Question 1

A price ceiling established below the market clearing price will usually cause

Accepted Answer

A)  nonprice rationing. 
B)  an excess supply. 
C)  no change in the market clearing price. 
D)  a decrease in the market clearing price. 
A)  nonprice rationing. 
B)  an excess supply. 
C)  no change in the market clearing price. 
D)  a decrease in the market clearing price.

Question 2

Which of the following statements is FALSE?

Accepted Answer

A)  The rationing function of prices is not allowed to freely operate when the government imposes price controls. 
B)  Price controls may take the form of price ceilings or price floors. 
C)  Price ceilings below the equilibrium price can cause black markets to develop. 
D)  Rent controls are examples of price floors. 
A)  The rationing function of prices is not allowed to freely operate when the government imposes price controls. 
B)  Price controls may take the form of price ceilings or price floors. 
C)  Price ceilings below the equilibrium price can cause black markets to develop. 
D)  Rent controls are examples of price floors.

Question 3

In a market system, the costs associated with exchanging goods are known as

Accepted Answer

A)  voluntary costs. 
B)  signaling costs. 
C)  wholesale costs. 
D)  transaction costs. 
A)  voluntary costs. 
B)  signaling costs. 
C)  wholesale costs. 
D)  transaction costs.

Question 4

Government imposed price controls often lead to

Accepted Answer

A)  illegal trades of the good. 
B)  the most efficient use of resources. 
C)  the equilibrium solution in terms of price and quantity. 
D)  maximization of profits. 
A)  illegal trades of the good. 
B)  the most efficient use of resources. 
C)  the equilibrium solution in terms of price and quantity. 
D)  maximization of profits.

Question 5

Suppose new research shows that soy milk and other products derived from soybeans provide more health benefits than previously thought. At the same time, drought conditions result in extensive damage to the soybean crop. What will be the combined impact of these two factors on the equilibrium price and quantity of soybeans?

Accepted Answer

A)  Price will decrease, but the effect on quantity is indeterminate. 
B)  Price will increase, but the effect on quantity is indeterminate. 
C)  Quantity will decrease, but the effect on price is indeterminate. 
D)  Quantity will increase, but the effect on price is indeterminate. 
A)  Price will decrease, but the effect on quantity is indeterminate. 
B)  Price will increase, but the effect on quantity is indeterminate. 
C)  Quantity will decrease, but the effect on price is indeterminate. 
D)  Quantity will increase, but the effect on price is indeterminate.

Question 6

Which of the following is a possible outcome of setting a legal maximum rental rate below the market clearing rental rate?

Accepted Answer

A)  an increase in the quantity of rental housing supplied 
B)  a decrease in the quantity of rental housing demanded 
C)  a black market in rental housing 
D)  a surplus of rental housing 
A)  an increase in the quantity of rental housing supplied 
B)  a decrease in the quantity of rental housing demanded 
C)  a black market in rental housing 
D)  a surplus of rental housing

Question 7

To enhance their prestige, some country clubs like to point to the fact that they have a waiting list for new members. Even at clubs with high initiation fees, it is common that prospective members have to wait three or more years before there is room for them on the membership rolls. How do these country clubs set the price of membership to ensure that they have a waiting list?

Accepted Answer

A)  Set the membership price above the market clearing price. 
B)  Set the membership price below the market clearing price. 
C)  Set the price so that the quantity supplied of memberships exceeds the quantity demanded. 
D)  Set the price at a level that will generate a surplus of memberships. 
A)  Set the membership price above the market clearing price. 
B)  Set the membership price below the market clearing price. 
C)  Set the price so that the quantity supplied of memberships exceeds the quantity demanded. 
D)  Set the price at a level that will generate a surplus of memberships.

Question 8

Total consumer surplus in a market is measured as the

Accepted Answer

A)  area bounded above the market clearing price and beneath the market demand curve. 
B)  area bounded below the market clearing price and above the market supply curve. 
C)  vertical distance from the horizontal (quantity) axis to the market clearing price. 
D)  horizontal distance from the vertical (price) axis to the equilibrium quantity. 
A)  area bounded above the market clearing price and beneath the market demand curve. 
B)  area bounded below the market clearing price and above the market supply curve. 
C)  vertical distance from the horizontal (quantity) axis to the market clearing price. 
D)  horizontal distance from the vertical (price) axis to the equilibrium quantity.

Question 9

Which of the following is a price floor?

Accepted Answer

A)  rent controls 
B)  minimum wage rates 
C)  a freeze on upward-moving gasoline prices 
D)  college tuition caps 
A)  rent controls 
B)  minimum wage rates 
C)  a freeze on upward-moving gasoline prices 
D)  college tuition caps

Question 10

If demand and supply both decrease,

Accepted Answer

A)  the equilibrium quantity definitely will decrease, and the market clearing price definitely will decrease. 
B)  the equilibrium quantity definitely will decrease, and the market clearing price definitely will increase. 
C)  the market clearing price definitely will decrease, but the change in the equilibrium quantity cannot be determined without more information. 
D)  the equilibrium quantity definitely will decrease, but the change in market clearing price cannot be determined without more information. 
A)  the equilibrium quantity definitely will decrease, and the market clearing price definitely will decrease. 
B)  the equilibrium quantity definitely will decrease, and the market clearing price definitely will increase. 
C)  the market clearing price definitely will decrease, but the change in the equilibrium quantity cannot be determined without more information. 
D)  the equilibrium quantity definitely will decrease, but the change in market clearing price cannot be determined without more information.

Question 11

Which rationing system leads to the most efficient use of available resources?

Accepted Answer

A)  free market 
B)  physical force 
C)  first come, first served 
D)  random assignment 
A)  free market 
B)  physical force 
C)  first come, first served 
D)  random assignment

Question 12

The difference between quantity restrictions and price ceilings as to their effect on the market is that

Accepted Answer

A)  only price ceilings make the market inefficient. 
B)  only quantity restrictions make the market inefficient. 
C)  while some consumers gain from price ceilings, no consumers gain from quantity restrictions. 
D)  while price ceilings are efficient, quantity restrictions are not. 
A)  only price ceilings make the market inefficient. 
B)  only quantity restrictions make the market inefficient. 
C)  while some consumers gain from price ceilings, no consumers gain from quantity restrictions. 
D)  while price ceilings are efficient, quantity restrictions are not.

Question 13

The price of a good always changes when

Accepted Answer

A)  either a shortage or a surplus occurs. 
B)  quantity demanded and quantity supplied are constant. 
C)  there is an increase in demand and an increase in supply. 
D)  there is a decrease in demand and a decrease in supply. 
A)  either a shortage or a surplus occurs. 
B)  quantity demanded and quantity supplied are constant. 
C)  there is an increase in demand and an increase in supply. 
D)  there is a decrease in demand and a decrease in supply.

Question 14

When supply and demand for a product increase simultaneously, we

Accepted Answer

A)  can predict that both the market clearing price and the equilibrium quantity will increase. 
B)  can predict that both the market clearing price and the equilibrium quantity will decrease. 
C)  cannot predict the market clearing price, but know that the equilibrium quantity will increase. 
D)  cannot predict the change in either the equilibrium quantity or the market clearing price. 
A)  can predict that both the market clearing price and the equilibrium quantity will increase. 
B)  can predict that both the market clearing price and the equilibrium quantity will decrease. 
C)  cannot predict the market clearing price, but know that the equilibrium quantity will increase. 
D)  cannot predict the change in either the equilibrium quantity or the market clearing price.

Question 15

-Refer to the above table. Suppose there are technological advances in the production of smartphones. The new equilibrium price will be

Accepted Answer

A)  $275. 
B)  $375. 
C)  less than $275. 
D)  between $275 and $375. 
A)  $275. 
B)  $375. 
C)  less than $275. 
D)  between $275 and $375.

Question 16

Which of the following would likely result as a consequence of rent controls?

Accepted Answer

A)  a reduction in the rate of construction of rental housing units 
B)  unimproved buildings and apartment complexes 
C)  limits on tenant mobility 
D)  All of the above are correct. 
A)  a reduction in the rate of construction of rental housing units 
B)  unimproved buildings and apartment complexes 
C)  limits on tenant mobility 
D)  All of the above are correct.

Question 17

In which of the following situations will market clearing price increase and the equilibrium quantity decrease?

Accepted Answer

A)  an increase in demand with no change in supply 
B)  an increase in supply with no change in demand 
C)  a decrease in supply with no change in demand 
D)  a decrease in demand with no change in supply 
A)  an increase in demand with no change in supply 
B)  an increase in supply with no change in demand 
C)  a decrease in supply with no change in demand 
D)  a decrease in demand with no change in supply

Question 18

Who ultimately benefits from price supports in agriculture?

Accepted Answer

A)  consumers 
B)  grocery store owners 
C)  farmers 
D)  exporters 
A)  consumers 
B)  grocery store owners 
C)  farmers 
D)  exporters

Question 19

When the government sets a price floor which is below the equilibrium price

Accepted Answer

A)  a surplus will develop. 
B)  a shortage will develop. 
C)  the equilibrium price will be maintained. 
D)  a price ceiling will follow. 
A)  a surplus will develop. 
B)  a shortage will develop. 
C)  the equilibrium price will be maintained. 
D)  a price ceiling will follow.

Question 20

Other things being equal, suppose that the demand for wheat in constant quality units increases. The increase in demand will cause

Accepted Answer

A)  a surplus of wheat. 
B)  a higher equilibrium price and higher equilibrium quantity of wheat. 
C)  fall in the market clearing price of corn, a substitute for wheat. 
D)  a higher equilibrium quantity, but a lower equilibrium price of wheat. 
A)  a surplus of wheat. 
B)  a higher equilibrium price and higher equilibrium quantity of wheat. 
C)  fall in the market clearing price of corn, a substitute for wheat. 
D)  a higher equilibrium quantity, but a lower equilibrium price of wheat.

Exam 4: Extensions of Demand and Supply Analysis

A price ceiling established below the market clearing price will usually cause

Which of the following statements is FALSE?

In a market system, the costs associated with exchanging goods are known as

Government imposed price controls often lead to

Which of the following is a possible outcome of setting a legal maximum rental rate below the market clearing rental rate?

Total consumer surplus in a market is measured as the

Which of the following is a price floor?

If demand and supply both decrease,

Which rationing system leads to the most efficient use of available resources?

The difference between quantity restrictions and price ceilings as to their effect on the market is that

The price of a good always changes when

When supply and demand for a product increase simultaneously, we

-Refer to the above table. Suppose there are technological advances in the production of smartphones. The new equilibrium price will be

Which of the following would likely result as a consequence of rent controls?

In which of the following situations will market clearing price increase and the equilibrium quantity decrease?

Who ultimately benefits from price supports in agriculture?

When the government sets a price floor which is below the equilibrium price

Other things being equal, suppose that the demand for wheat in constant quality units increases. The increase in demand will cause

The Nature of Economics

Scarcity and the World of Trade-Offs

Demand and Supply

Public Spending and Public Choice

Funding the Public Sector

The Macroeconomy: Unemployment, Inflation, and Deflation

Measuring the Economys Performance

Global Economic Growth and Development

Real GDP and the Price Level in the Long Run

Classical and Keynesian Macro Analyses

Consumption, Real GDP, and the Multiplier

Fiscal Policy

Deficit Spending and the Public Debt

Money, Banking, and Central Banking

Domestic and International Dimensions of Monetary Policy

Stabilization in an Integrated World Economy

Policies and Prospects for Global Economic Growth

Demand and Supply Elasticity

Consumer Choice

Rents, Profits, and the Financial Environment of Business

The Firm: Cost and Output Determination

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Regulation and Antitrust Policy in a Globalized Economy

The Labor Market: Demand, Supply and Outsourcing

Unions and Labor Market Monopoly Power

Income, Poverty, and Health Care

Environmental Economics

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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