microecon: Chap 3 & 4

Suppose the price of tomatoes dramatically increases. Which of the following could cause this change?

Hurricanes during the late summer damage the Florida crop, shifting supply left

Americans nationwide have been complying with recycling regulations with unexpected zeal. The effect on the market for recycled paper is best shown by which graph?

I

Floods in the U.S. Midwest reduce the U.S. corn crop. Which graph depicts the effect of the floods on the U.S. corn market?

IV

Tuition and fees for four year colleges in the United States have risen over five percent per year recently. One cause for the increase in price has been an increase in demand for college education. In the standard model, what could be a possible explanation for the increase in the demand for college education?

Income in the United States has risen

Which of the following is considered a demerit good or activity? - Using illegal substances - Air pollution - Carpooling - Farmers' markets

Using illegal substances

The supply of leather jackets would be expected to increase as a result of:

a decrease in the cost of producing leather jackets.

f the price is set at Pc:

a nonprice rationing mechanism must determine which buyers will be able to purchase the product.

A good which if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by other individuals is called _____.

a public good

If supply and demand intersect at a price of $5.00, then a reduction in price from $6.00 to $5.00 will cause an increase in quantity:

demanded, a decrease in quantity supplied, and the alleviation of a surplus.

Goods or activities that are seen as bad for people even though people choose to use the goods or engage in the activities are called _____.

demerit goods or activities

Suppose that college tuition is higher this year than last year and that more students are enrolled in college this year than last year. Based on this information, we can best conclude that:

despite the increase in price, quantity demanded rose due to some other factor changing.

Assuming a government's goal is to benefit society as much as possible, actions with negative externalities should be

discouraged by policy makers.

When a decision provides an uncompensated benefit to people outside the transaction, there is a _____.

positive externality.

Suppose a market has an excess demand and price starts to rise. What will the rise in price cause?

A rise in quantity supplied and a fall in quantity demanded

True or false: The choice between government intervention or not is usually a choice between the least worst alternatives.

True

True or false: When a society as a whole is harmed by the trade between the two parties, there is a negative externality?

True

A public good is a good that

- must be supplied to all if it is supplied to one person. - when consumed by one individual does not prevent its consumption by others.

Which of the following would cause quantity demanded to change without changing the demand curve?

A change in the price of the good

Which is an example of a negative externality? - Air pollution that results from cars - Debt incurred to buy a house - Declining good prices - National defense that protects society

Air pollution that results from cars

Refer to the graph showing the supply of books. A shift from S1 to S0 would most likely occur for what reason?

An increase in the cost of producing books

When distinguishing government as actor or referee, which of the following is an example of the government's role as an actor?

Building bridges

Which of the following is most likely considered a merit good or activity? The invisible hand Stock purchases Classical music International trade

Classical music

Which of the following do economists often give as an example of a positive externality? -Air pollution -Acquiring stocks -Education -Efficient markets

Education

Which of the following roles does a government play in an economy? -Ensuring economic stability and growth -Creating negative externalities -Enhancing competition -Supplying public goods -Selling private stocks

Ensuring economic stability and growth Enhancing competition Supplying public goods Selling private stocks

True or false: Because the government is highly imperfect and is used by vested interests, government intervention should not be used because it inevitably causes more harm than it does good.

False

True or false: Goods or activities that are seen as good for people are called demerit goods or activities.

False

True or false: If there is a market failure, the government should intervene.

False

True or false: When a decision provides an uncompensated benefit to people outside the transaction, there is a negative externality.

False

Which of the following will move the supply curve for housing in Florida, a popular retirement state, to the left?

Higher construction costs

Which of the following is the best example of a public good? - An amusement park - National defense - This economics textbook - A lollipop

National defense

Sometimes price cuts can have an unintended result of consumers waiting for deeper discounts. What does this waiting suggest about supply and demand?

Price cuts have changed buyers' expectations, and the change in expectations has moved the demand curve left.

More and more devices are being introduced into the market that perform tasks similar to that of PCs, such as tablets and smartphones. At the same time, the price of computer chips to make high-end PCs continues to fall. What is the effect of the events on equilibrium price and quantity of high-end PCs?

Price falls continuously while quantity falls initially but then rises, recouping earlier losses.

Which statement is not consistent with the law of supply? 1. More of a good will be supplied, the higher the price, other things constant. 2. Less of a good will be supplied, the lower the price, other things constant. 3. Quantity supplied of a good is directly related to the good's price. 4. Quantity supplied of a good is inversely related to the good's price.

Quantity supplied of a good is inversely related to the good's price.

When distinguishing government as actor or referee, which is an example of the government acting as a referee? Spending on education Providing free medical care Spending on public welfare Setting working condition standards

Setting working condition standards

Which of the following is most likely considered a demerit good or activity? Losing a job Buying foreign goods Cheating on exams Smoking cigarettes

Smoking cigarettes

When distinguishing government as actor or referee, which of the following is an example of government's role as an actor? - Establishing accounting standards - Passing laws that prohibit discrimination in the workplace - Raising the minimum wage - Spending on interstate highways

Spending on interstate highways

Helped by desktop publishing, the number of vintage baseball card forgeries has flooded the market for vintage baseball cards. Dealers left the market for fear of purchasing a phony. What was the effect on the market for vintage baseball cards assuming phonies could not be detected?

Supply shifted to the right, demand shifted to the left, and price declined.

When distinguishing government as actor or referee, which of the following is an example of the government acting as an actor?

Tax revenues spent on public welfare

Suppose a recent and widely circulated medical article reports new benefits of exercise. Simultaneously, the price of the parts needed to make bikes falls. What is the likely effect on the equilibrium price and quantity of exercise bikes sold?

The change in price is ambiguous, but the quantity sold increases.

In 1990 the UN placed trade sanctions on Iraqi oil. In 1996, Iraq was allowed limited export of oil to make war reparations. What was the predicted effect of the two events on equilibrium price and quantity of oil?

The price rose initially, then fell (failing to regain its former losses); quantity fell and then rose

After several years of slow economic growth, world demand for petroleum began to rise rapidly in the 1990s. Much of the increase in demand was met by additional supplies from sources outside OPEC. OPEC during this time was unable to restrain output among members in its effort to lift oil prices. What best describes these events?

The rise in demand shifted the demand for oil to the right. As price rose, quantity of oil supplied rose.

Refer to the graphs shown. The arrow that best shows an increase in supply is:

Y

When applied to labor markets, the law of supply suggests that:

an increase in the wages earned by nurses will cause the quantity of nurses supplied to increase.

Refer to the graphs shown. The effect of an increase in price on demand is best shown by which arrow?

b

Government policy

can aggravate market failures.

Merit goods....

cannot be identified through objective analysis.

The government serves as a referee in the economy when it

changes the minimum wage

A situation in which the government intervenes in the market and ends up making things worse is known as a _____.

government failure

Given that diesel cars get much better gas mileage than the typical car, an increase in the price of gasoline would be expected to:

increase the demand for diesel cars.

An increase in the Federal minimum wage, assuming the minimum is higher than equilibrium wage and that all other things remain constant, will:

increase the number of unemployed.

If government were to issue a fixed number of licenses to produce a good or provide a service, this would likely:

increase the wage received by those who have licenses.

When distinguishing government as actor or referee the government serves as an actor rather than a referee in the economy when it:

increases spending on education.

An increase in price and decrease in quantity are consistent with a:

leftward shift in supply and no shift in demand.

A market failure is a situation in which the....

market does not lead to a desired result.

A situation in which the market does not lead to a desired result is known as a _____.

market failure

Goods or activities that government believes are good for you even though you may not choose to engage in the activities or consume the goods are known as _____.

merit goods or activities

When a society as a whole is harmed by the trade between the two parties, there is a _____.

negative externality.

A good that if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual is known as a _____.

public good

If the law requires apartment building owners to lower rent, the law of supply predicts that, other things constant, the:

quantity of apartment units supplied will fall.

Some years ago, Stuyvesant Town and Peter Cooper Village in Manhattan were sold for redevelopment. These villages had been rent controlled, but now that these neighborhoods are no longer rent controlled, one would expect the:

rent to rise in those neighborhoods.

When distinguishing government as actor or referee, when the government passes legislation that prohibits discrimination in the workplace, it

serves as an economic referee.

To keep the price of gas from rising quickly after a hurricane, the government sometimes institutes price ceilings on the price of gasoline. These price ceilings cause ________ in the gasoline market.

shortages

Suppose farmers can use their land to grow either wheat or corn. The law of supply predicts that an increase in the market price of wheat will cause farmers to:

substitute wheat for the production of corn.

The Katrina disaster in New Orleans decreased the ability of oil companies to purify crude oil into gasoline. This caused the:

supply curve for gasoline to shift inward.

Suppose OPEC oil cartel announces that it will increase production of oil. Using supply and demand analysis to predict the effect of increased production on equilibrium price and quantity, the first step is to show the:

supply curve shifting to the right.

If Argentina imposes a 20 percent tax on natural gas exports to be paid by suppliers. Other things equal, this causes the:

supply of natural gas exports to shift to the left.

At a Chicago Bulls game 20,000 tickets were sold at $30 apiece. The game was sold out and some people did not get tickets. This suggests that the selling price:

was below equilibrium.

A private good is a good that

when consumed by one individual, cannot be consumed by another individual.