E D) B+C

9; 6

(Figure: Dishwashing Detergent) Refer to the figure. Dishwashing detergent contains phosphates that harm marine life. In this figure, the market equilibrium quantity is ______ units, and the efficient quantity is ______. A) 6; 9 B) 12; 6 C) 9; 6 D) 12; 9

$20.

(Figure: Imposition of a Tax) Refer to the figure. With a $4 tax, the deadweight loss is: A) $10. B) $35. C) $20. D) $40.

$45

(Figure: Market for Bathroom Cleaner) Refer to the figure. The figure shows a market for cans of a bathroom cleaner that causes environmental damage, imposing costs on people other than the consumers and producers of the cleaner. If consumers were taxed such that they only purchased the efficient quantity of the product, how much deadweight loss would be removed from this market? A) $90 B) $180 C) $45 D) $255

(Figure: Market for Bathroom Cleaner) Refer to the figure. The figure shows a market for cans of a bathroom cleaner that causes environmental damage, imposing costs on people other than the consumers and producers of the cleaner. What is the efficient quantity in this market? A) 100 B) 85 C) 15 D) 9

benefit; $5

(Figure: Market for Vaccines) Refer to the figure. The figure represents the market for vaccines with external benefits. The external ________ of vaccination is ________. A) cost; $15 B) cost; $10 C) benefit; $20 D) benefit; $5

deadweight loss of approximately $750.

(Figure: Market for Vaccines) Refer to the figure. The figure represents the market for vaccines with external benefits. The market's outcome generates a(n): A) deadweight loss of approximately $750. B) shortage of 1,800 vaccines. C) equilibrium price of $20. D) All of the answers are correct.

$100,000,000

(Figure: Palm Oil) Refer to the figure. Indonesian palm oil producers deforest tropical rainforests to grow the plants that excrete the oil. With this externality, what is the deadweight loss (if any) of producing palm oil? A) $100,000,000 B) $200,000,000 C) $400,000,000 D) There is no deadweight loss.

$10,500

(Figure: Soda Market) Suppose the U.S. Congress passes a tax of $0.70 on each can of soda. Using the diagram and the "wedge shortcut," determine how much deadweight loss this would create. A) $10,500 B) $21,000 C) $35,000 D) $70,000

$800

(Figure: Softella) Refer to the figure. The figure shows a market for medicated tissues. Assume that the only use for these tissues is to wipe and clean one's hands thus preventing germs from spreading to other people. If the government were to subsidize the users of these tissues, what is the dollar amount of deadweight loss that would be removed from this market? A) $1,600 B) $2,800 C) $5,600 D) $800

$4; $2

(Figure: Supply and Demand with Subsidy) Refer to the figure. With a $2-per-unit subsidy, the price received by sellers is ________ and the price paid by consumers is ________. A) $3; $2 B) $2; $4 C) $4; $2 D) $3; $4

$50

(Figure: Tax on Sellers of Gadgets) According to the figure, what is the amount of the deadweight loss caused by the imposition of the tax on gadgets? A) $100 B) $1 C) $0.50 D) $50

$4; $3

(Figure: Tax on Sellers) In the diagram, sellers receive _____ without the tax and _____ with the tax. A) $4; $3 B) $4; $7 C) $7; $3 D) $6; $4

B, and the equilibrium price and quantity are P3 and Q2.

(Figure: Tax on Supply and Demand) According to the figure, if the tax is placed on sellers, the equilibrium is at Point: A) A, and the equilibrium price and quantity are P3 and Q2. B) A, and the equilibrium price and quantity are P4 and Q3. C) B, and the equilibrium price and quantity are P3 and Q2. D) C, and the equilibrium price and quantity are P1 and Q2

C+E; B+D

(Figure: Taxes and Deadweight Loss) In the diagram, the deadweight loss is ______ and government tax revenue is ______. A) C+E; B B) C+E; B+D C) C;E D) D+F; B+D

(Figure: Wage Subsidy) Refer to the figure. If a minimum wage of $8 had been implemented instead of a wage subsidy, how many workers would have been unemployed? A) 60 B) 30 C) 180 D) 120

added a $10 tax per unit.

(Table: Costs of Antibiotics) Refer to the table. The deadweight loss in the market could be eliminated if the government: A) outlawed the production of the good. B) added a $10 tax per unit. C) equated marginal benefit with external cost. D) subsidized consumption by $5 per unit.

3; 2

(Table: Costs of Antibiotics) Refer to the table. The market equilibrium quantity is ________ and the efficient equilibrium quantity is ________. A) 5; 1 B) 3; 4 C) 3; 2 D) 2; 5

$2.50 more; $1.50 less

(Table: Unit Taxes) Because of the $4 tax in the accompanying table, buyers are paying ______ per unit and sellers are receiving _______ per unit. A) $4 more; $4 less B) $2.50 more; $1.50 less C) $4 less; $4 more D) $2 more; $2 less

If the price elasticity of supply is 0.75, then when the price of Good Y falls by 10 percent, the quantity supplied of Good Y:

*falls* by 7.5 percent. (.75/-10 x 100 = -7.5)

Refer to the figure. If price decreases from $20 to $10, total revenue will:

*increase* by $1,500, so the demand curve is *elastic*.

Farmers can produce more milk at lower cost, but Americans want to drink only so much milk. This suggests that the demand curve for milk is:

*inelastic*

Suppose the price of a good rises from $10 to $20 and quantity demanded falls from 500 to 400. If you calculate the elasticity of demand WITHOUT using the midpoint method, the answer would be _____. If you calculate the elasticity of demand WITH the midpoint method, the answer would be _____. Economists say _____ when calculating elasticity.

-1/5; -1/3; *use the midpoint method*

Good X and Good Y are related goods. When the price of Good X rises by 20 percent, the quantity demanded for Good Y falls by 40 percent. What is the cross-price elasticity?

-2 (Change in demand/change in price: -40/20=-2)

When the demand curve for a good is *unit elastic*, raising the price of the good by 25 percent will change the revenue of the firm by:

0 percent.

If the price of cocoa rises by 20 percent, the quantity supplied of cocoa rises by 4 percent. What is the elasticity of supply?

0.2 (% change in supply/% change in price) 4/20 = 0.2

Assume that demand increases by 1 percent, the absolute value of price elasticity of demand is 1.0, and price elasticity of supply is 1.0. What is the percentage price change in this case?

0.5 (1%/1.0+1.0)

On October 1, 2009, the Nintendo Wii's Japanese price dropped from ¥25,000 to ¥20,000. In the three months after the price drop, Japanese sales of the Wii were approximately 1,040,000. Twelve months earlier, over the same interval at the high price, sales totaled 890,000. Using the midpoint method, what is the absolute value of the price elasticity of demand of a Wii console? Is it an elastic or inelastic good?

0.7; inelastic

If the price of Good Y falls from $10 to $8, and the quantity demanded of it rises from 1,000 units to 1,200 units, the price elasticity of demand expressed in absolute value is:

0.82

Tonya consumes 40 steaks a year when her yearly income is $40,000. After her income falls to $35,000 a year, she consumes only 35 steaks a year. Calculate her income elasticity of demand for steaks

(Figure: Slave Redemption) Refer to the figure. Assume the graph illustrates the Sudanese slave trade. When slave redeemers enter the market, the total number of freed slaves is ________ and the net number of freed slaves is ________.

1,100; 100

The price of cigars is $10, with a quantity demanded of 1,000 per day. If the price increases to $12, the quantity demanded declines to 800 per day. What is the absolute value of elasticity of demand?

1.22

(Figure: Price Floor) Refer to the figure. How much unemployment results from the imposition of a price floor set at $10?

100 units

(Figure: Equilibrium) Refer to the figure. The equilibrium quantity (in units) is: 8. 10. 16. 12.

16.

If the price of Good Y falls from $10 to $8, and the quantity supplied of it falls from 1,000 units to 600 units, the price elasticity of supply is:

2.25

If the demand for a good is estimated to be _____, then firms producing the good will experience an *increase in total revenue* ^ if *prices fall* v.

2.5 (elastic)

The elasticity of demand for a good is -0.75. A 4 percent increase in price will cause a:

3 percent decrease in quantity demanded.

(Figure: Slave Redemption and Elasticity) Refer to the figure. Assume the graph illustrates the Sudanese slave trade. How many slaves are freed after the redemption program?

400

(Figure: Equilibrium) Refer to the figure. The equilibrium price (in $) is: 8. 10. 16. 12.

(Figure: Tax on Sellers) In the diagram, sellers receive _____ without the tax and _____ with the tax. A) $4; $3 B) $4; $7 C) $7; $3 D) $6; $4

(Figure: Wage Subsidy) Refer to the figure. If a minimum wage of $8 had been implemented instead of a wage subsidy, how many workers would have been unemployed? A) 60 B) 30 C) 180 D) 120

. (Figure: Soda Market) Suppose the U.S. Congress passes a tax of $0.70 on each can of soda. Using the diagram and the "wedge shortcut," determine how much deadweight loss this would create. A) $10,500 B) $21,000 C) $35,000 D) $70,000

A mandate that requires employers to provide health insurance will cause the price of physical capital to: A) increase. B) decrease. C) remain the same. D) change, but it's uncertain how.

As demand becomes more elastic, ceteris paribus, the deadweight loss from a tax: A) increases. B) remains the same. C) decreases. D) changes unpredictably.

By law, workers pay half the Social Security tax and employers pay the other half. However, the price of labor (wages) does not adjust very quickly. If the government wanted to temporarily create a shortage of labor (or combat a surplus of labor), what should it do? A) Move the whole tax onto workers (suppliers of labor). B) Move the whole tax onto employers (demanders of labor). C) Neither because this change would have a long run effect on who pays the Social Security tax. D) Increase the tax on both parties.

Every summer, Matt travels by air to see his grandmother. Matt's maximum willingness to pay for an airline ticket is $260, but the airline only requires a minimum of $100 to fly him. Normally, Matt pays the airline the going market price of $250 per ticket. If the government places a $50 tax on each ticket, raising ticket prices to $270, and causing Matt not to go, what is the deadweight loss created by this tax? A) $160 B) $150 C) $10 D) $260

If the elasticity of supply is 1, and the elasticity of demand is 3 (in absolute value), then for a tax of $1 buyers will pay: A) an extra 25 cents and sellers will receive 75 cents less. B) an extra 75 cents and sellers will receive 25 cents less. C) an extra 50 cents and sellers will receive 50 cents less. D) nothing extra since this is the special case where demand is unit elastic.

In the market for Good X—a necessity good without any good substitutes—the workers and capital in the industry can easily find work producing other goods. The burden of the tax is likely to fall: A) more heavily on buyers, given that demand is more inelastic than supply. B) evenly between buyers and sellers. C) more heavily on sellers, given that supply is more inelastic than demand. D) more heavily on buyers, given that demand is more elastic than supply.

In this figure, the benefits of a subsidy will be greater for sellers facing demand curve ______, the ______ demand. A) D2; more elastic B) D2; least elastic C) D1; more elastic D) D1; least elastic

Legislators impose a tax of $0.70 on soda that reduces the quantity of soda sold from 130,000 cans of soda to 100,000, cans. How much of the $0.70 tax per can will producers pay? A) $0.10 B) $0.35 C) $0.60 D) $0.70

Martin's maximum willingness to pay for an electric boat motor is $250. Because of a tax, the price of the motor increases from $230 to $280. The deadweight loss of the tax attributable to Martin is: A) $20. B) $250. C) $50. D) $30.

increase.

A mandate that requires employers to provide health insurance will cause the price of physical capital to: A) increase. B) decrease. C) remain the same. D) change, but it's uncertain how.

permit; efficient

A number of cities and states have banned smoking in bars because of secondhand smoke. In cities without the ban, the bar owner decides whether smoking is permitted. If smokers have a greater willingness to pay to smoke than nonsmokers have to avoid smoke, then bar owners will ______ smoking, which is an ______ outcome. A) ban; efficient B) ban; inefficient C) permit; efficient D) permit; inefficient

positive; killed rats regardless of who those rats would infect

A plague called The Black Death swept Medieval Europe. At the time, people believed cats spread the plague (cats were associated with the Devil) and started killing them to prevent the spread of disease. In reality, rats spread the plague and the slaughter of their natural predators only hastened the disease's proliferation. With this in mind, a market for cats would have had a ______ externality because the cats ______. A) positive; prevented rats from eating their owners' grain B) positive; killed rats regardless of who those rats would infect C) negative; spread disease to everyone regardless of who owned them D) negative; made everyone sicker through their association with the Devil

Refer to the figure. Which statement is correct?

A price floor set at W2 would cause a labor surplus best labeled by A.

I and III only I. levy taxes on the coal factory's production of pollutants III. create a market for tradable allowances

Assume an EPA official observes the following situation in a small town on the banks of a river. The town depends heavily on fish for its food and is heavily dependent on coal for its power. A coal factory on the banks of the river empties pollutants into the river causing health problems among the residents and the fish to develop toxic residues in their livers and other organs. Which of the following solutions should the EPA choose to mitigate this negative externality problem (at least in the short run)? I. levy taxes on the coal factory's production of pollutants II. levy taxes on the consumers' consumption of fish III. create a market for tradable allowances IV. subsidize firms that produce clean fish A) I and III only B) II and IV only C) III and IV only D) I, III, and IV only

(Figure: Taxes and Deadweight Loss) In the diagram, the deadweight loss is ______ and government tax revenue is ______. A) C + E; B B) C + E; B + D C) C; E D) D + F; B + D

If instead of a per-unit subsidy, the government offered to pay for half the good's price, no matter the price: A) the wedge method would no longer work. B) instead of a parallel shift in demand, the subsidy should be modeled as a demand curve that is twice as steep. C) demand would be perfectly elastic. D) there would be no change in how we model the subsidy

If there is a tax on both medicine and sugar, ceteris paribus, how will the deadweight losses in each market compare? A) Medicine has a larger deadweight loss. B) Sugar has a larger deadweight loss. C) The deadweight losses are equal. D) Neither has a deadweight loss due to the tax.

In Virginia, the state taxes automobiles. In Northern Virginia, there is ample public transportation, and many neighborhoods are very walkable. In the rest of the state, there is less public transportation, and neighborhoods are more spread out. Other things equal, which of the following is likely to be an effect of the car tax? A) The car tax will raise relatively more money in Northern Virginia. B) The deadweight loss of the tax will be higher in Northern Virginia. C) The deadweight loss of the tax will be higher in the rest of the state. D) The deadweight loss will be the same throughout the state.

Suppose that there is a tax of $1 per unit, and the elasticity of supply is 3 and the elasticity of demand is 2 (in absolute value). How much of the $1 tax is paid by sellers? A) $0.60 B) $0.40 C) $0.75 D) $0.67

Suppose that there is a tax of $1 per unit, and the elasticity of supply is 3 and the elasticity of demand is 2 (in absolute value). How much of the $1 tax is paid by sellers? A. $0.67 B. $0.40 C. $0.75 D. $0.60

The difference between what buyers pay for a unit of a good and what sellers receive is known as the: A) cost of production. B) tax. C) brokerage fee. D) overhead.

The supply of financial capital is very internationally mobile. People can move their bank and brokerage accounts around the world and invest in foreign corporations with a click of the mouse. The supply of labor is less internationally mobile. People have strong ties to the countries in which they live. Assuming that the demand for labor and for financial capital have similar elasticities, which of the following is TRUE? A) Taxes on financial capital will raise more revenue than similar taxes on labor. B) Taxes on labor will have less deadweight loss than similar taxes on financial capital. C) Taxes on labor and financial capital are interchangeable. D) Taxes on labor will have no deadweight loss at all.

Which of the following statements is NOT true regarding subsidies? A) Similar to a tax, a subsidy also creates a deadweight loss. B) The main beneficiary of a subsidy is the party that directly receives the check from the government. C) Subsidies create inefficient increases in trade. D) When a subsidy is present, the price received by sellers exceeds the price paid by buyers.

Which of the following statements is TRUE? I. Subsidizing buyers is no different than subsidizing sellers. II. Unlike taxes, subsidies do not create deadweight losses. III. Subsidies are payments the government makes to either producers or consumers. IV. Taxpayers pay for subsidies. A) I and II only B) I, III, and IV only C) II and III only D) I, II, III, and IV

Which statement is TRUE in a market with a price ceiling?

Buyers and sellers experience unexploited gains from trade.

(Figure: Demand and Supply) Refer to the figure. Which statement is TRUE? The gains from trade are maximized at 20 units of output. At 16 units of output, there are unexploited gains from trade. Buyers are willing to pay $20 for the 16th unit of output and it costs sellers $60 to produce that unit. A free market is likely to produce less than 12 units of output.

Buyers are willing to pay $20 for the 16th unit of output and it costs sellers $60 to produce that unit.

Move the whole tax onto workers (suppliers of labor).

By law, workers pay half the Social Security tax and employers pay the other half. However, the price of labor (wages) does not adjust very quickly. If the government wanted to temporarily create a shortage of labor (or combat a surplus of labor), what should it do? A) Move the whole tax onto workers (suppliers of labor). B) Move the whole tax onto employers (demanders of labor). C) Neither, because this change would have a long-run effect on who pays the Social Security tax. D) Increase the tax on both parties.

Yes, the legal responsibility for the tax has nothing to do with who ultimately pays, so it is as good an allocation as any other.

By law, workers pay half the Social Security tax and employers pay the other half. Is this a fair way to allocate the tax? A) No, workers should pay the whole tax. B) No, employers should pay the whole tax. C) Yes, the legal responsibility for the tax has nothing to do with who ultimately pays, so it is as good an allocation as any other. D) Economics cannot answer such a question.

(Figure: Deadweight Loss) Which of the areas in this figure represents the lost consumer surplus resulting from a $2 tax? A) A B) B C) B + E D) B + C

(Figure: Imposition of a Tax) Refer to the figure. With a $4 tax, the deadweight loss is: A) $10. B) $35. C) $20. D) $40.

(Figure: Tax on supply and Demand): According to the figure, if the tax is placed on sellers, the equilibrium is at Point: A. C, and the equilibrium price and quantity are P1 and Q2. B. A, and the equilibrium price and quantity are P3 and Q2. C. B, and the equilibrium price and quantity are P3 and Q2. D. A, and the equilibrium price and quantity are P4 and Q3.

. (Figure: Supply and Demand with Subsidy) Refer to the figure. With a $2-per-unit subsidy, the price received by sellers is ________ and the price paid by consumers is ________. A) $3; $2 B) $2; $4 C) $4; $2 D) $3; $

Which of the following statements is TRUE? I. Buyers bear the majority of the tax burden if the tax is originally imposed on buyers. II. Buyers bear the majority of the tax burden if the tax is originally imposed on sellers. III. Buyers and sellers will always bear equal amounts of the tax burden. IV. Buyers and sellers will jointly bear the tax. A) I only B) II only C) III only D) IV only

Consider the market for gasoline, a good with a relatively low elasticity of demand. Who will bear the majority of a tax imposed on gasoline? A) It depends on the tax rate at the time the gasoline is sold. B) Sellers will bear the majority of the tax, as long as supply is more elastic than demand. C) Buyers will bear the majority of the tax, as long as demand is less elastic than supply. D) No one will bear the majority of the tax; the tax burden will be borne equally by both buyers and sellers

In Free Market Environmentalism, economists Terry Anderson and Donald Leal write, "Subsidized irrigation . . . encourages farmers to break prairie sod and plant crops in arid regions. Rather than choosing drought-resistant crops that might be more appropriate in an environment undergoing global warming, farmers intensify the use of pesticides and chemical fertilizers to increase their yields. . ." (pp. 163-164). Which of the following explains the deadweight loss from irrigation subsidies? A) Farmers are using methods that do not match their incentives. B) Farmers are using methods that do not result in the highest crop yield. C) Farmers are using methods for which the social cost of growing food exceeds the social benefit. D) Farmers are using methods without considering the methods' opportunity cost.

In the figure, demand curve _____ is the least elastic demand curve, and the lost gains from trade because of a tax are greater with demand curve _____. A) D1; D1 B) D2; D2 C) D1; D2 D) D2; D1

The government subsidizes driving by building roadways, but it also taxes driving through gasoline taxes. Which of the following is TRUE? A) Road-building expenditures must be less than gasoline tax revenues. B) Deadweight losses from road subsidies exceed deadweight losses from gasoline taxes. C) These policies at least partially offset each other because a subsidy is a negative tax. D) These policies compound each other because a subsidy is the same thing as a tax.

The supply of financial capital is very mobile. People can move their bank and brokerage accounts around the world and invest in foreign corporations with a click of the mouse. Therefore, taxes on financial capital: A) are profitable for the government. B) will not be a significant source of deadweight loss. C) will not raise very much revenue from suppliers of financial capital. D) are a good idea.

Which of the following statements is NOT true for a case in which the demand for labor is more elastic than the supply of labor? A) Firms can substitute capital for labor if the health insurance on labor gets too costly. B) Most workers would continue to work even if their wages were lower because of the cost of health insurance. C) Firms cannot escape the cost of health insurance for labor by employing fewer workers. D) Firms can move overseas if the tax on labor gets too high.

Buyers will bear the majority of the tax, as long as demand is less elastic than supply.

At a price ceiling of $1 per loaf of bread, quantity supplied is 99 loaves, which is less than quantity demanded. What must be true for the 100th loaf of bread?

Consumers value the 100th loaf of bread more than it costs producers to make it

(Figure: Consumer and Producer Surplus) According to the figure, what is the value of the deadweight loss? A) The deadweight loss cannot be calculated. B) $900 C) $100 D) $50

. (Figure: Tax on Sellers of Gadgets) According to the figure, what is the amount of the deadweight loss caused by the imposition of the tax on gadgets? A) $100 B) $1 C) $0.50 D) $50

By law, workers pay half the Social Security tax and employers pay the other half. Is this a fair way to allocate the tax? A. No, employers should pay the whole tax. B. No, workers should pay the whole tax. C. Economics cannot answer such a question. D. Yes, the legal responsibility for the tax has nothing to do with who ultimately pays, so it is as good an allocation as any other.

In the diagram, the demand curve that incorporates a $2 tax per unit is: A) D1. B) D2. C) D3. D) D4.

The typical teen-age smoker has a more elastic demand for cigarettes than does a typical older smoker. We expect a given cigarette tax to ______ a teen-age smoker's consumption by______ than an older smoker's consumption. A) increase; less B) increase; more C) reduce; less D) reduce; more

Which of the following statements is TRUE regarding cigarette taxes? A) Cigarette manufacturers bear almost all of the cigarette taxes. B) Cigarette manufacturers tend to ship their product from low-tax states to high-tax states. C) The elasticity of cigarette supply in all states is very small so cigarette manufacturers receive higher after-tax prices in higher-tax states. D) After-tax prices received by cigarette manufacturers are about the same in all states

With a $4 subsidy in the figure, buyers pay _____ and sellers receive _____. A) $5; $9 B) $7; $3 C) $9; $7 D) $3; $7

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. If this depicts the equilibrium in the market for computer printers, what will happen when the price of computers increases? There is not enough information to determine what will happen. D1 will shift to D2. D1 will shift to D3. S1 will shift to S3.

D1 will shift to D2.

$160

A decrease in demand for a good will lead to a decrease in the price of the good, but an increase in the quantity supplied. True False

False

A decrease in demand for a good will lead to a decrease in the price of the good, but an increase in the quantity supplied. True False

False

A decrease in supply raises the price of a good, but it also decreases the quantity demanded, which lowers the price of a good. The net effect on price is ambiguous. True False

False

Which statement(s) is TRUE? I. Price floors are legally established minimum prices for goods and services. II. Price floors create surpluses, whereas price ceilings create shortages. III. Price floors reduce quality of goods and services.

I and II only

When the price ceilings on oil and gas were lifted in January 1981: I. the price of oil rose immediately. II. the price of oil continued to rise more than 2 years after the controls were eliminated. III. higher prices gave an incentive to suppliers to increase supply, thus leading eventually to lower prices.

I and III only

instead of a parallel shift in demand, the subsidy should be modeled as a demand curve that is twice as steep.

an extra 25 cents and sellers will receive 75 cents less.

Sugar has a larger deadweight loss.

I only - Lack of running water in part of the country is exacerbating the spread of cholera in the population.

If you are a government official, under which of the following situations would you opt for a command and control solution to an externality problem? I. Lack of running water in part of the country is exacerbating the spread of cholera in the population. II. Foreign ships are dumping toxic wastes in the waters off your country's shores. III. A large number of banks fail due to excessive risk taking. A) I only B) I and II only C) II and III only D) I, II, and III

Farmers are using methods for which the social cost of growing food exceeds the social benefit.

The deadweight loss of the tax will be higher in Northern Virginia.

lower than the efficient price.

In a market with external costs, the market price is: A) higher than the efficient price. B) lower than the efficient price. C) equal to the efficient price. D) regulated by the government.

is less than marginal social cost for all quantity levels.

In the case of an external cost, marginal private cost: A) is equal to marginal social cost for all quantity levels. B) is less than marginal social cost for all quantity levels. C) is greater than marginal social cost for all quantity levels. D) and marginal social cost cannot be compared at any quantity.

D4.

In the diagram, the demand curve that incorporates a $2 tax per unit is: A) D1. B) D2. C) D3. D) D4.

D1; D2

In the figure, demand curve _____ is the least elastic demand curve, and the lost gains from trade because of a tax are greater with demand curve _____. A) D1; D1 B) D2; D2 C) D1; D2 D) D2; D1

more heavily on buyers, given that demand is more inelastic than supply.

D2; more elastic

In this figure, the benefits of a subsidy will be greater for sellers facing demand curve ______, the ______ demand. A) D2; more elastic B) D2; least elastic C) D1; more elastic D) D1; least elastic

The elasticity of demand for oil is -0.5 and the elasticity of supply is 0.20. If the demand for oil increases 10 percent, what happens to the price of oil?

It increases by 14 percent. (10%/.5+.20 = 14.28)

Istanbul's Dolmabaçe Palace, built near the end of the Ottoman Empire, rests on a former garden that was created in the eighteenth century at great expense by filling in a bay. What does the Dolmabaçe Palace teach us about the elasticity of supply of land?

It is not perfectly *inelastic*, but close to it.

Because of aging requirements it takes many years to make good Scotch. If a technology were invented that made it possible to create good Scotch literally overnight, how would the short-run supply of good Scotch change?

It would become *more elastic*.

$0.10

the costs of reaching an agreement are low and property rights are well defined.

Market solutions to externality problems are more likely to occur when: A) the costs of reaching an agreement are low and property rights are well defined. B) the transaction costs are low and property rights are nonexistent. C) transaction costs are high and property rights are well defined. D) the costs of reaching an agreement are high and property rights are nonexistent.

$20.

If the demand for currently illegal recreational drugs is *highly inelastic* and these drugs became legal, prices would fall. An economist would expect which of the following to happen in response to the lower price?

Not many more people would become drug users.

social value exceeds the private value at the private market solution.

Private markets fail to reach a socially optimal equilibrium when external benefits are present because the: A) social value exceeds the private value at the private market solution. B) private cost exceeds the social benefit at the private market solution. C) private benefit equals the social benefit at the private market solution. D) None of the answers is correct. Private markets DO achieve a socially optimal equilibrium when external benefits are present.

well-defined property rights and low transaction costs.

Private solutions to externalities are MOST likely to occur when there are: A) well-defined property rights and low transaction costs. B) communal property rights and large numbers of sellers. C) private property rights and high transaction costs. D) communal property rights and large numbers of buyers and sellers with equal bargaining power.

underconsumed because consumers only consider the private benefits of consumption.

Products that create external benefits are: A) overconsumed because the private benefits exceed the private costs. B) underconsumed because consumers only consider the private benefits of consumption. C) neither overconsumed nor underconsumed because the marginal benefits equal the marginal costs. D) underconsumed because the social costs exceed the social benefits.

command and control, tax on electricity, tax on the pollutants generated from electricity production

Rank economists' LEAST favorite to MOST favorite method of reducing electricity consumption. A) tax on electricity, command and control, tax on the pollutants generated from electricity production B) command and control, tax on electricity, tax on the pollutants generated from electricity production C) tax on electricity, tax on the pollutants generated from electricity production, command and control D) tax on the pollutants generated from electricity production, command and control, tax on electricity

$4.00

Refer to the figure. What is the deadweight loss in this figure at the market equilibrium? A) $25.00 B) $4.00 C) $8.33 D) $11.25

Industry Y would agree to reduce its emissions by 1 ton if Industry X paid it $301.

Refer to the table. Which statement is FALSE? A) Social costs increase if Industry Y emits 40 tons of sulfur dioxide and Industry X emits zero tons. B) Industry Y would agree to reduce its emissions by 1 ton if Industry X paid it $301. C) If Industry X decreases emissions by 1 ton and Industry Y increases emissions by 1 ton, the cost of reducing pollution rises by $100. D) Industry X would be willing to reduce its emissions by 5 tons if Industry Y paid it at least $1,500.

Which statement is correct regarding the restrictions on entry into the airline industry?

Resources were misallocated because low-cost airlines were kept out of the industry

$0.40

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. Resource prices in this market increase; at the same time, the consumer population declines as migration causes an outflow of population to other regions. What happens to the supply curve and/or demand curve? S1 shifts to S2 but then shifts back to S1. D1 remains at D1. S1 shifts to S3 and D1 shifts to D2. S1 shifts to S2 and D1 shifts to D3. S1 shifts to S2 and D1 shifts to D2.

S1 shifts to S2 and D1 shifts to D2.

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. Suppose this depicts the market for corn. How does the market change when flooding in Iowa destroys a significant amount of the corn crop. S1 will shift to S2. D1 will shift to D2. S1 will shift to S3. There will be no change in supply or demand in the market for corn.

S1 will shift to S2.

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. If technological innovations lower the costs of production, what will happen? D1 will shift to D3 and equilibrium price and equilibrium quantity will increase. S1 will shift to S2 and equilibrium price will increase but equilibrium quantity will decrease. D1 will shift to D2 and equilibrium price and equilibrium quantity will decrease. S1 will shift to S3 and equilibrium price will decrease but equilibrium quantity will increase.

S1 will shift to S3 and equilibrium price will decrease but equilibrium quantity will increase.

Labor unions are composed of high-skilled workers, but generally support minimum wage laws that typically affect only low-skilled workers. Their support makes more sense by considering that low-skilled labor is a ______ for high-skilled labor, and minimum wages ______ the quantity demanded of low-skilled labor.

Substitute; decrease

Yes, it would lower the cost of pollution abatement.

Suppose the government limits the amount of pollution from cars by capping the amount of pollution they can emit to 30 pounds of carbon dioxide per car per year. If Alex was willing to pay $50 to emit an extra pound of carbon dioxide and Tyler was willing to sell a pound of his allowance for $30, would it be efficient for them to make this trade? A) No, it would raise the cost of pollution abatement. B) Yes, it would lower the cost of pollution abatement. C) It is impossible to say whether this would or would not be an efficient trade. D) There is no incentive for Alex and Tyler to trade.

Different people have different costs of emissions abatement.

Suppose there will be global catastrophe unless we hold total carbon dioxide emissions at or below 35 million tons per year. As a result, each person on Earth is allocated 10 pounds of untradable emissions permits per year. Why would this be an inefficient solution? A) Flexibility is not desirable. B) Transaction costs are very high. C) Everybody has the same cost of emissions abatement. D) Different people have different costs of emissions abatement.

the external benefits of vaccination likely decrease as more and more people are vaccinated.

The Centers for Disease Control and Prevention (CDC) wants at least 90% of the population vaccinated against preventable diseases, since the chance of a disease outbreak decreases as vaccine coverage increases. We can conclude that: A) the external benefits of vaccination likely decrease as more and more people are vaccinated. B) the private benefits of vaccination increase with vaccine coverage. C) vaccines create a negative externality once the vaccine covers 90% of the population. D) vaccines create a positive externality once the vaccine covers 90% of the population.

when transaction costs are low and property rights are clearly defined.

The Coase theorem posits that externality problems can be solved without government intervention: A) when transaction costs are low and property rights are clearly defined. B) when trading in tradable allowances occurs. C) if markets can reach the efficient quantity and if transaction costs exceed the deadweight loss caused in the market. D) only rarely, that in general, markets cannot maximize social surplus.

tax.

The difference between what buyers pay for a unit of a good and what sellers receive is known as the: A) cost of production. B) tax. C) brokerage fee. D) overhead.

An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity? The equilibrium price decreases; the change in the equilibrium quantity is uncertain. The equilibrium price decreases; the equilibrium quantity increases. The equilibrium price increases; the change in the equilibrium quantity is uncertain. The equilibrium price increases; the equilibrium quantity decreases.

The equilibrium price decreases; the change in the equilibrium quantity is uncertain.

An increase in demand and a decrease in supply occur in a market. What happens to the equilibrium price and quantity? The equilibrium price decreases; the change in the equilibrium quantity is uncertain. The equilibrium price decreases; the equilibrium quantity increases. The equilibrium price increases; the change in the equilibrium quantity is uncertain The equilibrium price increases; the equilibrium quantity decreases.

The equilibrium price increases; the change in the equilibrium quantity is uncertain

(Figure: Basic Supply and Demand) In the diagram, which of the following statements is TRUE? The equilibrium price is $3, and the equilibrium quantity is 60 units. The equilibrium price is $4, and the equilibrium quantity is 60 units. The equilibrium price is $2, and the equilibrium quantity is 40 units. The equilibrium price is $3, and the equilibrium quantity is 50 units.

The equilibrium price is $3, and the equilibrium quantity is 50 units.

These policies at least partially offset each other because a subsidy is a negative tax.

(Figure: Chocolate) If the price in the diagram is $5, what will happen? The price will increase because of a shortage. The price will decrease because of a shortage. The price will increase because of a surplus. The price will decrease because of a surplus.

The price will increase because of a shortage.

Taxes on labor will have less deadweight loss than similar taxes on financial capital.

will not raise very much revenue from suppliers of financial capital.

reduce; more

Mobile homes are housing units installed on a permanent foundation owned by a landlord. Although a resident owns the home, she rents the foundation from the landlord. In theory, owners of mobile homes can transfer their home to a different foundation if the rent becomes too steep, but uninstalling, transporting, and reinstalling the mobile home is usually prohibitively expensive. This "lock-in" effect encourages state legislatures to create rent controls for mobile home foundations. Which statement is a plausible, unintended consequence of these laws?

There are few new mobile home foundations constructed.

A new per unit subsidy for almond production in the United States increases the world supply of almonds. If almonds are *inelastically demanded*, what will happen to total revenues from almond production?

They will fall.

A new per unit tax on yacht production decreases the supply of yachts. If yachts are elastically demanded, what will happen to total revenues from yacht production?

They will fall. (elastic demand = total revenue fall with decrease in supply)

A new per unit subsidy for hybrid car production increases the supply of hybrid cars. If hybrid cars are elastically demanded, what will happen to total revenues from hybrid car production?

They will rise. (Elastic demand: lower price = higher revenue)

I and II only I. implement a tax equal to the level of the external cost. II. create a system of tradable allowances to reduce output to the efficient quantity.

To ensure an efficient equilibrium outcome when external costs are present in the market, the government could: I. implement a tax equal to the level of the external cost. II. create a system of tradable allowances to reduce output to the efficient quantity. III. institute command and control policies to reduce output to the efficient quantity. A) I and II only B) II and III only C) II only D) I, II, and III

can keep private parties from solving externality problems.

Transaction costs: A) are incurred in the production process due to externalities. B) are eliminated when the government intervenes in a market with externalities. C) can keep private parties from solving externality problems. D) increase when taxes are imposed to correct negative externalities.

A decrease in the supply of milk will lead to a decrease in the QUANTITY DEMANDED of milk. True False

True

A market surplus can be defined as a situation in which the quantity demanded in a market is less than the quantity supplied, at the given price. True False

True

An increase in quantity demanded is a movement along a fixed demand curve caused by a shift in the supply curve. True False

True

An increase in supply causes a temporary surplus at the old equilibrium price. True False

True

Under this act, the EPA distributes pollution allowances to electricity producers.

What is the importance of the Clean Air Act of 1990? A) Under this act, the EPA distributes pollution allowances to electricity producers. B) Under this act, the EPA sets the maximum amount of pollution that each firm may emit. C) The act lists the pollutants that are deemed harmful to the environment. D) The act delineates which firms are allowed to emit more than 1 ton of sulfur dioxide.

market output is too low.

When external benefits are significant: A) market output is too low. B) market output is too high. C) market output is at the efficient level. D) social surplus is maximized.

it is equivalent to a tax set equal to the level of the external cost.

When the number of tradable allowances is set equal to the efficient market quantity: A) it is equivalent to a tax set equal to the level of the external cost. B) the outcome will be more efficient than a tax on pollution. C) it is equivalent to a government regulation set equal to the efficient market quantity. D) the price of the allowances will equal the social cost of pollution.

(Figure: Basic Supply and Demand) In the diagram, which of the following statements is TRUE? When the price is $3, the quantity demanded exceeds the quantity supplied by 60 units. When the price is $2, the quantity demanded exceeds the quantity supplied by 40 units. When the price is $4, the quantity demanded is less than the quantity supplied by 40 units. When the price is $2, there is a tendency for the price to rise in the future.

When the price is $2, there is a tendency for the price to rise in the future.

Which of the following statements about the price elasticity of supply in the Sudanese slave trade is correct?

When the supply curve is perfectly inelastic, every slave bought by the redeemers is one fewer slave held in captivity.

taxing the pollutants directly caused by washing machines

Which best creates incentives to reduce the pollution generated by washing machines? A) regulating the capacity of washing machines B) requiring appropriate filtering mechanisms on washing machines C) taxing the pollutants directly caused by washing machines D) allowing the Coase theorem to effectively reach an efficient market equilibrium

I, II, and III (ALL) I. Market prices do not correctly signal the true costs and benefits to society when external costs are present. II. Market prices do not correctly signal the true costs and benefits to society when external benefits are present. III. Taxes and subsidies can adjust prices so that they do send the correct signals.

Which of the following statements are TRUE? I. Market prices do not correctly signal the true costs and benefits to society when external costs are present. II. Market prices do not correctly signal the true costs and benefits to society when external benefits are present. III. Taxes and subsidies can adjust prices so that they do send the correct signals. A) I and III only B) II and III only C) I only D) I, II, and III

Firms cannot escape the cost of health insurance for labor by employing fewer workers.

The main beneficiary of a subsidy is the party that directly receives the check from the government.

After-tax prices received by cigarette manufacturers are about the same in all states.

IV only (Buyers and sellers will jointly bear the tax.)

II, III, and IV only

Which of the following statements is TRUE? I. If an activity creates an external cost of $15, the government should subsidize the activity by $15. II. Social surplus is maximized when the private marginal benefit equals the social cost. III. External costs result in markets producing too much output. IV. Someone pays external costs other than the producer or consumer. A) I and III only B) II, III, and IV only C) III only D) II and IV only

I, III, and IV only

I and III only I. Taxes may reduce consumption by exactly the same amount as government regulations. III. Command and control policies effectively reduce consumption, but they may not be the lowest cost method for doing so.

Which of the following statements is TRUE? I. Taxes may reduce consumption by exactly the same amount as government regulations. II. Taxes typically cost more than government regulations because taxes raise prices whereas regulations simply limit quantity. III. Command and control policies effectively reduce consumption, but they may not be the lowest cost method for doing so. A) I and II only B) I and III only C) II only D) II and III only

Command and control policies require all firms to reduce pollutants by a specific quantity, whereas tradable allowances allow some firms to pollute more than others by trading for pollution rights.

Which statement explains the difference between command and control policies and tradable allowances? A) Command and control policies are a government solution to externalities, whereas tradable allowances are a type of private market solution. B) Tradable allowances allow for less flexibility than command and control policies. C) Command and control policies require all firms to reduce pollutants by a specific quantity, whereas tradable allowances allow some firms to pollute more than others by trading for pollution rights. D) Tradable allowances sometimes result in higher overall levels of pollutants because firms can simply purchase the rights to pollute more, whereas the quantity of pollution is fixed under command and control.

a paper mill polluting a stream that only flows into a single farm

Which would be the MOST likely place to find an internalized externality? (Keep transaction costs in mind.) A) a factory polluting the air surrounding a large suburb B) a wind farm slightly disturbing the mountain view of a nearby city C) a paper mill polluting a stream that only flows into a single farm D) roadwork operating on a major highway, but only operating at night

$3; $7

With a $4 subsidy in the figure, buyers pay _____ and sellers receive _____. A) $5; $9 B) $7; $3 C) $9; $7 D) $3; $7

would prohibit a private solution to the external cost.

Your neighbor has a tree that blocks your view of a distant hill. Your neighbor values the tree at $100. You value the tree's removal at $150. Tree removal costs $60. In this case, property rights are clear. Your neighbor owns the airspace extending above his house for some distance. Transaction costs in this case: A) would allow for a private solution to the external cost. B) would prohibit a private solution to the external cost. C) would be equal to zero. D) are unknown.

The table lists the characteristics of three goods. Good ________ is the most inelastic, and Good ________ is the most elastic.

Z; Y

A free market achieves an equilibrium price and quantity due to: A) the combined actions of buyers and sellers. B) increased competition among sellers. C) government regulations placed on market participants. D) buyers' ability to affect market outcomes.

A government subsidy to producers causes the: A) supply of the product to increase. B) supply of the product to decrease. C) supply curve to change slope. D) supply curve to shift up and to the left.

A price ceiling: A) is a maximum price allowed by law. B) is a minimum price allowed by law. C) has an effect only when it is set above the market price. D) has little effect on market activity.

Absolute advantage derives from which of the following? A) the lowest cost of production B) the most suitable climate C) the least expensive labor force D) the best educated labor force

Consumer surplus is the amount that consumers: A) are willing to pay for a good minus what they actually pay for it. B) are willing to pay for a good. C) actually pay for a good. D) are willing to pay for a good plus the amount that they actually pay for it.

For a normal good, higher income results in: A) an increase in demand. B) a decrease in demand. C) a movement up along the demand curve. D) a movement down along the demand curve

From the figure, the maximum price that consumers are willing to pay for _____ units of Good X is _____ per unit. A) 36; $4 B) 11; $4 C) 36; $12 D) 26; $4

If an increase in oil prices made it profitable to use corn-based ethanol for fuel and corncobs are a waste product of ethanol production, what will happen in the market for corncob pipes? A) Supply will increase, prices will fall, and sales will increase. B) Supply will decrease, prices will rise, and sales will decrease. C) Demand will increase, prices will rise, and sales will increase. D) Demand will decrease, prices will fall, and sales will decrease.

If each of us had to grow all of our own food: A) civilization would collapse and billions of people would starve. B) we would have more time for other pursuits. C) people would be richer since they would no longer have to spend money on groceries. D) the total amount of knowledge in society would increase since everyone would have to learn about farming.

In a market, the equilibrium condition is given by the following: A) quantity demanded = quantity supplied B) quantity demanded × quantity supplied C) quantity demanded / quantity supplied D) price × quantity demanded = quantity supplied

Markets coordinate in a way that links buyers and sellers who rely primarily on: A) voluntary cooperation and undirected actions. B) management directing economic actions. C) governmental policies to direct the economic actions. D) the benevolence and good will of the market participants

Millions of producers working across the world cooperate to ensure that many more millions of consumers can have the goods and services they desire. These producers do not know each other and are not coordinated by a central agency. Their actions are directed simply by: A) self-interest. B) robotic technology. C) their governments. D) computer technology

Producer surplus is: A) the difference between the market price and the minimum price at which producers are willing to sell a good. B) the amount at which producers are willing to sell a good. C) the amount at which producers sell a good. D) the amount at which producers are willing to sell a good plus the amount at which they sell it.

Refer to the figure. If the price of bananas is $2 a pound, how many pounds of bananas will suppliers supply? A) 0 B) 1 C) 10 D) 10,000

Refer to the figure. If there is a price ceiling set at $6, how much shortage or surplus, if any, is there? A) 60 million hours B) 80 million hours C) 120 million hours D) There is no shortage and no surplus.

Refer to the figure. The equilibrium price (in $) is: A) 8. B) 10. C) 16. D) 12.

Refer to the figure. What is the producer surplus at a price of $2 per unit? A) $5 B) $6 C) $10 D) $20

Refer to the figure. What would cause the supply curve to shift from S1 to S2? A) a $20 tax on each unit of output B) a $40 tax on each unit of output C) a $40 subsidy on each unit of output D) a $20 subsidy on each unit of output

Rising oil prices during the 1970s shifted flower production from California to Kenya. Which of the following answers explains this shift? A) Markets are linked to one another. B) Rising oil prices decreased greenhouse heating costs in California, making it cheaper to grow flowers in warmer climates. C) The Kenyan flower industry is run by the California flower growers. D) No transportation costs exist for flowers.

The demand curve: A) shows how much buyers are willing and able to buy at different prices. B) is the amount that buyers are willing and able to buy at a particular price. C) shows how much sellers are willing and able to sell at different prices. D) is the amount that sellers are willing and able to sell at a particular price

The law of demand states that: A) the lower the price, the greater the quantity demanded. B) the higher the price, the higher the quantity demanded. C) the demand curve is upward sloping. D) an increase in income increases the quantity demanded.

The most important concepts in economics, according to the textbook, are supply, demand, and the: A) idea of equilibrium. B) opportunity to barter. C) quantity of sales. D) the level of price

The quantity demanded of a good or service is the amount that: A) consumers are willing and able to buy at a given price. B) firms are willing to sell during a given time period at a given price. C) a consumer would like to buy but might not be able to afford. D) a consumer needs to consume during a given time period

The quantity supplied of oil is the amount that: A) producers plan to sell during a given time period at a given price. B) is actually bought during a given time period at a given price. C) producers wish they could sell at a higher price. D) people are willing to buy during a given time period at a given price

What links the flower growers in Kenya with romantic American teenagers who give flowers as gifts of affection? A) markets B) hierarchical authority C) central planners D) the United States Senate

When a surplus exists in a market, we know that the actual price is: A) above equilibrium price, and quantity supplied is greater than quantity demanded. B) above equilibrium price, and quantity demanded is greater than quantity supplied. C) below equilibrium price, and quantity demanded is greater than quantity supplied. D) below equilibrium price, and quantity supplied is greater than quantity demanded

When there is a shortage of 1,000 units of a particular good: A) the price of the good will rise. B) the price of the good will fall. C) the quantity demanded of the good will equal 1,000 units. D) there will be no change in the price of the good.

When there is a surplus of a good: A) sellers will lower the price in order to increase quantity demanded. B) sellers will raise the price in order to decrease quantity demanded. C) sellers will compete with buyers. D) this is an indication the buyers do not value the good

Which of the following is TRUE about demand curves? A) Demand curves are negatively sloped. B) Demand curves are U-shaped. C) Demand curves are positively sloped. D) Demand curves are vertical.

Which of the following situations would lead to more starvation? A) a world where everyone grows his or her own food and there is no trade B) a world with trade and lots of specialization C) a world with immense division of knowledge D) a world where only some people specialize in food and everyone else produces something else

Which of the following statements is TRUE? A) Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good or service and its market price. B) Bill is willing to pay $10 for a pound of clay. If he buys a pound of clay at a market price per pound of $5, his consumer surplus is $2. C) Total consumer surplus is represented graphically by the area beneath the demand curve. D) Total consumer surplus is represented graphically by the area above the demand curve.

Which statement is NOT an effect of a price ceiling? A) surpluses B) misallocation of resources C) loss of gains from trade D) wasteful lineups

Which statement is TRUE regarding the figure? A) At a price of $6 per unit, consumers are willing and able to buy 10 units. B) The maximum price demanders are willing to pay for 15 units is $6 per unit. C) The higher the price, the greater the quantity demanded. D) At a price of $3.75 per unit, consumers are indifferent between buying 10 and 15

Why do people specialize? A) Specialization increases productivity. B) Specialization decreases people's dependence on one another. C) People become self-sufficient when they specialize. D) Most people only know how to do a few tasks.

Workers in Peru collect cochineal bugs used to dye certain United States food items red. Market activities such as this one can best be described as: A) cooperative, voluntary, and undirected. B) chaotic and primitive. C) directed and uncooperative. D) orderly, involuntary, and centrally directed.

in free markets, surpluses lead to: A) lower prices. B) higher prices. C) stable prices. D) unexploited gains from trade.

If the price elasticity of demand for a product is 2 in absolute value, and the price elasticity of supply for the same product is 1, what is the predicted percent change in price from a 5 percent fall in the supply?

a 1.67 percent *rise* in price (5%/2+1)

If both the supply of and the demand for a good are highly elastic, a shift of either curve will always result in

a large change in quantity.

Which scenario shows how the Russian concept of blat works during a beef shortage?

a politician acquires some steak through his friendship with the owner of the beef factory

If the price elasticity of demand for a product is 1 in absolute value, and the price elasticity of supply of the same product is 1, what is the predicted percent change in price from a 1 percent increase in demand?

a rise in price of 0.5 percent

(Figure: Supply and Demand 5) Refer to the figure. In the figure, representing a market for apartments, a rent-controlled price of $800 will cause:

a short-run shortage of 3,000 apartments

If a minimum wage is posted in the labor market:

a surplus of labor would develop

Because of government price controls, a business must now sell soft-serve ice cream at half its original price. This business might respond by:

all of the answers are correct

After a hurricane in Florida destroys half of the orange crop, economists predict: an increase in both orange prices and orange sales. a decrease in both orange prices and orange sales. an increase in orange prices and a decrease in orange sales. a decrease in orange prices and an increase in orange sales.

an increase in orange prices and a decrease in orange sales.

Price ceilings set by the government:

are generally believed to cause reductions in product quality

The shortages that result from imposing price controls:

are rarely recognized by the public as a result of the price controls themselves.

A decrease in demand refers to: A) a rightward shift of the demand curve. B) a leftward shift of the demand curve. C) an upward movement along the demand curve. D) a downward movement along the demand curve

A decrease in the demand for a good sold in Market A: A) will affect only Market A. B) might affect other markets, even those halfway across the world. C) will not affect Market A, but it will affect nearby markets. D) might affect distant markets, but it will not affect Market A.

A demand curve indicates that: A) the quantity demanded of a good is higher when its price is higher. B) the quantity demanded of a good is higher when its price is lower. C) the demand for a good is higher when its price is lower. D) the demand for a good is higher when its price is higher.

A legal maximum price at which a good can be sold is a price: A) stabilization. B) ceiling. C) support. D) floor.

A supply and/or demand graph typically shows: A) the price of the good on the horizontal axis and the quantity of the good on the vertical axis. B) the quantity of the good on the horizontal axis and the price of the good on the vertical axis. C) supply or demand of the good on the horizontal axis and price of the good on the vertical axis. D) price of the good on the horizontal axis and supply or demand of the good on the vertical axis.

As trade becomes more widespread, specialization ______, which in turn ______ productivity. A) decreases; decreases B) increases; increases C) decreases; increases D) increases; decreases

Compared with producing the 20 millionth barrel of oil, the cost of producing the 40 millionth barrel of oil is: A) $40 lower. B) $40 higher. C) approximately the same. D) $80 higher.

Division of knowledge refers to: A) dividing tasks into different subtasks and having one person perform all these subtasks. B) people learning different tasks in which they specialize. C) assigning one person to learn all the different ways to perform the same task. D) limiting what each person knows about another person

Economists call the maximum legal price a price ceiling because the price: A) cannot legally go lower than the ceiling. B) cannot legally go higher than the ceiling. C) must match the legally established ceiling price. D) All of these answers are correct.

Figure: Demand Curve Refer to the figure. What is the maximum price per book that buyers are willing to pay for 2,500 books? A) $60 B) $45 C) $30 D) $15

If there is a price floor set at $9, how much deadweight loss is created, if any? A) $15 million B) $30 million C) $60 million D) There is no deadweight loss.

In free markets, shortages lead to: A) lower prices. B) higher prices. C) surpluses. D) unexploited gains from trade.

In the case of a binding price ceiling, the price paid in the market will be: A) more than the free market equilibrium price. B) less than the free market equilibrium price. C) equal to the free market equilibrium price. D) unable to be compared with the free market equilibrium price

In the oil market, an increase in the wage of oil workers will shift the: A) supply curve of oil to the right. B) supply curve of oil to the left. C) demand curve for oil to the left. D) demand curve for oil to the right.

In the week before Hurricane Katrina, the price of flashlights rose in New Orleans because of: A) an increase in supply. B) an increase in demand. C) a decrease in supply. D) a decrease in demand.

Markets are linked in unpredictable and creative ways by: A) treaties that govern trade. B) entrepreneurs who look for methods of cutting costs. C) careful planning by bureaucrats. D) treaties, entrepreneurs, and bureaucratic planning.

Nigeria receives $53 of producer surplus from each barrel of oil sold at $60. At that level of production, Nigeria's cost to produce a barrel of oil is: A) $1.13. B) $7. C) $53. D) $113.

Quantity demanded: A) shows how much buyers are willing and able to buy at different prices. B) is the amount that buyers are willing and able to buy at a particular price. C) shows how much sellers are willing and able to sell at different prices. D) is the amount that sellers are willing and able to sell at a particular price

Roses grown in Kenya travel to Amsterdam and ultimately to your local flower shop because: A) the World Rose Commission coordinates the different elements of the rose industry. B) markets coordinate the specialization and trade necessary for the flower industry to function. C) of the trade agreement between the governments of Kenya and Amsterdam. D) customers are willing to pay more for roses that pass through Amsterdam

Suppose a new study predicts that the price of hybrid cars is expected to decrease in the near future. As a result, we would expect: A) consumers to increase demand for hybrid cars today. B) producers to increase supply of hybrid cars today. C) no change in either demand or supply of hybrid cars today. D) producers to decrease supply of hybrid cars today.

Suppose that the equilibrium price in the market is $10. If the current market price is $7.50: A) the equilibrium price will fall to $7.50. B) competition among buyers will increase the current price. C) the current price will fall below $7.50 as sellers compete for market share. D) There is not enough information provided to answer the question.

Table: Equilibrium Quantity Price Quantity demanded Quantity supplied $10 100 400 8 150 350 6 200 300 4 250 250 2 300 200 Based on the table, the equilibrium quantity is: A) 10. B) 250. C) 100 and 400. D) 275.5.

The demand curve for oil shows: A) the quantity demanded of oil at different income levels. B) the quantity demanded of oil at different oil prices. C) the demand for oil at different prices of other goods. D) the demand for oil when there is a surplus or shortage.

The key condition for equilibrium to occur in a market is: A) the demand curve equals the supply curve. B) quantity demanded equals quantity supplied. C) price equals quantity. D) demand for one good equals demand for all other goods.

The main difference between Saudi Arabian oil production and United States oil production is the: A) quantity of production. B) cost of production. C) quality of product. D) price of product.

The supply curve for oil shows: A) the quantity of oil supplied at different income levels. B) the quantity of oil supplied at different prices of oil. C) the supply of oil at different prices of other goods. D) the supply of oil when there is a surplus or shortag

The supply curve for oil slopes upward because: A) oil will only be extracted from more costly sources when the price of oil is lower. B) oil will only be extracted from more costly sources when the price of oil is higher. C) no oil producer is willing to extract oil when the price of oil decreases. D) oil producers do not react to any change in the price of oil.

The women in Kenya who pick roses: A) have a good sense of what Valentine's Day is. B) know that roses need to bloom a few days before February 14, but otherwise know little about Valentine's Day. C) do nothing to prepare for Valentine's Day. D) hold back the rose supply around Valentine's Day in order to raise prices.

Wearing costumes at Halloween is largely a Western custom. In China, the Halloween festivals are very different in that they involve more of the presentation of gifts and food to family members and others that have passed away. Which statement is a reasonable explanation for why the Western market for Halloween costumes might be important for Chinese firms and factories? A) The costumes that the Chinese do not use during their festivals can be exported to the West. B) Knowledge of the Western Halloween festival and demand for costumes can translate into profits for Chinese producers who can produce such costumes at lower costs. C) The West can export costumes for the Chinese to wear during their Halloween Festivals. D) Chinese producers can try to market Chinese festivals to American consumers.

When the price of wood is high: A) consumers will be more likely to use wood in its least valuable uses. B) consumers will be more likely to use wood in its most valuable uses. C) the quantity demanded of wood will also rise. D) the quantity demanded of wood will be unaffected

When the quantity supplied of a good exceeds the quantity demanded, there is a(n): A) shortage. B) surplus. C) equilibrium. D) opportunity cost.

Which of the following explains why the demand for oil has a negative slope? A) Oil is equally valuable in all of its uses. B) Oil is not equally valuable in all of its uses. C) Oil has many uses. D) Oil has few substitutes.

Which statement about consumer surplus is correct? A) Consumer surplus is the gross benefit to consumers from the exchange that occurs in a market. B) Consumer surplus is the gains from trade on the part of the consumer that result from a market transaction. C) Total consumer surplus is equal to the price the consumers paid multiplied by the quantity they purchased. D) Consumer surplus is the difference between the minimum price the consumer is willing to pay and the market price.

If quantity supplied equals 80 units and quantity demanded equals 85 units under a price control, then it is a:

binding price ceiling

If quantity supplied equals 85 units and quantity demanded equals 80 units under a price control, then it is a:

binding price floor

(Figure: Good X) From the figure, which statement is TRUE? A) At a price of $12 per unit, consumers are willing and able to purchase between 11 and 26 units of Good X. B) 36 units of Good X can be purchased by spending a total of $4. C) At a price of $6 per unit, consumers are willing and able to purchase 26 units of Good X. D) At a price of $4 per unit, consumers are willing and able to purchase 11 units of Good X.

1. Trade creates value because: A) people get what they want. B) raw materials are transformed into finished products. C) people exchange things they do not want for things they do. D) idle resources are put to use.

A change in which factor would shift the supply curve? A) the price of the good being sold B) the demand for the product C) production technology D) the willingness of consumers to pay

A decrease in the opportunity cost of steel production will: A) increase the price of steel. B) make suppliers more likely to produce steel, thus shifting the supply curve up and to the left. C) make suppliers more likely to produce steel, thus shifting the supply curve down and to the right. D) entice producers to produce more substitute goods

A price ceiling creates a ________ when it is set ________. A) surplus; below the equilibrium price B) surplus; above the equilibrium price C) shortage; below the equilibrium price D) shortage; above the equilibrium price

A price ceiling is a(n): A) legally established minimum price that can be charged for a good. B) illegally established minimum price that can be charged for a good. C) legally established maximum price that can be charged for a good. D) illegally established maximum price that can be charged for a good.

A shortage of a good occurs when: A) the quantity supplied equals the quantity demanded. B) the quantity supplied is greater than the quantity demanded. C) the quantity supplied is less than the quantity demanded. D) supply does not exist.

According to the figure, the equilibrium price and quantity are: A) $1 and 4 units. B) $4 and 8 units. C) $2 and 4 units. D) $3 and 6 units.

Although large parts of beef cattle become meat products, other parts become leather jackets. As the demand for beef rises, what happens in the market for leather jackets? A) Supply decreases and price increases. B) Demand and price increase. C) Supply increases and price decreases. D) Demand and price decrease.

Figure: Demand Curve Refer to the figure. What is the maximum amount that buyers are willing and able to pay at a price of $45 per book? A) 300 books B) 450 books C) 100 books D) 0 books

For each good produced in a free market economy, demand and supply determine: A) the price of the good, but not the quantity. B) the quantity of the good, but not the price. C) both the price and the quantity of the good. D) neither price nor quantity; sellers determine the price.

If sellers want to sell more products than buyers are willing to purchase, we know that: A) the current price is less than the equilibrium price. B) quantity demanded exceeds quantity supplied. C) the current price is greater than the equilibrium price. D) the demand curve will likely increase.

If, for any given amount of a good or service, willingness to pay increases, then: A) supply has increased. B) supply has decreased. C) demand has increased. D) demand has decreased

In the case of a nonbinding price ceiling, the price paid in the market will be: A) more than free market equilibrium price. B) less than free market equilibrium price. C) equal to free market equilibrium price. D) unable to be compared with free market equilibrium price.

It is Valentine's Day in the United States, and you give your lover one dozen roses that were freshly picked 72 hours ago from the fields of Kenya. What made this gift possible? A) the United Nations Director of Horticultural Operations, who oversees the planting and transportation of flowers around the world B) the Jennifer Flowers Act, which helps coordinate the logistics of agricultural trade flows between the United States and Kenya C) economic markets D) tariff laws in the United States

On a graph of a demand curve, total consumer surplus equals: A) the demand curve. B) the area above the demand curve and beneath the market price. C) the area beneath the demand curve and above the market price. D) the market price

Refer to the figure. According to the demand curve, if the price of potatoes is $8 a pound, how many pounds are demanded? A) 5 B) 50 C) 60,000 D) 80,000

Refer to the figure. The equilibrium quantity (in units) is: A) 8. B) 10. C) 16. D) 12.

Refer to the figure. What is the change in producer surplus if the price rises from $2 to $3 per unit? A) $5 B) $10 C) $15 D) $20

Refer to the table. The equilibrium price is: A) $2. B) $4. C) $6. D) $8.

The difference between the market price and the minimum price at which a seller is willing to sell a certain quantity of a good is: A) producer shortage. B) consumer shortage. C) producer surplus. D) consumer surplus.

The enormous variety of goods and services that we consume each day can be attributed mainly to: A) government regulations. B) home production. C) specialization and trade. D) early craftsmen handing down their knowledge.

The law of demand suggests a _____ relationship between price and _____. A) positive; quantity demanded B) positive; quantity supplied C) negative; quantity demanded D) negative;, quantity supplied

The relationship between trade and specialization is best characterized as follows: A) Trade decreases specialization, which in turn increases the demand for trade. B) Trade decreases specialization, which in turn decreases the demand for trade. C) Trade increases specialization, which in turn increases the demand for trade. D) Trade increases specialization, which in turn decreases the demand for trade.

To economists, the term consumer surplus means: A) the excess money consumers have left over, after purchasing goods. B) the difference between the price a consumer is willing to pay, and the price that suppliers are willing to accept. C) the consumer's gain from trading. D) the difference between the price a consumer is able to pay and willing to pay

To produce 30 million barrels of oil per day, the minimum price per unit that producers in the diagram require is: A) $20. B) $40. C) $60. D) $80.

Trade barriers like the Berlin Wall: A) increased the number of scientists and engineers. B) added billions of minds to the global division of knowledge. C) decreased innovation and global cooperation. D) prevented restrictive monopolistic practices.

Wage rates are primarily based on the: A) level of comparative advantage. B) extent to which the country is involved in trade with other countries. C) productivity of labor. D) institutional factors present.

What does the law of demand state? A) As incomes increase, people consume more of all goods. B) The demand for a good increases with the number of consumers in the market. C) As the price of a good increases, consumers purchase less of that good. D) The supply of a good increases in proportion to the demand for it.

What would cause the supply curve to shift from S2 to S1 as shown in the diagram? A) a decrease in the opportunity costs of producing the good B) a decrease in the costs of production C) an increase in the prices of inputs used in production D) an expected decrease in the future price of the good

When the maximum legal price is set below the market price then: I. a price floor is in effect. II. a shortage will develop. III. there will be lost gains from trade. IV. there will be no impact on the quantity demanded or supplied. A) I and II only B) I, II, and III only C) II and III only D) IV only

Which statement correctly completes the definition of a demand curve? A demand curve is a function that shows the relationship between: A) price and the quantity sold. B) price and the quantity supplied. C) price and the quantity demanded. D) quantity demanded and quantity supplied

Which variable is NOT a demand shifter? A) price of complements B) price of substitutes C) price of raw materials D) tastes and preferences

Without trade, the knowledge used by an entire economy would be about the same as the knowledge had by: A) all intelligent people combined. B) a large number of people. C) one person. D) no one.

Refer to figure. If, in this figure, the government enacts a price ______ by setting the good's price at $6, it will create a ______.

ceiling, shortage of 10 units

Which one of the following products would tend to have *inelastic* demand?

crude oil

2. Trade makes people better off when: A) everyone wants the same things as other people. B) some people are less productive than others. C) people cannot specialize in certain activities. D) people have different preferences.

A producer has a comparative advantage over other producers if his production of the good involves: A) more inputs. B) fewer inputs. C) a higher opportunity cost. D) a lower opportunity cost

Demand slopes down because: A) supply slopes up, and supply and demand must intersect. B) consumers focus too much on the price of goods when they choose the quantity to demand. C) goods usually only have a single use. D) consumers will choose to use goods only in their most valuable uses when prices are high.

How can sellers increase profits when they face a price ceiling? A) charge a higher price for the good B) charge a lower price for the good to undercut rival sellers C) produce and sell more output D) reduce the quality of the product and provide less customer service

In Ancient Egypt, the "Bronze Law" set maximum prices for wages, preventing them from rising above what rulers perceived as the minimum needed to survive. If this was 10¢ a day for a porter (someone who carries things short distances) and the market wage was 8¢ a day, which of the following would be a plausible consequence of this law? A) Porters would travel less quickly than they otherwise would. B) Porters would transport items they normally would not. C) Unemployment for porters would decrease. D) Nothing unusual would happen.

It's worthwhile to grow roses in Kenya because: A) people in Amsterdam don't cooperate with people in Kenya. B) very few people have to be involved in the process of supplying roses grown there. C) it's impossible to grow roses anywhere else. D) the gains from growing roses in an ideal climate are greater than the costs of transporting roses around the world.

Price ceilings would create all of the following effects EXCEPT: A) shortages. B) reductions in product quality. C) a misallocation of resources. D) maximum gains from trade.

Refer to the figure. If the price of bananas is $10 a pound, which number is closest to the number of pounds that suppliers will supply? A) 5 B) 50 C) 60,000 D) 80,000

Refer to the table. The equilibrium P and Q are: A) $10 and 50. B) $12 and 35. C) $40 and 14. D) $14 and 40.

The demand curve shows the relationship between: A) demand and supply. B) quantity demanded and quantity supplied. C) price and quantity supplied. D) price and quantity demanded.

The difference between the maximum price a consumer is willing to pay for a given quantity of a good and its market price is: A) producer shortage. B) consumer shortage. C) producer surplus. D) consumer surplus.

What would cause the supply curve to shift from S1 to S2? A) a $20 tax reduction on each unit of output B) a $40 tax reduction on each unit of output C) a $40 subsidy reduction on each unit of output D) a $20 subsidy reduction on each unit of output

What would cause the supply curve to shift from S1 to S2 as shown in the diagram? A) an increase in taxes on firms' output B) an increase in the price of inputs used to produce the output C) a decrease in the number of firms that produce the output D) a decrease in the wages paid to union workers who produce the output

When oil prices increased in the 1970s, sellers began to grow roses in ________ countries and sell them in ________ countries. A) Middle Eastern; European B) wealthy; poor C) cold; warm D) warm; cold

When the maximum legal price is below the market price we say that there is a price: A) floor. B) stabilization. C) support. D) ceiling.

Which factor(s) contribute to the increased speed of trade across countries? I. profit opportunities for sellers II. better transportation networks III. increased cooperation among countries A) I only B) II and III only C) I and III only D) I, II, and III

Which of the following factors causes a decrease in supply? A) a decrease in demand B) a decrease in the price of the product C) an increase in the price of the product D) new taxes on output

Which statement expresses the law of demand? A) There is a positive relationship between price and consumer surplus. B) There is a positive relationship between price and quantity that buyers are willing and able to purchase. C) There is an inverse relationship between the willingness to pay and the ability to pay.

he quantity demanded is the quantity that buyers are: A) willing to buy but they cannot afford to pay. B) able to buy at a given income level but not willing to pay. C) willing to buy at a given income level. D) willing and able to buy at a given price

in the early 1980s, movie rentals averaged $5 a night; by the early 1990s that average was $1 per night. This is an example of a supply curve shifter based on: A) a change in tastes and preferences. B) a decrease in the wages of workers in the video rental stores. C) an increase in the number of VCRs owned by consumers. D) the entry of new suppliers into the market

A(n) ______ causes the equilibrium price to ______ and equilibrium quantity to ______. decrease in supply; rise; fall decrease in demand; fall; rise increase in supply; rise; rise increase in demand; rise; fall

decrease in supply; rise; fall

An early frost in the vineyards of Napa Valley would cause a(n): increase in the demand for wine, increasing price. increase in the supply of wine, decreasing price. decrease in the demand for wine, decreasing price. decrease in the supply of wine, increasing price.

decrease in the supply of wine, increasing price.

If a seller facing excess demand is unable to raise the price of the good due to a price ceiling, the seller might:

decrease the level of service for that product

The price of good X increases from $55 to $60, and quantity demanded decreases from 500 to 400. The price of good Y increases from $55 to $60, and quantity demanded decreases from 500 to 475. Given this information, the:

demand curve for good X is *more elastic* than the demand curve for good Y.

If the supply of rental housing increases causing its price to fall and apartment dwellers move into bigger apartments that *cost the same as their old ones*, we can infer that the:

demand for apartments is unit elastic.

The manager of a company notices that the company's *total revenue would increase* if she *raised the price* of the company's product. Accordingly, the manager can assert that the demand for the company's product is:

inelastic

In the figure, the demand curve shifted from D0 to D1. To describe this movement, we would say that: demand increased, which caused an increase in supply. quantity demanded increased, which caused an increase in supply. demand increased, which caused an increase in quantity supplied. quantity demanded increased, which caused an increase in quantity supplied.

demand increased, which caused an increase in quantity supplied.

Price controls cause resources to be misallocated by:

distorting the signals of demanders' willingness to pay and eliminating the incentives for suppliers to supply.

Which would MOST LIKELY result after setting a price ceiling on automobiles?

few safety features

If the minimum wage is lowered and closer to the market level, the:

gains from trade would increase, compared to a higher minimum wage

To what does the Russian concept of blat refer?

having connections that one can use to get favors

If there are 100 tickets to a concert and 200 fans who would like to go to the concert, each placing a slightly different value on the tickets, is it more efficient to hold an auction for the tickets or to hold a random drawing for the tickets?

hold an auction

Deregulation of the airline markets reduced waste, increased efficiency, and:

improved allocation of resources

Ultimately, repealing the price controls on gasoline and oil

led to a higher supply of gasoline and lower prices

New housing takes some time to build, so rent control creates larger shortages in the:

long run than in the short run because long-run supply is more elastic.

Price controls cause resources to be ________ not just geographically, but also across different ________ of those resources.

misallocated; uses

What would be the LEAST likely result of a price floor in the market for airline travel?

narrow seats and basic meals like peanuts or chips with a coffee or soda

A demand curve shows the relationship between: quantity demanded and quantity supplied, which are positively related. quantity demanded and quantity supplied, which are negatively related. price and quantity demanded, which are positively related. price and quantity demanded, which are negatively related.

price and quantity demanded, which are negatively related.

The case for drilling oil in ANWR is strengthened when the:

price of oil is higher.

In situations of excess demand, sellers might decrease service levels when they are unable to raise prices because they wish to:

raise their profit level

The Arab Oil Embargo of 1973, the Iranian Revolution of 1979, and the Gulf War of 1991 all affected oil prices by: increasing the demand for oil. reducing the supply of oil. reducing the demand for oil. increasing the supply of oil.

reducing the supply of oil.

Price ceilings reduce quality because:

sellers facing excess demand cannot raise prices to increase profit

(Table: Equilibrium Price, Quantity) Refer to the table. If the price in the market was $12, there would be a: shortage of 10 units. shortage of 45 units. surplus of 10 units. surplus of 35 units.

shortage of 10 units.

(Table: Equilibrium Adjustment) Refer to the table. If the price in the free market is $2, then a: surplus of 50 units would exist, and price would fall. surplus of 50 units would exist, and price would rise. shortage of 50 units would exist, and price would rise. shortage of 50 units would exist, and price would fall.

shortage of 50 units would exist, and price would rise.

(Table: Equilibrium Adjustment) Refer to the table. If the price in the free market is $8, then a: surplus of 25 units would exist, and price would tend to fall. surplus of 25 units would exist, and price would tend to rise. shortage of 25 units would exist, and price would tend to rise. shortage of 25 units would exist, and price would tend to fall.

surplus of 25 units would exist, and price would tend to fall.

An increase in demand causes a: temporary shortage at the old equilibrium price and a higher new equilibrium price and quantity. permanent shortage, leaving the equilibrium price and quantity unchanged. temporary surplus at the old equilibrium price and a lower equilibrium price and quantity. temporary shortage at the old equilibrium price, a higher new equilibrium price, and a lower new equilibrium quantity.

temporary shortage at the old equilibrium price and a higher new equilibrium price and quantity.

A free market achieves an equilibrium price and quantity due to: the combined actions of buyers and sellers. increased competition among sellers. government regulations placed on market participants. buyers' ability to affect market outcomes.

the combined actions of buyers and sellers.

Refer to the figure. Assume the graph illustrates the Sudanese slave trade. If the supply curve is perfectly elastic as it is in the graph, a rise in the demand for slaves (from D1 to D2) causes:

the price of slaves to remain unchanged.

Refer to the figure. If price falls from $60 to $40, total revenue goes ________, so demand is ________.

up by $120; elastic

Refer to the figure. In the diagram, a minimum wage of $7 causes a deadweight loss of

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