Question 1

A price floor that sets the price of a good above market equilibrium will cause:

Accepted Answer

A)  a decrease in quantity demanded of the good.
B)  an increase in quantity supplied of the good.
C)  a surplus of the good.
D)  all of these.E) A) and C)
F) None of the above

Question 2

If each of us relied exclusively on the market to determine what to buy, we would probably end up with few, if any:

Accepted Answer

A)  streetlights.
B)  strawberries.
C)  CDs.
D)  raincoats.
E)  televisions.F) C) and D)
G) A) and D)

Question 3

A hurricane destroyed the peach crop in South Carolina. Shortly thereafter the price of peaches rose significantly. These events suggest that a(n) :

Accepted Answer

A)  decrease in the supply of peaches caused the price of peaches to rise.
B)  increase in the supply of peaches caused the price of peaches to rise.
C)  increase in demand caused the price of peaches to rise.
D)  decrease in demand caused the price of peaches to rise.E) All of the above
F) B) and C)

Question 4

Assume a price floor is set above the equilibrium price. The result is a shortage.

Accepted Answer

A) True 
 B)False

Question 5

Exhibit 4-10 Supply and demand data for apricots
 In Exhibit 4-10, assume that the government initially sets a price floor of $4 for apricots, and then removes the $4 price floor. What effect will this price change have?

Accepted Answer

A)  The price of apricots will rise.
B)  The quantity of apricots demanded will fall.
C)  The quantity of apricots supplied will decline.
D)  Quantity supplied will continue to exceed quantity demanded.E) B) and C)
F) A) and B)

Question 6

Price floors typically improve market efficiency.

Accepted Answer

A) True 
 B)False

Question 7

It's easy for a private firm to provide a public good because of free riders.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is a property of a public good?

Accepted Answer

A)  A public good is free from externalities.
B)  Many individuals benefit simultaneously.
C)  A public good is not subject to free riders.
D)  A public good is established by law.E) B) and C)
F) C) and D)

Question 9

Nonsmoking sections in restaurants are designed to remove ____ from a market ____.

Accepted Answer

A)  smoke; with food service
B)  third parties; for food service
C)  externalities; with public goods
D)  third parties; externality
E)  nonsmokers; for food serviceF) B) and E)
G) C) and D)

Question 10

For a public good, only one user can consume the good.

Accepted Answer

A) True 
 B)False

Question 11

A decrease in demand leads to a (an) :

Accepted Answer

A)  increased equilibrium price and an increased equilibrium quantity.
B)  decreased equilibrium price and a decreased equilibrium quantity.
C)  decreased equilibrium price and an increased equilibrium quantity.
D)  increased equilibrium price and a decreased equilibrium quantity.E) B) and C)
F) A) and D)

Question 12

A price ceiling set below the equilibrium price creates a shortage.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following are not methods of dealing with externalities?

Accepted Answer

A)  Relying on voluntary compliance.
B)  Taxing the output of industries that pollute.
C)  Creating legal environmental standards.
D)  Increasing public spending on cleanup\reduction.E) All of the above
F) C) and D)

Question 14

When the consumption of a good generates an external benefit:

Accepted Answer

A)  the private benefit consumers receive from the good will be higher than the true social benefit.
B)  too much of the good will tend to be produced from the viewpoint of economic efficiency.
C)  the community generally suffers an exactly offsetting external cost from the production of the good.
D)  the market demand curve will understate the total benefits derived from consumption of the good, and as a result, too little of it will be produced and consumed.E) All of the above
F) C) and D)

Question 15

In the case of negative externalities in production, the firm's internal costs:

Accepted Answer

A)  exceed the external costs.
B)  are less than the external costs.
C)  equal the external costs.
D)  understate the true cost of producing the product.
E)  overstate the true cost of producing the product.F) A) and B)
G) B) and C)

Question 16

Which of the following is the most likely result of an increase in the minimum wage?

Accepted Answer

A)  An increase in the employment of unskilled workers.
B)  A decrease in the number of workers seeking minimum wage jobs.
C)  An increase in the demand for unskilled workers.
D)  A decrease in the employment of unskilled workers.E) All of the above
F) C) and D)

Question 17

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen?

Accepted Answer

A)  The quantity of milk demanded will increase.
B)  The quantity of milk supplied will decrease.
C)  There will be a surplus of milk.
D)  There will be a shortage of milk.E) C) and D)
F) B) and C)

Question 18

One method of correcting for ____ externalities is to create a ____ to make sure the market accounts for all costs and benefits.

Accepted Answer

A)  market failure; tax
B)  negative; tax
C)  positive; mechanism
D)  positive; tax
E)  negative; free marketF) A) and D)
G) A) and E)

Question 19

If the supply curve decreases while the demand curve remains unchanged, the equilibrium price would increase.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is not a solution to the problem of negative externalities due to pollution?

Accepted Answer

A)  Create private property rights.
B)  Levy pollution taxes.
C)  Create obligatory controls.
D)  Reward the production of these products through subsidies.
E)  Establish strict limits on the amount of pollution allowed.F) A) and E)
G) A) and D)

Exam 4: Markets in Action

Which of the following is a property of a public good?

Correct AnswerverifiedShow Answer

If each of us relied exclusively on the market to determine what to buy, we would probably end up with few, if any:

Correct AnswerverifiedShow Answer

A price floor that sets the price of a good above market equilibrium will cause:

Correct AnswerverifiedShow Answer

When the consumption of a good generates an external benefit:

Correct AnswerverifiedShow Answer

Exhibit 4-10 Supply and demand data for apricots In Exhibit 4-10, assume that the government initially sets a price floor of $4 for apricots, and then removes the $4 price floor. What effect will this price change have?

Correct AnswerverifiedShow Answer

For a public good, only one user can consume the good.

Correct AnswerverifiedShow Answer

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen?

Correct AnswerverifiedShow Answer

A hurricane destroyed the peach crop in South Carolina. Shortly thereafter the price of peaches rose significantly. These events suggest that a(n) :

Correct AnswerverifiedShow Answer

Nonsmoking sections in restaurants are designed to remove ____ from a market ____.

Correct AnswerverifiedShow Answer

A price ceiling set below the equilibrium price creates a shortage.

Correct AnswerverifiedShow Answer

It's easy for a private firm to provide a public good because of free riders.

Correct AnswerverifiedShow Answer

Which of the following is the most likely result of an increase in the minimum wage?

Correct AnswerverifiedShow Answer

Which of the following is not a solution to the problem of negative externalities due to pollution?

Correct AnswerverifiedShow Answer

One method of correcting for ____ externalities is to create a ____ to make sure the market accounts for all costs and benefits.

Correct AnswerverifiedShow Answer

Assume a price floor is set above the equilibrium price. The result is a shortage.

Correct AnswerverifiedShow Answer

Price floors typically improve market efficiency.

Correct AnswerverifiedShow Answer

If the supply curve decreases while the demand curve remains unchanged, the equilibrium price would increase.

Correct AnswerverifiedShow Answer

A decrease in demand leads to a (an) :

Correct AnswerverifiedShow Answer

In the case of negative externalities in production, the firm's internal costs:

Correct AnswerverifiedShow Answer

Which of the following are not methods of dealing with externalities?

Correct AnswerverifiedShow Answer

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Nonsmoking sections in restaurants are designed to remove from a market .

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One method of correcting for externalities is to create a to make sure the market accounts for all costs and benefits.

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