ECON Test 2 Questions
b
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
A good that takes up a very large percentage of the consumer's budget will tend to have... a. an elastic demand. b. a perfectly elastic demand. c. an inelastic demand. d. an upward-sloping demand curve. e. very many substitutes.
d
A local Krispy Kreme doughnut shop reduced its prices by 10 percent, and as a result, the quantity of doughnuts sold increased by 25 percent. Over this range, the absolute value of the price elasticity of demand was... a. 0.4. b. 1.0 c. 2.0 d. 2.5
d
A recent increase in the supply of oranges caused the price to drop from $5 to $3 per bushel, and quantity demanded to rise from 10,000 bushels to 25,000 bushels. This indicates that the price elasticity of demand for oranges in this price range is... a. -0.33. b. -0.58. c. -1.0 d. -1.71.
d
A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to... a. decrease tuition, which should boost enrollment enough to balance the budget. b. decrease tuition, which would bring in more revenue. c. leave tuition as is-an increase would not help balance the budget. d. increase tuition, which would generate more revenue.
b
A successful advertising campaign would likely... a. increase price elasticity of demand by stressing the uniqueness of the product. b. reduce price elasticity of demand by stressing the uniqueness of the product. c. reduce price elasticity of demand by informing consumers of the availability of substitutes. d. not alter the demand curve. e. generally make the demand curve shift inward.
d
Along the inelastic portion of a demand curve... a. the change in price will always be less than the change in quantity demanded. b. the percentage change in price will be less than the percentage change in quantity demanded. c. the change in price will always be more than the change in quantity demanded. d. the percentage change in price will be more than the percentage change in quantity demanded.
d
Assuming that bus travel is an inferior good, a decrease in consumer income, other things being equal, will cause... a. a downward movement along the demand curve for bus travel. b. no change in the demand curve for bus travel. c. an upward movement along the demand curve for air travel. d. a rightward shift in the demand curve for bus travel.
a
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? a. It would become more elastic. b. It would become less elastic. c. Its elasticity would remain the same. d. It is impossible to say anything about the change.
b
Because producing more oil requires a significant increase in exploration and drilling costs, the supply curve for oil is... a. relatively elastic. b. relatively inelastic. c. perfectly elastic. d. unit elastic.
c
Compared to the long run, consumers typically ___ to price changes in the short run. a. are very responsive b. are more demand sensitive c. are less demand sensitive d. do not respond at all
b
Consistent with economic logic, gun buyback programs have been very effective in reducing the number of guns in a city. a. True b. False
c
Demand will be more elastic... a. the shorter the time the consumer has to adjust to price changes. b. the lower the price of the good. c. the larger the number of good substitutes. d. the more essential the consumption of the good.
a
Demand will be more inelastic... a. the shorter the time the consumer has to adjust to price changes. b. the higher the price of the good. c. the more the number of good substitutes. d. the less essential the consumption of the good.
b
Economic theory suggests that gun buyback programs... a. are effective in reducing the number of guns on city streets. b. do not reduce the number of guns on city streets. c. are most effective if the supply curve of guns is perfectly elastic. d. reduce the demand for new and better-functioning guns.
d
Economic theory suggests that permanent gun buyback programs... a. succeed in reducing the number of guns in circulation. b. make guns less valuable. c. increase the quantity of low-quality guns in circulation but decrease the quantity of high-quality guns in circulation. d. increase the number of guns in circulation.
b
Elaine, a small grocer, is planning to cut certain prices to increase her sales revenues. What will be the likely result of a price decrease for matches, a good for which the demand is inelastic, and a price decrease for fresh green tomatoes, an item for which consumer demand is elastic? a. The total revenue derived from both will go up. b. The total revenue derived from matches will decline, but total revenues derived from tomatoes will increase. c. The total revenue derived from matches will increase, but total revenue derived from tomatoes will decline. d. The total revenues derived from both will decline.
c
Ethanol and sugar are both made from sugar cane, and ethanol can be used as a fuel substitute for oil. Increasing oil prices cause the demand for ethanol to increase. This will cause the __ sugar to __ and its price to __. a. demand for; decrease; decrease b. supply of; increase; increase c. supply of; decrease; increase d. demand for; increase; increase
c
Evidence from the Sudan indicates that the supply of slaves is likely... a. perfectly elastic. b. perfectly inelastic. c. more elastic than inelastic. d. more inelastic than elastic.
b
For a price increase from $100 to $110, supply is the most elastic when quantity supplied... a. increases from 20 to 30. b. increases from 20 to 40. c. does not change. d. increases from 20 to 22.
d
For which one of the following goods would you expect the demand to be most elastic? a. Sheetz gasoline b. BP gasoline c. gasoline d, a and b
d
For which one of the following goods would you expect the demand to be most elastic? a. salt b. gasoline, short run c. automobiles d. Chevrolet automobiles
d
For which one of the following goods would you expect the demand to be most inelastic? a. Taco Bell b. Taco Johns c. Chipotle d. Tacos
a
Government gun buyback programs designed to take guns off the street cause the demand for low-quality guns to increase. a. True b. False
a
Gun buyback programs will be less effective if the... a. supply of guns is more elastic. b. supply of guns is more inelastic. c. demand for guns is more elastic. d. demand for guns is more inelastic.
a
Gun buyback programs, such as the one instituted in Washington, D.C., tend to not be very effective because... a. the supply of the types of guns exchanged is highly elastic. b. the supply of the types of guns exchanged is not very elastic. c. the programs tend to have a large impact on the price of guns on the street. d. the programs simply end up decreasing the elasticity of supply.
b
Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because... a. buyers tend to be much less sensitive to a change in price when given more time to react. b. buyers tend to be much more sensitive to a change in price when given more time to react. c. buyers will have substantially more income over a ten-year period. d. the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.
b
If Francis experiences a decrease in his income, we would expect that Francis's demand for... a. each good he purchases will remain unchanged. b. normal goods will decrease. c. most goods will increase. d. inferior goods will decrease.
c
If Pizza Al's increases its prices by 10 percent, and as a result, its sales revenue increases by 3 percent, the price elasticity of demand for the services offered by the restaurant must be... a. elastic. b. of unitary elasticity. c. inelastic. d. equal to 0.5. e. equal to 2.
a
If Pizza Al's reduces its pizza prices by 15 percent, and as a result, its total revenue from pizza sales increases, this indicates that the price elasticity of demand for the firm's pizza was... a. elastic. b. of unitary elasticity. c. inelastic. d. equal to 0.15.
d
If a 20 percent reduction in the price of airline tickets between Chicago and New York leads to a 50 percent increase in the quantity of tickets purchased, the price elasticity of demand for the tickets is... a. -0.20. b. -0.40. c. -0.50. d. -2.50.
c
If a good is an inferior good, this implies that... a. only the poor will buy the good. b. as incomes fall, less will be spent on the good. c. as incomes rise, the demand for the good will fall. d. the good does not obey the law of demand.
b
If a large percentage increase in the price of a good results in a small percentage reduction in the quantity demanded of the good, demand is said to be... a. of unitary elasticity. b. relatively inelastic. c. relatively elastic. d. perfectly elastic.
c
If admission to a Beyonce concert in a football stadium is lowered from $60 to $40, and attendance increases from 25,000 to 35,000, the price elasticity of demand for attending the concert is approximately... a. -0.25. b. -0.5. c. -0.83. d. -1.2.
a
If consumers would be willing to purchase the same quantity of a good no matter what its price was, the demand curve would... a. be a vertical line, indicating that demand is perfectly inelastic. b. be a horizontal line, and the demand would be perfectly elastic. c. not exist. d. be identical to the supply curve for the good.
a
If people buy less chewing gum at every price when their incomes fall, then... a. chewing gum is a normal good. b. the demand for chewing gum is positively sloped. c. demand for chewing gum has increased. d. the price of chewing gum has increased.
c
If the demand for a good is elastic, then total revenue... a. increases as price increases. b. remains constant as quantity demanded increases. c. increases as price decreases. d. decreases as quantity demanded increases. e. decreases as price decreases.
a
If the demand for a product increases as the result of a decline in income, it can be concluded that the... a. product is an inferior good. b. demand for the product is inelastic. c. price elasticity of demand for the product equals unity. d. demand for the product is elastic.
c
If the elasticity of supply is 2.0, what happens to quantity supplied following a 7 percent increase in price? Quantity supplied increases... a. 3.5 percent. b. 2.9 percent. c. 14 percent. d. 9 percent.
c
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... a. rises by 7.5 percent. b. rises by 133 percent. c. falls by 7.5 percent. d. falls by 133 percent.
a
If the price elasticity of supply is 4, an increase in the price of Good X by 5 percent causes the quantity supplied of it to... a. rise 20 percent. b. fall 20 percent. c. rise 1.25 percent. d. fall 1.25 percent.
c
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... a. 2.67. b. -2.67. c. 2.25. d. -2.25.
a
If the price of Pepsi-Cola increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the Pepsi-Cola Company could increase its total revenue by... a. lowering price. b. decreasing quantity supplied. c. leaving price the same. d. raising price. e. decreasing supply.
c
If the price of aluminum increases 4 percent, and the quantity supplied increases by 1 percent, what is the price elasticity of supply? a. 4.0 b. 4.0 c. 0.25 d. 3.0
a
If the price of cocoa rises by 10 percent and the elasticity of supply is 0.5, then the quantity supplied... a. increases by 5 percent. b. increases by 20 percent. c. decreases by 5 percent. d. decreases by 20 percent.
c
If the price of cocoa rises by 20 percent, the quantity supplied of cocoa rises by 4 percent. What is the elasticity of supply? a. 5 b. 2 c. 0.2 d. 0.008
c
If the price of coffee falls by 10 percent and the quantity supplied of coffee falls by 1.5 percent, then the elasticity of supply of coffee is... a. 10.0 b. 1.5. c. 0.15. d. 6.67.
a
If the price of oil increases from $80 to $90 per barrel, the quantity supplied increases from 100 to 105 million barrels per day. What is the price elasticity of supply using the midpoint method? a. 0.41 b. 0.22 c. 0.15 d. 0.05
a
If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is... a. elastic. b. inelastic. c. of unitary elasticity. d. indeterminate.
c
If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as... a. unstable. b. relatively inelastic. c. relatively elastic. d. of unitary elasticity.
b
If you compared the short-run demand and long-run demand for education at your WVU, you would almost certainly find that... a. the long-run demand curve was steeper than the short-run demand curve. b. a tuition increase would reduce enrollment more in the long run than in the short run. c. a reduction in tuition would increase enrollment in the short run but not in the long run. d. the short-run and long-run demand curves were identical.
b
In 1808, when slavery in the United States was still legal, Congress banned the importation of new slaves. Under these circumstances, would a slave redemption campaign have worked well? Why? a. Yes, because the supply of slaves was elastic. b. Yes, because the supply of slaves was inelastic. c. No, because the supply of slaves was elastic. d. No, because the supply of slaves was inelastic.
b
In The Beautiful Tree, Dr. James Tooley describes how he found, in developing country after developing country, countless private schools aimed at educating the poor's children. The schools are completely self-funded, relying on tuition to pay salaries and upkeep. Although the teachers are effective, the schools are very basic: large playgrounds and modern building construction are very rare. Based on this information, what is the elasticity of the supply of schools? a. Elastic, because these schools only exist in the short run. b. Elastic, because these schools are relatively easy to establish. c. Inelastic, because these schools are located all over the world. d. Inelastic, because these schools must negotiate with teacher unions.
b
In an effort to decrease carbon emissions in California, the state government decided to implement a car buyback program in order to decrease the number of cars on the streets. The California government would offer a $2,000 tax rebate for each car turned in. The cars would then be demolished and the steel recycled. Under what conditions would a program like this succeed at significantly decreasing the number of cars driven in California? a. If the supply elasticity of new automobiles globally was inelastic. b. If the supply elasticity of automobiles in California was inelastic. c. If the supply elasticity of automobiles in California was elastic. d. If the supply elasticity of new automobiles in California was inelastic.
b
In heavily Catholic cities like Cincinnati, which of the following goods is likely to have more inelastic demand compared to cities with few Catholics? a. Tacos b. Fish c. Asparagus d. Rutabaga
c
In the aftermath of the Great Recession (falling incomes) in 2008, McDonalds saw sales revenue increase. What is the best explanation for this result? a. McDonalds tastes good. b. People have more time to wait in line because they are unemployed. c. McDonalds is an inferior good. d. McDonalds were in neighborhoods insulated from the negative effects of the Great Recession.
c
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
d
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.
c
Julia knows the price elasticity of movie rentals is 3. She knows, therefore, that if she raises her price from $2 to $2.50, her rentals will drop by approximately... a. 150 percent. b. 100 percent. c. 66 percent. d. 33 percent.
b
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.
a
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.
a
Of the following goods, which is most likely to have the lowest (most inelastic) elasticity of demand? a. coffee b. Chevrolet automobiles c. fresh tomatoes d. provolone cheese
c
On June 14, 2011, the Delaware Senate approved a gun buyback program. The yearlong program would authorize the state to pay $100 for every gun turned over to police. What sort of guns should Delaware officials expect to get if this plan becomes law? a. Small guns, usually used as self-defense in bad neighborhoods. b. Heavy guns, usually used by criminals to support their illegal enterprises. c. Nonworking guns, usually kept in someone's back closet. d. Guns that use a lot of bullets very quickly.
a
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.
c
South Africa, with large natural diamond deposits, is famous for its diamond exports. The international demand for diamonds for industrial and other purposes, such as jewelry, has led to the production of synthetic diamonds by other countries, such as the United States. Which answer BEST describes the concept highlighted in this scenario? a International cooperation has been reduced over the years. b. Consumers prefer synthetic diamonds to natural ones. c. Prices provide incentives for sellers. d. Markets are no longer linked together.
a
Suppose Microsoft announces it is cutting the prices of some of its software titles (mainly games) by 25 percent. Assuming that Microsoft is seeking to increase revenues, it must believe that the elasticity of demand for these products is... a. elastic. b. inelastic. c. of unitary elasticity. d. perfectly inelastic.
a
Suppose a city that operates local electric and natural gas companies wants to raise revenues by increasing its rates for electricity and natural gas. The price rise will increase city revenues if the elasticity of demand for electricity and natural gas is... a. inelastic. b. elastic. c. zero d. equal to -1.
c
Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is. a. 0.40. b. 0.80. c. 1.25. d. 2.50.
a
Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is... a. 2.5. b. 0.4. c. 0.5. d. 5.0
a
Suppose the WVU athletic department wanted to increase revenues by decreasing ticket prices to football games. This would make sense only if the price elasticity of demand for football games was (in absolute value)... a. greater than 1. b. equal to 1. c. less than 1. d. zero.
c
Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is Ð .25, by how much would you have to raise the price of water? a. 10 percent b. 25 percent c. 40 percent d. 100 percent
d
The demand curve for a good is very unlikely to be perfectly vertical because... a. scarcity and limited income restrict the ability of consumers to afford goods as they become very expensive. b. as the price of a good rises to high enough levels, the incentive for other suppliers to invent new substitutes for the good increases. c. consumers generally do not care about the price of the goods they consume. d. both a and b are true.
d
The demand for which one of the following goods is most likely to be quite inelastic? a. fresh green peas b. provolone cheese c. General Electric television sets d. A defense lawyer
b
The demand for which one of the following is most likely to be highly elastic? a. gasoline b. fresh green spinach c. tickets to the Super Bowl football game d. the services of a physician
c
The demand for which one of the following is most likely to be highly inelastic? a. fresh green beans b. Old Navy brand shirts c. health-care services d. haircutting services
d
The demand for which one of the following will be most inelastic? a. black-eyed peas b. peas c. vegetables d. food products
d
The difference between normal and inferior goods is that... a. an increase in price will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward. b. if the price of a normal good increases, individuals who buy it are poorer; for inferior goods, the opposite is true. c. an inferior good is something that will not be demanded until quantities of the normal good have been exhausted. d. an increase in income will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward.
d
The greater the price elasticity of demand, the... a. more likely the product is a necessity. b. smaller the responsiveness of quantity demanded to a change in price. c. greater the percentage change in price over the percentage change in quantity demanded. d. greater the responsiveness of quantity demanded to a change in price.
d
The more broadly a good is defined... a. the more substitutes it has so the more elastic is its demand. b. the fewer substitutes it has so the more elastic is its demand. c. the more substitutes it has so the less elastic is its demand. d. the fewer substitutes it has so the less elastic is its demand.
b
The price elasticity of demand for a commodity is determined primarily by the... a. size of the consumer surplus. b. attractiveness of the substitutes for the good. c. incomes of consumers. d. availability of complementary goods.
a
The price elasticity of demand for a product tends to be large (more elastic) when... a. people spend a large share of their income on the product. b. the population in the market area is small. c. few good substitutes for the product are available. d. many complementary products are available.
b
The price elasticity of demand for gasoline measures the... a. responsiveness of gasoline producers to changes in the quality of gasoline. b. responsiveness of customers to changes in the price of gasoline. c. responsiveness of consumer preferences to changes in the quality of gasoline. d. both a and c above.
d
The supply curve for manufactured goods is usually more elastic than raw materials because production of manufactured goods can often be... a. increased at higher cost per unit by building more factories. b. increased at lower cost per unit by building more factories. c. decreased at the same cost per unit by building more factories. d. increased at the same cost per unit by building more factories.
b
U.S. Highway 12 is part of a crucial two-lane artery from the seaports in Washington State to the tar sands in Canada. Extracting oil from the tar sands requires very large equipment and transporting it takes up both lanes of U.S. Highway 12. In August of 2010, Idaho granted ConocoPhilips a road permit that allowed it to transport four oil-processing units. Without this permit, ConocoPhilips would have had to transport those units a much longer distance to get them to their destination. If permits for this highway were not allowed, how would that affect the elasticity of which curve in the market for oil? a. The supply curve would become more elastic. b. The supply curve would become less elastic. c. The demand curve would become more elastic. d. The demand curve would become less elastic.
b
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.
d
When economists say the demand for a good is highly inelastic, they mean that... a. even if the price rose substantially, suppliers would be unwilling to offer much more of the good. b. the facilities utilized by producers of the good are inflexible; producers cannot easily expand their facilities, even in the long run. c. consumers will respond to a change in the price of the good by purchasing substantially more of it. d. a large (percentage) change in the price of a good will result in only a small (percentage) change in the quantity demanded.
d
When the price of Nike tennis shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is... a. 0.55. b. 1.0 c. 1.25. d. 1.80.
b
When the supply curve in the Sudanese slave trade is perfectly ____, every slave bought by the redeemers results in/is ____ held in captivity. a. inelastic; more slaves b. inelastic; one less slave c. inelastic; redeemed at a lower price than expected d. elastic; redeemed at a higher price than expected
d
Which of the following explains why local supply tends to be more elastic than global supply? a. As price increases in a certain locale, it is often costly to transport more goods to that particular area, and hence supply is more elastic. b. Local suppliers are small in relation to the global market. c. The statement is false; local supply tends to be less elastic than global supply. d. As price increases in a certain locale, goods can be brought in from other areas, which is not possible on a global scale.
d
Which of the following is true regarding the price elasticity of demand? a. Demand is generally more elastic in the long run than in the short run. b. Along a single demand curve, demand elasticity decreases as you move down the curve (to lower prices). c. A demand curve that is flatter (has a less steep slope) is relatively more elastic than a demand curve that has a steeper slope. d. All of the above are true.
b
Which of the following statements about the price elasticity of supply in the Sudanese slave trade is correct? a. When the supply curve is more elastic, every slave bought by the redeemers is one fewer slave held in captivity. b. When the supply curve is perfectly inelastic, every slave bought by the redeemers is one fewer slave held in captivity. c. When the supply curve is less elastic, every slave bought by the redeemers is one additional enslaved person. d. When the supply curve is more inelastic, every slave bought by the redeemers is one additional enslaved person.
d
Which of the following statements is FALSE? a. A perfectly inelastic supply curve is vertical. b. The supply curve is more elastic in the long run than in the short run. c. Products that take a long time to produce, such as decades-aged Scotch whiskey, have supply curves that are less responsive to price changes. d. The supply curve of oil is more inelastic in Texas than it is globally.
b
Which one of the following goods would likely have the most inelastic demand? a. Kellogg's corn flakes b. salt c. a new Toyota automobile d. fresh green beans
b
Which one of these goods is most likely to be an inferior good for most people with incomes over 100,000? a. Beer b. Natural Light Beer c. Gasoline. d. Sheetz Gasoline.
b
Why do economists use the concept of elasticity in addition to measurement of the slope of the demand curve? a. Mathematical equations are favored over graphical analysis. b. Elasticities are independent of the units of measure. c. The concept of elasticity can be used in other areas of economics, whereas the slope of the demand curve is only useful in demand analysis. d. These terms are interchangeable, but elasticity has the more professional sound.
a
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.
b
A free market with externalities __ social surplus. a. maximizes b. does not maximize c. sometimes maximizes d. precludes
b
A good is classified as inferior if... a. consumers buy less when the price rises. b. consumers buy less when income rises. c. consumers buy less when the price falls. d. consumers buy more when income rises.
b
A legal maximum price at which a good can be sold is a price... a. stabilization. b. ceiling. c. support. d. floor.
c
A person who tries to profit by guessing changes in future prices is a... a. profiteer. b. marketer. c. speculator. d. price raider.
c
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
c
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.
b
A price floor is... a. a maximum price allowed by law. b. a minimum price allowed by law. c. able to produce an efficient outcome. d. a tool used to increase government revenues.
a
A public good is... a. nonrival and nonexcludable. b. rival and nonexcludable. c. rival and excludable. d. nonrival and excludable.
d
A rent control is a regulation that... a. ensures that there are apartments available for rent. b. controls rents at constant levels. c. upholds rents to above equilibrium levels. d. prevents rents from rising to equilibrium levels.
a
A retail outlet sells bottled water. Which scenario would cause them to use a buy low and sell high strategy with bottled water? a. A hurricane is expected to arrive within one week. b. A new producer for bottled water is expected to enter the market within the next three months. c. Consumers are moving away from bottled water consumption to filtered tap water consumption. d. Imports of bottled water begin to arrive in town.
b
A rival good is one where... a. one person's use does not impinge on another person's ability to enjoy the same good. b. one person's use prevents another person's ability to use that good at the same time. c. two people can use the same good at the same time. d. the good is simultaneously nonexcludable and public.
b
A shortage results when... a. a price floor is imposed. b. a price ceiling is imposed. c. there is excess supply without any price controls. d. a price floor is imposed but it is not binding.
c
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.
d
An efficient equilibrium occurs when... a. private costs equals private benefits. b. social costs equals private benefits. c. private costs equals social benefits. d. social costs equals social benefits.
b
An example of a common resource would be... a. a street light. b. the environment. c. clothing. d. cable TV.
c
An excludable good is... a. one that is excluded from the common basket of goods consumed by households. b. one that producers will exclude from production. c. one where people can be prevented from using the good. d. not necessary to consume, that is a luxury.
c
An external benefit in a market will cause the market to produce... a. more than the same market would produce in the presence of a negative externality. b. more than is socially desirable. c. less than is socially desirable. d. the socially optimal equilibrium amount.
d
An external cost is a cost paid by... a. the consumers trading in the market. b. the producers trading in the market. c. the government regulating the market. d. people other than the consumer and the producer trading in the market.
d
Asphalt is the refined residue from crude oil. When gasoline prices are high, oil refiners pull every last drop of gasoline out of a barrel of crude. This would imply that higher gasoline prices mean a(n)... a. increased supply of asphalt, causing lower asphalt prices. b. increased supply of asphalt, causing higher asphalt prices. c. reduced supply of asphalt, causing lower asphalt prices. d. reduced supply of asphalt, causing higher asphalt prices.
c
At a price ceiling of $6 per sheet of drywall, quantity demanded is 100 and quantity supplied is 75. What will happen in the drywall market if there is an increased demand for drywall in the construction industry? a. Equilibrium will be restored. b. The shortage of drywall will fall below 25 units. c. The shortage of drywall will increase above 25 units. d. The surplus of drywall will increase above 25 units.
d
Because of government price controls, a business must now sell soft-serve ice cream at half its original price. This business might respond by... a. offering smaller servings of ice cream. b. skimping on toppings of nuts, fudge sauce, and cherries. c. reducing hours of operation. d. All of the answers are correct.
d
Because rent controls on apartments reduce profits... a. developers build and rent more apartments to make up for lost profit. b. condominiums are converted into apartments. c. landlords are less likely to discriminate against minorities in renting out apartments. d. apartment managers will give less consideration to renters' complaints.
d
Because there are external benefits from higher education... a. private markets will oversupply college classes. b. government intervention cannot improve the market for college classes. c. the government should impose a tax on college students. d. private markets will undersupply college classes.
a
Ben is willing to work for $4/hour and an employer is willing to hire Ben for $7/hour. Which statements is TRUE? a. A minimum wage of $7.50/hour would prevent this mutually beneficial exchange. b. Minimum wages do not prevent mutually beneficial exchanges. c. A minimum wage of $4.50/hour would prevent this mutually beneficial exchange. d. A minimum wage of $3.50/hour would prevent this mutually beneficial exchange.
a
Bluefin tuna are... a. rival and nonexcludable. b. nonrival and excludable. c. rival and excludable. d. nonrival and nonexcludable.
a
Brazil is the world's largest sugar cane producer and sugar cane can be used for producing sugar and the fuel ethanol for automobiles. Which sequence of events is correct? a. Rising oil prices cause Brazilian producers to shift sugar cane production from sugar to the fuel ethanol. The decrease in sugar supply raises the price of candy bars. b. Rising oil prices cause Brazilian producers to shift sugar cane production from the fuel ethanol to sugar. The increase in sugar supply decreases the price of candy bars. c. Falling oil prices cause Brazilian producers to shift sugar cane production from sugar to the fuel ethanol. The increase in sugar supply raises the price of candy bars. d. Falling oil prices cause Brazilian producers to shift sugar cane production from the fuel ethanol to sugar. The increase in sugar supply raises the price of candy bars.
c
Central planning of resource allocation... a. was attempted by the United States during the 2007Ð2009 financial crisis. b. can succeed even if the central planners do not have perfect information on the best uses of resources. c. was the dominant economic planning method used in both the former Soviet Union and China. d. insures all resources are used appropriately.
b
Dairy farmers use sawdust for milk cow bedding. What happened to the price of milk because of the housing slowdown in 2007? a. The price of milk rose as the demand for milk rose. b. The price of milk rose as the supply of milk decreased. c. The price of milk fell as the demand for milk decreased. d. The price of milk fell as the supply of milk increased.
d
During the Middle Ages, many villages had areas reserved for families to take their cows or sheep to graze. All families were welcome to use this land without charge. The land for grazing can be characterized as a... a. public good. b. private good. c. natural resource. d. common resource.
b
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.
a
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.
d
For a price floor to prevent market forces from finding the equilibrium price, it must be set... a. above the equilibrium price, causing a market shortage. b. below the equilibrium price, causing a market shortage. c. below the equilibrium price, causing a market surplus. d. above the equilibrium price, causing a market surplus.
a
Free riders are people who... a. enjoy public goods without paying for them. b. pay for public goods but do not end up enjoying them. c. pay for both private and public goods. d. ride public transportation without paying.
c
Futures markets are common in commodities, financial instruments, and... a. nowhere else. b. some barter markets in third-world countries. c. currencies. d. telecommunications.
b
Higher oil prices represent higher energy costs in general across the economy leading to increased use of bicycles and public transportation. Which answer BEST describes the idea that changes in one market can produce effects in previously unseen markets? a. The rise in the demand for bicycles causes a rise in the price of bicycles. b. Increased bicycle demand increases the demand for rubber to make bicycle tires. Farmers in Southeast Asia switch from rice to rubber production and the price of rice increases. c. The greater demand for public transportation offsets the demand for heating oil. d. The rise in the demand for oil causes a rise in the demand for bicycles.
d
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
b
How can selling a futures contract mitigate agricultural risk for farmers? a. Farmers can grow crops that are not subject to weather inclemency. b. Farmers can pin down a price for their produce even if there is volatility in market prices. c. Futures contracts allow farmers to store their grains in silos until the market prices rise. d. Futures contracts allow farmers to trade in crops whose prices will fall in the future.
d
How do speculators mitigate shortfalls in the equilibrium quantities traded in markets? a. by buying up unsold inventories and then selling them when there is a shortage in the market b. by causing market quantities to rise and fall c. by buying up items when the prices have risen d. by buying up items in advance of rising prices, and then selling them in the market when prices increase
c
If a seller facing excess demand is unable to raise the price of the good due to a price ceiling, a likely result will be... a. an increase in the quantity supplied of the product. b. an increase in the price of the product. c. a decrease in the quality of the product. d. a further decrease in the price of the product.
b
If a steel manufacturer does NOT bear the entire cost of the sulfur dioxide it emits, it will... a. emit a lower level of sulfur dioxide than is socially efficient. b. emit a higher level of sulfur dioxide than is socially efficient. c. emit an acceptable level of sulfur dioxide d. not emit any sulfur dioxide in an attempt to avoid paying the entire cost.
a
If an American teenager will work for $5 an hour and an employer is willing to pay that wage, but the minimum wage is $7.25 an hour and the employer is not willing to pay that much, the teenager goes unemployed and the market experiences... a. lost gains from trade. b. wasteful increases in quality. c. resource misallocations. d. reductions in product quality.
a
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.
b
If speculators expect that the future price of corn will be higher, they will cause today's price of corn to ____ and the future price of corn to be ____ than it would have been without speculation. a. decrease; higher b. increase; lower c. decrease; lower d. increase; higher
a
If the price of a good does not take into account all of the relevant costs of its production, then the price of that good is too... a. low, and the product will be overproduced. b. high, and the product will be underproduced. c. high, and the product will be overproduced. d. low, and the product will be underproduced.
c
If the social cost of an activity equals the private cost, what kind of externality exists? a. an external cost b. an external benefit c. There is no externality. d. This cannot be determined by the information given.
c
In Puerto Rico in 1938, the market wage was 3¢ to 4¢ per hour when Congress passed a law raising it to 25¢ per hour. Workers in Puerto Rico were... a. happy with their raise. b. hoping for a higher minimum wage. c. devastated. d. indifferent.
d
In a demand-and-supply diagram, the market price represents the value of the... a. first satisfied want. b. last unsatisfied want. c. good in its next-lowest use. d. good in its next-highest use.
b
In a free market, the price of a good is equal to the value of the good... a. in its next lowest-valued use. b. in its next highest-valued use. c. to the highest bidder among those who have satisfied their wants for the good. d. given the resources used to produce the good.
b
In situations of excess demand, sellers might lower quality when they are unable to raise prices because they wish to... a. reduce excess demand. b. raise their profit levels. c. decrease surpluses. d. raise their sales.
b
In the presence of significant externalities, a market equilibrium maximizes... a. social surplus. b. nothing. c. consumer surplus plus producer surplus plus everybody else's surplus. d. consumer surplus plus producer surplus.
c
Jeff agrees to buy 40,000 pounds of frozen pork bellies for delivery one year from now; upon delivery he will pay $32,400. This transaction is called a... a. prediction settlement. b. timing indenture. c. futures contract. d. hog agreement.
b
Land used to grow corn can also grow soybeans. As the demand for corn used in ethanol began to increase the price of corn, what happened to the price of soybeans? a. The price of soybeans fell due to lower demand for soybeans. b. The price of soybeans rose since farmers began planting corn instead of soybeans, thus decreasing the supply of soybeans. c. The price of soybeans rose since they were in limited supply and demand increased. d. The price of soybeans stayed the same, since subsidies made up for any differences in the price between corn and soybeans.
d
Markets work well because of the information delivered by... a. the government. b. the supply curve. c. the demand curve. d. prices.
c
Mosquito control is an example of a good that... a. people still get to enjoy even without paying for it, that is a nonrival good. b. if used by one person cannot be used by another, that is a nonrival good. c. people still get to enjoy even without paying for it, that is a nonexcludable good. d. people must pay for to enjoy, that is an excludable good.
b
New housing takes some time to build, so rent control creates larger shortages in the... a. long run than in the short run because short-run supply is more elastic. b. long run than in the short run because long-run supply is more elastic. c. short run than in the long run because short-run supply is more elastic. d. short run than in the long run because long-run supply is more elastic.
a
Newly formed trade unions raise wages for workers in Country X, where cars are manufactured. The higher wages increase the costs for the car manufacturers, who then relocate to Country Y, where labor costs are lower. Car manufacturing begins to thrive in Country Y relative to Country X. Which answer BEST describes the concept highlighted by this scenario? a. Changes in one market can affect markets and people in other regions of the world. b. Trade unions always cause industries to collapse. c. The links between markets are weakening over time. d. Manufacturing industries are the only industries where markets are linked well.
a
One of the biggest problems with centrally planned economies is that: a. central planners have limited information on the true value of the various ways to utilize scarce resources. b. they fail to reach economic efficiency because their policies limit global trade. c. workers have little incentive to work for the central planner. d. they typically have higher levels of corruption compared with market economies.
b
Over time, housing shortages caused by rent control __ because the supply of housing is __ elastic in the long run. a. increase; less b. increase; more c. decrease; less d. decrease; more
a
Price ceilings create five important effects... a. shortages, reductions in product quality, wasteful lineups, a loss from gains to trade, and a misallocation of resources. b.l surpluses, increases in product quality, search costs, gains from trade, and resource attrition. c. excess demand, long lines, poor service, efficiency, and arbitrage. d. shortages, reduced time costs, low vacancy rates, blat, and deadweight loss.
c
Price ceilings do not have much effect... a. in times of high inflation. b. ever. c. when market prices are at or below the ceiling. d. in non-market economies.
b
Price ceilings reduce quality because... a. buyers are willing to accept a lower quality of goods with lower prices. b. sellers facing excess demand cannot raise prices to increase profit. c. the law would mandate the quality of goods to match the price of the goods. d. None of the answers are correct.
d
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.
b
Public roads sometimes get congested, suggesting that public roads are... a. public goods. b. rival. c. private goods. d. experiencing a free rider problem.
c
Rent controls are... a. an efficient and equitable way to help the poor. b. inefficient, but a pretty good way to solve a serious social problem. c. an inefficient way to help the poor in raising their standard of living. d. an efficient way to allocate housing.
c
Since the price of antibiotics does not include all the costs of using antibiotics, the price is too... a. high, and so antibiotics are overused. b. high, and so antibiotics are underused. c. low, and so antibiotics are overused. d. low, and so antibiotics are underused.
a
Since value is subjective, a good can be normal for one person and inferior for another. a. True b. False
b
Small tribes may be able to solve the tragedy of the commons by... a. subsidizing the activity that creates the tragedy. b. using social norms to punish and ostracize those that overuse a common resource. c. setting price controls below the equilibrium price to clear the market. d. All of the answers are correct.
b
Some researchers estimate that all saltwater fish will be extinct by 2048, in large part due to overfishing. But surveys also show that more households eat chicken and beef than fish; however, neither chickens nor beef are in danger of extinction. Which of the following best explains these observations? a. The supply of fish has always been less than the supply of chicken and beef. b. Fish tend to be nonexcludable resources, whereas chicken and beef are excludable. c. Fish tend to be nonrival resources, whereas chicken and beef are rival. d. The price of fish is much higher than the price of chicken and beef.
a
Speculation often... a. helps smooth price fluctuations. b. generates large profits for only a small group of individuals. c. is illegal. d. decreases economic efficiency.
b
Speculators... a. serve no important economic function, except buying low and selling high. b. move resources from periods of low-value use to periods of high-value use. c. move resources from poor countries to rich counties. d. are a key source of inflation.
a
Street lights are an example of a good that is... a. nonexcludable and nonrival. b. nonexcludable and rival. c. excludable and nonrival. d. excludable and rival.
c
When the price of oil rises, consumers economize by buying ____ and by ____. a. more oil; finding substitutes b. less oil; recycling c. less oil; finding substitutes d. more oil; recycling
a
Suppose speculators expect that the supply of oil will decrease next year and as a result, buy up oil today and put it into storage. This should cause the value of that oil to... a. increase. b. decrease. c. either increase or decrease. d. remain unchanged.
d
Suppose that a firm plans to provide defense against asteroids striking the earth. Which of the following is TRUE? a. Most people will find it in their self-interest to pay the firm to protect the earth. b. Asteroid protection is a private good, so the firm will make a lot of profit. c. In case of an earth-bound asteroid, the firm will not protect people who refused to pay for asteroid defense. d. Most people will not pay a firm for asteroid defense.
c
Suppose that a war in the Middle East makes oil increasingly scarce. Oil usage should... a. increase in low-value uses. b. fall the most in high-value uses. c. fall the most in low-value uses. d. fall equally across low- and high-value uses.
d
Suppose your city has had an increase in crime and the city government decides that more police are needed to patrol at night. Which of the following funding solutions avoids the free-rider problem involved with additional police officers? a. taxation of the city's top 50% of income earners b. donation-based police service c. voluntary police officers d. an increase in the city's sales tax
a
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.
c
The Edict on Maximum Prices, established by the Roman Emperor Diocletian, created price ceilings on various jobs and goods in a failed effort to curb inflation. For example, legal pay for a farm laborer could be no more than 10.8¢ a day (payment set in modern currency). If the market rate of farm labor was 12¢ a day, which would be a plausible consequence of this law? a. farms would produce more food than they otherwise would b. nothing unusual c. a laborer would work less hard than he otherwise would d. an increase in unemployment for farm hands
d
The central planning approach proved ____ because ____. a. successful; central planners use state-of the-art military computers to efficiently allocate resources b. a failure; it was never given enough time to be successfully implemented in most countries c. successful; central planners, unlike CEOs, are not solely interested in maximizing profits and raising prices d. a failure; central planners lack information and incentives to allocate resources efficiently
a
The equilibrium price in the market represents the... a. value of the good in its next highest-valued use. b. value of the good in all its uses. c. price of the good in its lowest-valued use. d. average cost of producing the good.
d
The great economic problem is to... a. increase resources to satisfy as many of our limited wants as possible. b. equally allocate resources in order to satisfy as many of our limited wants as possible. c. create unlimited resources to satisfy as many of our infinite wants as possible. d. arrange our limited resources to satisfy as many of our infinite wants as possible.
c
The incentive to dedicate private resources to maintaining a common resource is low because... a. there is no benefit from maintenance of a common resource. b. entrepreneurs have not found a way to profit from common resources. c. the benefits of maintenance are external, not private benefits. d. maintenance is very expensive.
a
The influence of the minimum wage in the American economy is very small because MOST workers earn... a. more than the minimum wage. b. less than the minimum wage. c. more or less than the minimum wage. d. near the minimum wage.
c
The locovore movement encourages eating locally produced food to reduce the greenhouse gases emitted from transporting food long distances, placing upward pressure on local land prices as farmland becomes more valuable. Which statement reflects what will likely occur as a result? a. The price of beef falls as more people eat beef. b. Hunting animals becomes more common. c. Local forests become less common. d. In the short term, the price of lumber rises.
a
The market acts like a computer because... a. prices are information processors. b. people connect with each other when they buy and sell. c. much of the Internet is used for buying and selling. d. computers were developed to create new markets.
a
The market is effectively able to allocate goods to their highest-valued uses because... a. consumers will only purchase the good if its value is greater than its price. b. government intervention keeps prices consistent with their market value. c. suppliers will only produce goods for which the cost of production is less than the price. d. consumers have a great incentive to conserve goods for future use.
a
The market price for Good X is $10.75, and every time Good X is consumed it creates an external benefit of $3.00. Therefore, which statement is correct? a. The social benefit of Good X is $13.75, a justification for the government to give buyers a $3.00 subsidy. b. The social benefit of Good X is $7.75, a justification for the government to give buyers a $3.00 subsidy. c. The social benefit of Good X is $7.75, a justification for the government to tax sellers $13.75 per unit. d. The social benefit of Good X is $13.75, a justification for the government to tax sellers $3.00 per unit.
b
The market solves the incentive problem when allocating resources because the... a. consumers will pay for the good only if its price is greater than the value of use. b. consumers will pay for the good only if its value of use is greater than the price. c. suppliers will produce the good only if its cost is less than the value of use. d. suppliers will produce the good only if its value of use is less than the cost.
a
The market solves the information problem when allocating resources by... a. collapsing all the relevant information about uses of the good into its price. b. collapsing all the relevant information about inputs of the good into the level of output. c. aggregating all the relevant information about the output of the good into the supply curve. d. aggregating all the relevant information about the output of the good into the demand curve.
c
The presence of price floors in a market usually is an indication that... a. there is an insufficient quantity of a good or service being produced. b. the forces of supply and demand are unable to establish an equilibrium price. c. sellers of the good or service outnumber the buyers. d. policymakers believe the price floor does not involve inequities.
b
The price controls of the early 1970s caused... a. lead to be removed from gasoline. b. the disappearance of the full-service gas station. c. gas stations to stay open for more hours. d. an excess supply of gasoline.
b
The text states: The great economic problem is to arrange our limited resources to satisfy as many of our wants as possible. How does a market achieve this goal? a. It chooses central planners who are experts at identifying the best uses of resources. b. The forces of demand and supply use prices as a signaling device that directs resources to their highest-value uses. c. It ensures that prices provide an even signal by making sure prices across all markets are equal. d. It offers resource-based futures contracts.
b
The tragedy of commons is more likely to apply to... a. oil, natural gas, and coal. b. forests, fish, and elephants. c. chickens and other farm animals. d. microchips, semiconductors, and relay switches.
d
The tragedy of the commons refers to the... a. underproduction of public goods in economic markets. b. underproduction of a common good. c. overuse of a nonrival and nonexcludable good. d. overuse of a rival but nonexcludable good.
b
Under rent control, tenants can expect... a. lower rent and higher-quality housing. b. lower rent and lower-quality housing. c. higher rent and a shortage of housing. d. higher rent and a surplus of housing.
a
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
c
When a consumer compares the price of a good to the value of that good, he or she is really comparing... a. the price of other substitute goods. b. the value of the good to the costs associated with producing the good. c. the value of the good to its opportunity cost. d. the price of the good to the value of other substitute goods.
a
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.
b
When external costs are present in a market... a. market prices are still able to send the correct signals. b. market prices send incorrect signals. c. social surplus is maximized. d. consumer surplus is not maximized.
d
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.
b
When the price of pizza increases, consumers have an incentive to... a. decrease their demand for pizza. b. purchase substitute goods, such as Chinese food. c. increase their consumption of pizza since it is now more valuable. d. open another pizza restaurant in order to increase supply and drive prices down.
d
Which is an example of an external benefit? a. You get a raise that increases your pay 20%. b. Your neighbor's rooster wakes you up every morning before your alarm clock goes off, reducing the amount of sleep you get at night. c. Researchers at Johnson & Johnson are working on a cure for cancer. d. Your neighbors fix up their homes, which raises property values on the entire street.
b
Which is the MOST correct statement about the impact of rent controls? a. The short-run supply curve for apartments is inelastic, so rent controls create larger shortages in the short run than in the long run. b. The short-run supply curve for apartments is inelastic, so rent controls create smaller shortages in the short run than in the long run. c. The long-run supply curve for apartments is inelastic, so rent controls create larger shortages in the long run than in the short run. d. The long-run supply curve for apartments is inelastic, so rent controls create smaller shortages in the long run than in the short run.
d
Which observation would be consistent with the impact of price ceilings? a. Books are printed on higher-quality paper. b. Full-service gasoline stations stay open for 24 hours. c. New automobiles are painted with more coats of paint. d. Newspapers switch to a smaller font size in order to decrease bulk.
a
Which of the following scenarios best describes a tragedy of the commons problem? a. Neighborhood residents discover strawberry plants in the flower beds at the city park. Your answer b. Illegal immigrants who do not pay taxes benefit from tax-funded police patrols. c. Pacifists become forced riders in tax hikes to fund national defense plans. d. There is overcrowding on otherwise nice public beaches.
d
Which of the following statements is TRUE?I. Overfishing results from fish being privately owned by profit-maximizing firms.II. If a fisherman catches a lot of fish, he creates a negative externality because there are less fish to catch for everyone else.III. There is no incentive for an individual to fish less simply to leave more fish for everyone else to catch. a. None of these are true b. I, II, and III c. II only d. II and III only e. I only
c
Which statement illustrates the concept of external cost? a. Margaret purchases all her food and clothing in the big city outside her residence. b. A small business owner frequently buys raw materials by using her bank's line of credit. c. Raymond cannot open his windows at times because he lives downwind from a mushroom farm. d. Felicia, an economics major, asks the most insightful questions in class.
a
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
c
Which would MOST LIKELY result after setting a price ceiling on automobiles? a. a surplus of automobiles b. more friendly automobile salesmen c. fewer safety features d. an increase in demand for automobiles
d
Which would NOT happen as the result of a price floor? a. a surplus of the good b. lost gains from trade c. misallocation of resources d. decreases in product quality
a
Why do supply curves tend to be more elastic over time? a. Sellers have time to adjust and increase production. b. Consumers have time to look for substitutes for the good. c. Consumers have time to reduce their consumption of the good. d. All of the answers are correct.
c
Why is national defense a public good? I. It is expensive to produce. II. People who don't pay for national defense still benefit from having it. III. One person's benefit from national defense doesn't reduce anyone else's benefit from it. IV. It is provided by the government. a. I only b. I and IV only c. II and III only d. II, III, and IV only e. I, II, and III only
b
Why is the supply curve for oil rather inelastic? a. There are not many widely available good substitutes for oil. b. To increase the production of oil would require a very significant outlay in terms of costs of exploration and drilling. c. The world supply of oil is decreasing. d. The supply curve for oil is always perfectly inelastic.