Deck 5: Markets in Motion and Price Controls

Question 1

A binding price ceiling causes quantity demanded to be less than quantity supplied.

Answer 1

False

Question 2

A price ceiling set below the equilibrium price is binding.

Answer 2

True

Question 3

An increase in the expected future price of a good may act to increase the present price of the good.

Answer 3

True

Question 4

When a demand curve shifts,both the equilibrium price and quantity traded will change in the same direction as a result.

Question 5

Price ceilings cause surpluses.

Question 6

If a price ceiling is set above the equilibrium price it is not binding.

Question 7

To be binding,a price ceiling must be set above the equilibrium price.

Question 8

When a supply curve shifts,the equilibrium price will change in the opposite direction from the shift in supply and the quantity traded will change in the same direction as the shift in supply.

Question 9

If the demand for apples increases at the same time the supply of apples falls,the price of apples will tend to fall.

Question 10

An increase in the equilibrium price and the equilibrium quantity would be caused by an increase in supply.

Question 11

A price ceiling set below the equilibrium price is nonbinding.

Question 12

The main purpose of government price controls is to keep prices from rising above their equilibrium levels.

Question 13

Either a price floor or a price ceiling above the equilibrium price would cause a surplus.

Question 14

Either a price floor or a price ceiling will result in a smaller quantity exchanged than if the price was at its equilibrium level.

Question 15

If a price ceiling is not binding,then it will have no effect on the market.

Question 16

If there is a ceiling price below the equilibrium level,a decrease in demand will worsen the shortage.

Question 17

An increase in both the equilibrium price and the equilibrium quantity of a good could not have been caused by a shift in supply alone.

Question 18

When both supply and demand shift in the same direction,the change in the equilibrium quantity traded will be in the same direction as the shifting curves.

Question 19

One common example of a price ceiling is rent control.

Question 20

Price floors get their name from the fact that they represent a minimum price below which the legal price cannot fall.

Question 21

Assume that coffee and tea are substitutes for each other.If weather conditions cause a substantial portion of the available coffee crop to be destroyed,then most probably:

A) the price of tea will decrease.
B) the price of coffee will decrease.
C) the price of tea will increase
D) none of the above

Question 22

If both buyers and sellers of a good expect its price to fall in the near future,we would expect that to cause the current price and the quantity traded to increase as a result.

Question 23

A more efficient means of processing tree bark to produce an anticancer drug is discovered.As a result,the supply curve for the drug will:

A) shift to the right, increasing the price of the drug.
B) shift to the left, increasing the price of the drug.
C) shift to the right, decreasing the price of the drug.
D) shift to the left, decreasing the price of the drug.

Question 24

A price floor set above the equilibrium price is binding.

Question 25

A price ceiling set below the equilibrium price causes a shortage in the market.

Question 26

If a price ceiling of $4.00 per gallon is imposed on gasoline,and the market equilibrium price is $4.50,then the price ceiling is a binding constraint on the market.

Question 27

A binding price ceiling causes a shortage in the market.

Question 28

For the price in a market to remain the same,while the quantity traded fell,both supply and demand would have to shift to the left.

Question 29

A binding price ceiling causes a shortage in the market.

Question 30

A price floor is a legal minimum on the price at which a good or service can be sold.

Question 31

If a price ceiling of $5 per gallon is imposed on gasoline,and the market equilibrium price is $4.50,then the price ceiling is a binding constraint on the market.

Question 32

To be binding,a price floor must be set above the equilibrium price.

Question 33

When supply shifts to the left,it would make the surplus from a price floor smaller,other things equal.

Question 34

A price ceiling set above the equilibrium price causes a surplus in the market.

Question 35

Suppose the United States steps up efforts to combat drug trafficking and,with the aid of the Colombian military,destroys a significant percentage of cocaine crops.Predict the impact of increased drug interdiction on the market for cocaine in Los Angeles.

A) The supply of cocaine will increase causing the price of cocaine to increase.
B) The demand for cocaine will increase causing the price of cocaine to increase.
C) The supply of cocaine will decrease causing the price of cocaine to increase.
D) There will be a movement up along the supply curve of cocaine.

Question 36

If a price floor is not binding,then it will have no effect on the market.

Question 37

A price floor set above the equilibrium price is not binding.

Question 38

Ceteris paribus,if negotiations lead to lower wages for airline employees,what will be the result in the market for air travel?

A) an increase in equilibrium price and an increase in equilibrium quantity
B) an increase in equilibrium price and a decrease in equilibrium quantity
C) a decrease in equilibrium price and an increase in equilibrium quantity
D) a decrease in equilibrium price and a decrease in equilibrium quantity

Question 39

You notice that the price of orange juice at your local grocery store has increased.Which of the following statements is not a possible explanation for the rise in the price of orange juice?

A) Frosty weather destroys oranges causing the price of oranges to increase.
B) As a result of an increase in income, consumers wish to purchase more orange juice at every price level.
C) A recent scientific study is reported in the press that suggests that apple juice may be contaminated with pesticides.
D) Due to the bioengineering of orange trees, the domestic supply of oranges increases.

Question 40

For a normal good,if incomes rise,we would expect that the equilibrium price will increase and that the equilibrium quantity will increase.

Question 41

Exhibit 5-1 The diagram below represents the market for butter. Refer to Exhibit 5-1.If a price floor of $4 is imposed,____ units of butter will be sold.

A) 7,000
B) 5,000
C) 4,000
D) 3,000

Question 42

Exhibit 5-2 Refer to Exhibit 5-2.A movement from S₁ to S₂ could occur if:

A) there is an increase in the price of submarine sandwiches.
B) there is an increase in the price of potato chips, a complement to submarine sandwiches.
C) there is a reduction in the price of sliced beef used to make submarine sandwiches.
D) there is an increase in the price of wheat bread used to make submarine sandwiches.

Question 43

A simultaneous increase in demand and decrease in supply would lead to:

A) increase in the equilibrium price and a decrease in the quantity sold.
B) increase in both the equilibrium price and the quantity sold.
C) decrease in both the equilibrium price and the quantity sold.
D) uncertain effect on the equilibrium quantity but an increase in the equilibrium price.

Question 44

Coca-Cola bottlers increased their prices as the price of sugar (an important ingredient in producing Coke)rose sharply in the late 1980s.Under these circumstances,the increase in the price of Coke occurs as a result of a(n):

A) decrease in supply.
B) decrease in demand.
C) increase in supply.
D) increase in demand.

Question 45

Which of the following would most likely increase the price of chicken,a normal good?

A) a reduction in the price of grains used to produce chicken feed
B) a reduction in the price of beef, a substitute for chicken
C) unusually hot weather that kills millions of chickens before they are ready for market
D) a decrease in consumer income

Question 46

A more efficient process for refining oil into gasoline is developed.As a result,the market price of gasoline:

A) and the quantity of gasoline purchased both increase.
B) increases and the quantity of gasoline purchased falls.
C) decreases and the quantity of gasoline purchased rises.
D) decreases and the demand curve for gasoline shifts to the right.

Question 47

If the price of ice cream increases substantially (ceteris paribus),the equilibrium quantity of hot fudge sauce,a complement,is likely to:

A) increase, and the equilibrium price is likely to decrease.
B) increase, and the equilibrium price is likely to increase.
C) decrease, and the equilibrium price is likely to decrease.
D) decrease, and the equilibrium price is likely to increase.

Question 48

In 1975 a pocket calculator cost more than $50; in 1990 a calculator of the same quality cost less than $10.Which of the following explanations is most consistent with these facts?

A) Intense competition in the calculator industry caused the supply curve for calculators to shift to the left, depressing the price.
B) An increase in the demand for calculators led to the price drop.
C) An improvement in technology caused the supply of calculators to increase, depressing their price.
D) As the population grew, fewer expensive calculators were needed, causing prices to fall.

Question 49

A safety report is released that contends that sport utility vehicles are prone to roll over during crashes.At the same time,the price of steel (used to produce motor vehicles)increases.The net effect of these two incidents on the market for sport utility vehicles is a(n):

A) decrease in price and an increase in equilibrium quantity.
B) decrease in price and a decrease in equilibrium quantity.
C) increase in price and a decrease in equilibrium quantity.
D) indeterminate change in price and a decrease in equilibrium quantity.

Question 50

Exhibit 5-2 Refer to Exhibit 5-2.The movement from ____ is consistent with an increase in supply.

A) Point B to Point D
B) Point D to Point B
C) Point D to Point C
D) Point C to Point D

Question 51

Exhibit 5-1 The diagram below represents the market for butter. Refer to Exhibit 5-1.If a price ceiling of $2 is imposed,____ units of butter will be sold.

A) 8,000
B) 5,000
C) 4,000
D) 3,000

Question 52

A major grocery store chain switches from bagging groceries in paper sacks to bagging them in plastic bags.The grocery chain demands more plastic bags than are available at the current market price.As a result:

A) the market price for paper sacks is likely to increase.
B) the market price for plastic bags is likely to increase.
C) the quantity of paper sacks is likely to increase.
D) none of the above

Question 53

Ceteris paribus,the fear among travelers created by the 9-11 attacks would have what impact on the market for air travel?

A) an increase in equilibrium price and an increase in equilibrium quantity.
B) an increase in equilibrium price and a decrease in equilibrium quantity.
C) a decrease in equilibrium price and an increase in equilibrium quantity.
D) a decrease in equilibrium price and a decrease in equilibrium quantity.

Question 54

Exhibit 5-2 Refer to Exhibit 5-2.A movement from D₁ to D₂ could occur if:

A) there is a decrease in the income of consumers and submarine sandwiches are inferior goods.
B) there is an increase in the income of consumers and submarine sandwiches are inferior goods.
C) the wages of submarine sandwich makers decrease.
D) the price of bread, used to make submarine sandwiches, increases.

Question 55

Exhibit 5-2 Refer to Exhibit 5-2.The movement from ____ is consistent with a decrease in demand.

A) Point B to Point D
B) Point D to Point B
C) Point D to Point C
D) Point C to Point D

Question 56

In an effort to reduce the surplus of dairy products,agricultural legislation paid dairy farmers to slaughter their herds and sell them to packinghouses (meat producers)in 1996-1997.How did this influence the market for beef?

A) demand increased, leading to higher beef prices
B) demand decreased, leading to lower beef prices
C) supply increased, leading to lower beef prices
D) supply decreased, leading to higher beef prices

Question 57

Exhibit 5-3 Use the following information about demand and supply schedules to answer the question.
Refer to Exhibit 5-3.If D₁ and S₁ represent the demand and supply schedules in a particular market,the equilibrium price and quantity are ____ and ____,respectively.

A) $8; 15
B) $6; 13
C) $4; 16
D) $4; 11

Question 58

Cold weather in the Midwestern and eastern United States increases the popularity of vacations in sunny California.At the same time,the hotel employees' union in California negotiates a significant pay increase for its members.The likely impact on the hotel market in California is:

A) an increase in the price of hotel rooms and an increase in hotel room rentals.
B) an increase in the price of hotel rooms and a decrease in hotel room rentals.
C) an uncertain effect on the price of hotel rooms, but an increase in the quantity of hotel rooms rented.
D) an increase in the price of hotel rooms, but an uncertain effect on the quantity of hotel rooms rented.

Question 59

Exhibit 5-1 The diagram below represents the market for butter. Refer to Exhibit 5-1.If a price ceiling of $4 is imposed,we would expect that ____ units of butter will be sold.

A) 7,000
B) 5,000
C) 4,000
D) 3,000

Question 60

Exhibit 5-2 Refer to Exhibit 5-2.A movement from S₁ to S₃ could occur if:

A) there is a decrease in the price of submarine sandwiches.
B) there is an increase in price of ingredients such tomatoes and pickles
C) there is a decrease in price of hamburgers, a substitute to submarine sandwiches
D) the price of bread used to make submarine sandwiches decreases

Question 61

Pork from pigs can be used to produce bacon or sausage,but not both.If the price of bacon rises for some reason,then,everything else equal:

A) the price of sausage will rise.
B) the price of sausage will fall.
C) the resources used to raise pigs will become less expensive.
D) the demand for bacon will decrease.

Question 62

The graph below most likely depicts a(n):

A) supply increase.
B) supply decrease.
C) decrease in demand.
D) increase in demand.

Question 63

Exhibit 5-3 Use the following information about demand and supply schedules to answer the question.
Refer to Exhibit 5-3.If D₂ and S₂ represent the demand and supply schedules in a particular market,the equilibrium price and quantity are ____ and ____,respectively.

A) $12; 12
B) $10; 12
C) $8; 15
D) $6; 18

Question 64

Exhibit 5-3 Use the following information about demand and supply schedules to answer the question.
Refer to Exhibit 5-3.If D₂ and S₁ represent the demand and supply schedules in a particular market,the equilibrium price and quantity are ____ and ____,respectively.

A) $12; 10
B) $12; 9
C) $10; 17
D) $8; 15

Question 65

The invention of machinery that can double the amount of gold extracted from raw ore will likely:

A) raise the world price of gold to pay for the new machinery.
B) lower the world price of gold because any given amount can now be produced more cheaply.
C) raise the world price of gold because miners' wages must double as their productivity doubles.
D) lower the world price of gold only if new mining companies are not allowed to enter the industry.

Question 66

Which of the following could be responsible for an increase in the price of wheat?

A) an increase in the supply of wheat
B) an increase in the demand for wheat
C) a decrease in the demand for wheat
D) a simultaneous increase in supply and decrease in demand for wheat

Question 67

Exhibit 5-3 Use the following information about demand and supply schedules to answer the question.
Refer to Exhibit 5-3.Suppose that D₁ and S₂ are the demand and supply schedules for Product A.If the government imposes a price floor of $6:

A) a shortage of 5 units results.
B) a surplus of 5 units results.
C) a shortage of 10 units results.
D) the floor will have no impact on the quantity of Product A traded.

Question 68

Exhibit 5-3 Use the following information about demand and supply schedules to answer the question.
Refer to Exhibit 5-3.Suppose that D₁ and S₂ are the demand and supply schedules for Product A.If the government imposes a price ceiling of $10:

A) a shortage of 4 units will result.
B) a surplus of 4 units will result.
C) a surplus of 10 units will result.
D) the ceiling will have no impact on the quantity of Product A traded.

Question 69

In January,2,500 quarts of ice cream are sold in Boston at $2 per quart.In February,3,000 quarts are sold at $2.50 a quart.This change in the price and quantity sold of ice cream may have been caused by:

A) a reduction in wages in the Boston area.
B) the introduction of labor-saving, automated ice cream packing machinery.
C) the release of a medical study showing that ice cream consumption improves mental health.
D) the decision by Boston ice cream sellers to eliminate discount coupons.

Question 70

Nick is delighted to see that the price of his favorite food,black olives,has fallen.Which of the following could be responsible?

A) an increase in the demand for black olives
B) a decrease in the supply of black olives
C) a simultaneous increase in demand and decrease in supply of black olives
D) a simultaneous decrease in demand and increase in supply of black olives

Question 71

When the demand and supply of grapes both increase at the same time,we can safely predict that the:

A) price of grapes will fall.
B) price of grapes will rise.
C) quantity of grapes bought and sold will fall.
D) quantity of grapes bought and sold will rise.

Question 72

Exhibit 5-3 Use the following information about demand and supply schedules to answer the question.
Refer to Exhibit 5-3.Suppose that D₁ and S₂ are the demand and supply schedules for Product A.If the government imposes a price ceiling of $6:

A) producers will be unable to sell all the units that they desire to at that price.
B) consumers will be able to purchase as many units as desired at that price.
C) equilibrium will be achieved.
D) only 8 units of output will be traded.

Question 73

A shift in the supply curve of bicycles resulting from higher steel prices will lead to:

A) higher prices of bicycles.
B) lower prices of bicycles.
C) a shift in the demand curve for bicycles.
D) a larger output of bicycles.

Question 74

Medical authorities announced in the late 1980s that an acne medicine named Retin-A also had previously unknown wrinkle-reducing properties.An economist would expect to find that,after this announcement,the price of Retin-A ____ and the quantity sold ____.

A) rose; fell
B) rose; rose
C) fell; fell
D) fell; rose

Question 75

Exhibit 5-3 Use the following information about demand and supply schedules to answer the question.
ARefer to Exhibit 5-3.Suppose that D₁ and S₂ are the demand and supply schedules for Product A.If the government imposes a price ceiling of $4:

A) a 5 unit shortage will result.
B) a 5 unit surplus will result.
C) a 10 unit surplus will result.
D) a 10 unit shortage will result.

Question 76

Which of the following is an example of an unintended consequence?

A) first time tax credits that cause more home sales
B) a price ceiling on gasoline that causes a gas shortage
C) increased parking fines that lead to fewer violators
D) all of the above

Question 77

Exhibit 5-3 Use the following information about demand and supply schedules to answer the question.
Refer to Exhibit 5-3.Suppose that D₂ and S₁ are the prevailing demand and supply curves for a product.If the supply schedule changes from S₁ to S₂,then:

A) equilibrium price decreases from $10 to $8.
B) equilibrium quantity decreases from 15 to 12.
C) equilibrium quantity increases from 10 to 12.
D) equilibrium price increases from $10 to $12.

Question 78

Exhibit 5-3 Use the following information about demand and supply schedules to answer the question.
Refer to Exhibit 5-3.Suppose that D₁ and S₁ are the prevailing demand and supply curves for a product.If the demand schedule changes from D₁ to D₂,then:

A) equilibrium price decreases from $6 to $4.
B) equilibrium quantity decreases from 15 to 13.
C) equilibrium quantity increases from 13 to 18.
D) equilibrium price increases from $6 to $8.

Question 79

Which of the following is an example of an unintended consequence?

A) government sponsored ad campaigns that lead to an increase in vaccinations
B) rent controls that lead to a decline in the quality of rental properties
C) higher property taxes that allow for better public schools
D) increased airport security measures that result in safer travel

Question 80

Exhibit 5-3 Use the following information about demand and supply schedules to answer the question.
Refer to Exhibit 5-3.Suppose that D₂ and S₁ are the prevailing demand and supply curves for a product.If the demand schedule changes from D₂ to D₁,then:

A) equilibrium price decreases from $6 to $4.
B) equilibrium quantity decreases from 15 to 13.
C) equilibrium quantity increases from 13 to 18.
D) equilibrium price increases from $6 to $8.