Week 6 Quiz

Suppose the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price. To keep it simple, assume that people must wait in line to get bread at the controlled price. Would consumer surplus rise, fall, or can't you tell with the information given? A. Consumer surplus increases. B. Consumer surplus decreases. C. Indeterminate with the given information.

A. Consumer surplus decreases.

A review of the jargon: Is rent control a "price ceiling" or a "price floor?" A. Price ceiling B. Price floor

A. Price ceiling

Two major-party presidential candidates are running against each other in the 2026 election. The Democratic Party candidate promises more money for corn-based ethanol research and the Republican Party candidate promises more money for defense contractors. In the weeks before the election, defense stocks take a nosedive. Who is probably going to win the election: the pro-ethanol candidate or the pro-defense spending candidate? A. Pro-ethanol research, or the Democratic Party, candidate B. Pro-defense spending, or the Republican Party, candidate

A. Pro-ethanol research, or the Democratic Party, candidate

When a price ceiling is in place keeping the price below the market price, what's larger: quantity demanded or quantity supplied? (Hint: Graph it!) A. Quantity demanded. B. Quantity supplied. C. Indeterminate with the given information. D. Neither.

A. Quantity demanded.

If you instead think of the "market for clothing" as the "market for clothing, whether it's new or used," does this shift the demand or supply of clothing, and in which direction? A. The supply of clothing shifts right: a rise in supply. B. The supply of clothing shifts left: a fall in supply. C. The demand for clothing shifts right: a rise in demand. D. The demand for clothing shifts left: a fall in demand.

A. The supply of clothing shifts right: a rise in supply.

One question that economics students often ask is "In a market with a lot of buyers and sellers, who sets the price of the good?" There are two possible correct answers to this question: "Everyone" and "No one." What is meant by "Everyone?" A. "In a market operating in a western democracy, everyone gets to vote on price controls and restrictions to ensure the market operates fairly." B. "In a market with many participants, each person's actions push the supply or the demand just a little bit, so everyone has some small influence." "C. In a market with many suppliers and demanders, each person's actions have a negligible effect on supply or the demand, so everyone has to work together to influence the market." D. "Everyone has to consume something."

B. "In a market with many participants, each person's actions push the supply or the demand just a little bit, so everyone has some small influence."

When will entrepreneurs be more likely to fill up their pickup trucks with flashlights and drive into a disaster area: when they can sell their flashlights for $5 each or when they can sell them for $40 each? A. $5 B. $40 C. Equal numbers of entrepreneurs will be present at both prices.

B. $40

Imagine that you can hire four low-skilled workers to move dirt with shovels at $5 an hour, or you can hire one skilled worker at $24 an hour to move the same amount of dirt with a skid loader. Who will you hire if the minimum wage increases from $5 per hour to $6.50 per hour? A. 4 low-skilled workers B. 1 high-skilled worker C. 0 workers

B. 1 high-skilled worker

You manage a department store in Florida, and one winter you read in the newspaper that orange juice futures have fallen dramatically in price. Should your store stock up on more sweaters than usual, or should your store stock up on more Bermuda shorts? A. Sweaters B. Bermuda shorts

B. Bermuda shorts

In the 1970s, AirCal and Pacific Southwest Airlines flew only within California. As we mentioned, the federal price floors didn't apply to flights within just one state. A major route for these airlines was flying from San Francisco to Los Angeles, a distance of 350 miles. This is about the same distance as from Chicago, Illinois, to Cleveland, Ohio. Which flight had a nicer meal? A. San Francisco-to-Los Angeles flight B. Chicago-to-Cleveland flight

B. Chicago-to-Cleveland flight (because the flights with price floors would have an inefficiently high quality)

If a government decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30%, what will probably happen to the number of people covered by health insurance? A. More people will be covered because it's cheaper and more people can now afford it. B. Fewer people will be covered because health insurance companies will supply less. C. The number of insured will not change. D. Indeterminate with the given information.

B. Fewer people will be covered because health insurance companies will supply less.

Fill in the blank: The process of market creation is most similar to the creation of a country's __________. A. Constitution B. Language C. Defense strategy

B. Language

In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). Where will it be easier to find parking: in Freedonia or Meterville? A. Freedonia B. Meterville C. Indeterminate with the given information.

B. Meterville

If a nation's government made it impossible for inefficient firms to fail by giving them loans, cash grants, and other bailouts to stay in business, is that nation likely to be poorer or richer as a result of this strategy? (Hint: Steven Davis and John Haltiwanger. 1999. "Gross Job Flows." In Handbook of Labor Economics (Amsterdam: North-Holland) found than in the United States, 60% of the increase in U.S. manufacturing efficiency was caused by people moving from weak firms to strong firms.) A. Richer B. Poorer

B. Poorer

In the months before the Persian Gulf War, speculators drove up the price of oil: The average price in October 1990 was $36 per barrel, more than double its price in 1988. Oil speculators expected the Gulf War to last for months, disrupting the oil supply throughout the Gulf region. Thus, speculators either bought oil on the open market (almost always at the high speculative price) or they already owned oil and kept it in storage. Either way, their plan was the same: to sell it in the future, when prices might even be higher. As it turned out, the war was swift and only lasted a month. The price of oil plummeted to about $20 per barrel, a price at which it remained for years. How much money did speculators lose or make on each barrel? A. Speculators made a profit of $16 per barrel. B. Speculators lost $16 per barrel. C. Most oil speculators broke even.

B. Speculators lost $16 per barrel.

In 1980, University of Maryland, Julian Simon bet Stanford entomologist Paul Ehrlich that the price of any five metals of Ehrlich's choosing would fall over 10 years. Ehrlich believed that resources would become scarcer over time as the population grew, while Simon believed that people would find good substitutes, just as earlier people developed iron as a substitute for scarce bronze. The price of all five metals that Ehrlich chose (nickel, tin, tungsten, chromium, and copper) fell over the next 10 years and Simon won the bet. Ehrlich, an honorable man, sent a check in the appropriate amount to Simon. What does the falling price tell us about the relative scarcity of these metals? A. The falling price indicates that the metals are scarcer than they were before. B. The falling price indicates that the metals are less scarce than they were before. C. The falling price tells us nothing about scarcity.

B. The falling price indicates that the metals are less scarce than they were before.

Since laptop computers are increasingly easy to build and since they allow people to use their computers wherever they like, an all-wise benevolent dictator would probably decree that most people buy laptops rather than desktop computers. This is especially true now that laptops are about as powerful as most desktops. Since it's become much easier to build better laptop computers in recent years, laptop supply has increased. What does this do to the price of laptops? A. The price of laptops increases. B. The price of laptops decreases. C. An increase in laptop supply will not change its price.

B. The price of laptops decreases.

Which job exists in part because time-sensitive wealthy individuals want to pay someone else to wait in line for them? A. Fast food employees B. Ticket scalpers C. Construction workers D. Truck drivers

B. Ticket scalpers

Andy enters in a futures contract allowing him to sell 5,000 troy ounces of gold at $1,000 per ounce in 36 months. After that time passes, the market price of gold is $950 per troy ounce. How much did Andy make or lose? A. Andy made $50. B. Andy lost $50. C. Andy made $250,000. D. Andy lost $250,000

C. Andy made $250,000.

In a rent-controlled apartment, a landlord will likely do which of the following more often: A. Rent more apartments B. Provide more unfurnished apartments C. Discriminate more against applicants D. Allow more renters per room

C. Discriminate more against applicants

Antibiotics are often given to people with colds (even though they are not useful for that purpose), but they are also used to treat life-threatening infections. If there was a price control on antibiotics, what do you think would happen to the allocation of antibiotics across these two uses? A. It would go to those who need it most. B. It would go to those who need it least. C. It would go to a mix of the two.

C. It would go to a mix of the two.

Suppose you learned that growing political instability in Chile (the largest producer of copper) will greatly reduce the productivity of its mines in two years. Ignoring all other factors, which curve (demand or supply) will shift which way in the market for copper two years from now? A. Demand curve will increase, that is, a shift to the right (up). B. Demand curve will decrease, that is, a shift to the left (down). C. Supply curve will increase, that is, a shift to the right (down). D. Supply curve will decrease, that is, a shift to the left (up).

D. Supply curve will decrease, that is, a shift to the left (up).

Who is impacted most by a change in the minimum wage? A. Unionized workers B. Senior citizens C. Stay-at-home parents D. Teenagers

D. Teenagers

Suppose a new invention comes along that makes it easier and much less expensive to recycle clothing: perhaps a new device about the size of a washing machine can bleach, re-weave, and re-dye cotton fabric to closely imitate any cotton item you see in a fashion magazine. Head into the laundry room, drop in a batch of old clothes, scan in a couple of pages from Vogue, and come back in an hour. If you think of the "market for clothing" as the "market for new clothing," does this shift the demand or the supply of clothing, and in which direction? A. The supply of clothing shifts right: a rise in supply. B. The supply of clothing shifts left: a fall in supply. C. The demand for clothing shifts right: a rise in demand. D. The demand for clothing shifts left: a fall in demand.

D. The demand for clothing shifts left: a fall in demand.

Who do you think asked Congress and the president to keep price floors for trucking? A. Consumer groups B. Retail shops like Wal-Mart C. Republicans D. Trucking companies E. A and D

D. Trucking companies