Deck 5: Markets in Action

Question 1

If the market supply decreases and, simultaneously, market demand increases, the new equilibrium will show:

A) market price will increase, decrease or remain the same and quantity exchanged will
Decrease.
B) market price will increase and market quantity exchanged will decrease.
C) market price will decrease and the quantity exchanged could increase, decrease or remain the same.
D) market price will increase and market quantity exchanged could increase, decrease or remain unchanged.

Answer 1

D

Question 2

If the price of fish rises, then the demand for chips will:

A) rise.
B) fall assuming that they are a complement to each other.
C) remain unchanged.
D) react unpredictably.

Answer 2

B

Question 3

Consider the market for grapes. An increase in the wage paid to grape pickers will cause the:

A) demand curve for grapes to shift to the right, resulting in a higher equilibrium price for grapes and a reduction in the quantity consumed.
B) demand curve for grapes to shift to the left, resulting in a lower equilibrium price for grapes and an increase in the quantity consumed.
C) supply curve for grapes to shift to the left, resulting in a lower equilibrium price for grapes and a decrease in the quantity consumed.
D) supply curve for grapes to shift to the left, resulting in a higher equilibrium price for grapes and a decrease in the quantity consumed.

Answer 3

D

Question 4

Ceteris paribus, an increase in the supply of a good causes which of the following?

A) It lowers the equilibrium price and reduces the quantity bought and sold.
B) It raises the equilibrium price and raises the quantity bought and sold.
C) It raises the equilibrium price and increases the quantity bought and sold.
D) It lowers the equilibrium price and increases the quantity bought and sold.
E) Equilibrium price and equilibrium quantity change are indeterminate.

Question 5

Which of the following statements is not true of a market?

A) An increase in demand, with no change in supply, will increase the equilibrium price and quantity.
B) An increase in supply, with no change in demand, will decrease the equilibrium price and the equilibrium quantity.
C) A decrease in supply, with no change in demand, will increase the equilibrium price and decrease the equilibrium quantity.
D) A decrease in demand, with no change in supply, will decrease the equilibrium price and quantity.

Question 6

Suppose a new legislation is introduced and car producers have to pay higher wages to their workers. What will be the effect on the car market?

A) Price will decrease and quantity will decrease.
B) Price will increase and quantity will increase.
C) Price will decrease and quantity will increase.
D) Price will increase and quantity will decrease.

Question 7

Narrbegin Exhibit 4.1 Supply and demand data
$$\begin{array} { | c | c | c | } \hline \text { Price (\$) } & \begin{array} { c } \text { Quantity } \\\text { demanded }\end{array} & \begin{array} { c } \text { Quantity } \\\text { supplied }\end{array} \\\hline 10 & 500 & 50 \\\hline 15 & 450 & 150 \\\hline 20 & 400 & 250 \\\hline 25 & 300 & 300 \\\hline 30 & 150 & 350 \\\hline\end{array}$$

-In Exhibit 4.1, suppose that a reduction in the price of an important input used to produce the good causes an increase in quantity supplied of 300 units at every price level. Assuming that demand does not change, the new equilibrium price will be:

A) $10.
B) $15.
C) $20.
D) $25.

Question 8

What are the effects of shifts in demand on market equilibrium?

A) Increase in demand will result in higher equilibrium price and lower equilibrium
Quantity.
B) Increase in demand will result in lower equilibrium price and lower equilibrium quantity.
C) Increase in demand will result, in general, in higher equilibrium price and higher equilibrium quantity.
D) Increase in demand will result in the same equilibrium price and equilibrium quantity.

Question 9

Which of the following would raise both the equilibrium price and the equilibrium quantity of strawberries?

A) A decrease in the demand for strawberries.
B) An increase in the demand for strawberries.
C) A decrease in the supply of strawberries.
D) An increase in the supply of strawberries.

Question 10

Consider the market for apples. Assuming that apples and oranges are substitutes, an increase in the price of oranges will:

A) decrease the demand for apples, creating a lower price and a smaller amount of apples purchased in the market.
B) increase the demand for apples, creating a higher price and a greater amount of apples purchased in the market.
C) decrease the supply of apples, creating a higher price and a smaller amount of apples purchased in the market.
D) increase the supply of apples, creating a lower price and a greater amount of apples purchased in the market.

Question 11

What are the effects of shifts in demand on market equilibrium?

A) Decrease in demand will result in higher equilibrium price and lower equilibrium
Quantity.
B) Decrease in demand will result, in general, in lower equilibrium price and lower equilibrium quantity.
C) Decrease in demand will result in higher equilibrium price and higher equilibrium
Quantity.
D) Decrease in demand will result in the same equilibrium price and equilibrium quantity.

Question 12

Which of the following would result in a temporary surplus of desk top computers at the price associated with the initial equilibrium?

A) A decrease in the price of desk top computers.
B) A decrease in the price of laptops.
C) An increase in the price of laptops.
D) No change.

Question 13

If consumers expect the price of sugar to increase next month, the quantity of sugar demanded will:

A) decline now.
B) increase now.
C) stay the same.
D) cannot be determined from the information provided.

Question 14

An increase in the price of plastic raises the cost of manufacturing DVRs. As a result, the market changes to a new equilibrium because of a(n):

A) surplus of DVRs.
B) increase in the demand for DVRs.
C) leftward shift in the demand curve for DVRs.
D) leftward shift in the supply curve for DVRs.

Question 15

If the demand increases but supply decreases, then:

A) these two effects cancel each other out and there is no change in the market equilibrium.
B) the price will increase and the quantity will depend on the magnitude of shifts of both demand and supply curves.
C) the price will increase and the quantity will decrease.
D) the price will increase and the quantity will increase.
E) the price will decrease and the quantity will depend on the magnitude of shifts.

Question 16

Demand for a normal good will increase at existing prices if:

A) there is a decrease in the population size.
B) there is an increase in income.
C) there is a decrease in wealth.
D) there is an increase in interest rates.

Question 17

A severe storm destroyed the banana plantations in northern Queensland. Shortly thereafter the price of bananas rose significantly. These events suggest that a/an:

A) decrease in the supply of bananas caused the price of bananas to rise.
B) increase in the supply of bananas caused the price of bananas to rise.
C) increase in demand caused the price of bananas to rise.
D) decrease in demand caused the price of bananas to rise.

Question 18

Suppose prices for new homes have risen, yet sales of new homes have also risen. We can conclude that:

A) the demand for new homes has risen.
B) the law of demand has been violated.
C) new firms have entered the construction industry.
D) construction firms must be facing higher costs.

Question 19

Narrbegin Exhibit 4.1 Supply and demand data
$$\begin{array} { | c | c | c | } \hline \text { Price (\$) } & \begin{array} { c } \text { Quantity } \\\text { demanded }\end{array} & \begin{array} { c } \text { Quantity } \\\text { supplied }\end{array} \\\hline 10 & 500 & 50 \\\hline 15 & 450 & 150 \\\hline 20 & 400 & 250 \\\hline 25 & 300 & 300 \\\hline 30 & 150 & 350 \\\hline\end{array}$$

-Exhibit 4.1 shows that at a price of $30:

A) the market is in equilibrium.
B) there will be excess quantity demanded.
C) there will be excess quantity supplied.
D) there is a price ceiling in effect.

Question 20

An increase in demand and a decrease in supply cause which of the following?

A) Equilibrium price change is indeterminate.
B) Equilibrium quantity decreases.
C) Equilibrium price falls.
D) Equilibrium price rises.

Question 21

Suppose the government sets a price ceiling. Which of the following will result?

A) The quantity supplied will be greater than quantity demanded.
B) There will be a shortage.
C) There will be a surplus.
D) The quantity supplied will be equal to quantity demanded.

Question 22

Narrbegin Exhibit 4.4 Demand and supply curves

-In Exhibit 4.4, a movement from A to B in which price has decreased and quantity has increased is best explained by a/an:

A) increase in supply and demand.
B) decrease in supply and demand.
C) increase in supply that dominates a decrease in demand.
D) increase in demand that dominates a decrease in supply.

Question 23

An explanation for the existence of black markets is:

A) a price ceiling below the equilibrium price.
B) a price ceiling above the equilibrium price.
C) a price floor above the equilibrium price.
D) a price floor below the equilibrium price.

Question 24

Narrbegin Exhibit 4.2 Supply and demand curves

-The market shown in Exhibit 4.2 is initially in equilibrium at E₃. Changes in market conditions result in a new equilibrium at E₄. This change is stated as a/an:

A) increase in demand and an increase in supply.
B) decrease in demand and a decrease in quantity supplied.
C) increase in quantity demanded and an increase in quantity supplied.
D) increase in supply and an increase in quantity demanded.

Question 25

There was an extensive black market (illegal market) for many consumer products in the United States during the Second World War. A likely explanation of the black market is that:

A) the prices of goods were artificially held down by price controls.
B) black markets were legal during the war.
C) goods were not subject to price controls.
D) gasoline rationing greatly restricted civilians from driving to stores.

Question 26

If the government prevents the market price from rising above $10, it can set a/an:

A) optimum price.
B) minimum price.
C) price ceiling.
D) price floor.

Question 27

Narrbegin Exhibit 4.2 Supply and demand curves

-In Exhibit 4.2, a decrease in quantity demanded would cause a move from which equilibrium point to another, other things being equal?

A) E₁ to E₂.
B) E₁ to E₃.
C) E₄ to E₁.
D) E₃ to E₄.

Question 28

Narrbegin Exhibit 4.4 Demand and supply curves

-In Exhibit 4.4, a movement from A to B is best explained by:

A) an increase in income and in the number of suppliers.
B) an increase in the price of complements and an increase in the price of inputs.
C) an increase in income and a decrease in the number of producers.
D) an increase in the number of suppliers and a decrease in the price of substitutes.

Question 29

One likely result of a price ceiling is that:

A) a surplus of product would result.
B) the price charged in the market would be above the equilibrium price.
C) the price charged in the market would be the equilibrium price.
D) the available product must be rationed.

Question 30

Price ceilings are imposed if the government:

A) believes that the market will not achieve an equilibrium price.
B) wants to provide 'essential service'.
C) wants to spend money.
D) wants producers to increase the supply.

Question 31

Price ceiling is:

A) any price above market equilibrium.
B) a price above market equilibrium set by the government.
C) a price below market equilibrium set by the government.
D) any price below market equilibrium.

Question 32

Narrbegin Exhibit 4.3 Demand and supply curves

-If the market demand and supply curves shift as given in Exhibit 4.3, the resulting new equilibrium will show a/an:

A) increase in market price and a decrease in the quantity exchanged.
B) decrease in market price and a decrease in the quantity exchanged.
C) increase in market price and an increase in the quantity exchanged.
D) decrease in market price and an increase in the quantity exchanged.

Question 33

If the equilibrium price of good X is $15 and a price ceiling is imposed at $14, the result will be:

A) an accumulation of inventories of unsold X.
B) difficult to determine.
C) a surplus.
D) a shortage.

Question 34

Narrbegin Exhibit 4.4 Demand and supply curves

-In Exhibit 4.4, a movement from A to B is best described as a/an:

A) increase in the quantity supplied and an increase in the demand.
B) increase in the quantity supplied and a decrease in demand.
C) decrease in the quantity supplied and an increase in demand.
D) decrease in the quantity demanded and a decrease in supply.

Question 35

A price floor is:

A) the lowest price a producer will accept.
B) the lowest price a consumer will pay.
C) a minimum price set by the government above equilibrium price.
D) a maximum price set by the government above equilibrium price

Question 36

If the government imposes a price ceiling above the market equilibrium price, then:

A) there will be excess supply.
B) there will be excess demand.
C) the market equilibrium price will prevail.
D) the price set by the government will prevail.

Question 37

Narrbegin Exhibit 4.2 Supply and demand curves

-In Exhibit 4.2, which of the following might cause a shift from S₁ to S₂?

A) An increase in the number of producers.
B) An improvement in technology.
C) A decrease in the number of producers.
D) An increase in consumer income.

Question 38

Narrbegin Exhibit 4.3 Demand and supply curves

-In Exhibit 4.3, the demand curve has shifted from D₁ to D₂ and, simultaneously, the supply curve has shifted from S₁ to S₂. Describe these actions in this market.

A) Market supply has decreased and market demand has increased.
B) Market supply has increased and market demand has decreased.
C) Market supply has decreased and market demand has decreased.
D) Market supply has increased and market demand has increased.

Question 39

Rent controls can result in:

A) increasing rents received by landlords.
B) rising property values.
C) encouraging landlords to overspend for maintenance.
D) lower quality of housing.

Question 40

If the government imposes a price ceiling, then:

A) producers must charge the ceiling price.
B) the price offered by producers must be at or above the ceiling price.
C) the price offered by producers must be at or below the ceiling price.
D) producers would be inclined to increase the quantity supplied.

Question 41

Price floors are used as a method to:

A) assure buyers that goods won't be cheaper tomorrow.
B) see that production levels don't fall too low.
C) guarantee there will be enough food for everyone.
D) assure sellers of a minimum price for their goods.

Question 42

The shortage because of the price ceiling might result in:

A) less waiting times.
B) more goods on offer.
C) lower quality of the good.
D) higher quality of the good.

Question 43

Suppose a price ceiling is set by the government below the market equilibrium price. Which of the following will result?

A) The demand curve will shift to the left.
B) The quantity demanded will exceed the quantity supplied.
C) The quantity supplied will exceed the quantity demanded.
D) There will be a surplus.

Question 44

Which of the following is not a market failure?

A) A lack of competition in some markets.
B) Prices determined in competitive markets, where an individual consumer has no control over price.
C) The presence of externalities in some markets.
D) A lack of public goods desired by a majority of citizens.

Question 45

Suppose the government sets a price floor of $10. It means that the government:

A) wants to prevent market price from rising above $10.
B) wants to prevent market price from falling below $10.
C) has no intentions to intervene in the market.
D) wants a market to determine the market price.

Question 46

If the government imposes a price ceiling below the market equilibrium price, then:

A) there will be no changes to the market equilibrium.
B) there will be excess supply.
C) there will be more goods to meet the additional demand.
D) there will be less goods to meet the demand.

Question 47

A vaccination shot provides a/an:

A) beneficial opportunity cost.
B) positive externality.
C) out-resourcing benefit.
D) managed-care opportunity benefit.

Question 48

Suppose that the equilibrium price is $20 and the government sets the price floor at $30. The result of this price floor is:

A) negligible.
B) equilibrium.
C) surplus.
D) shortage.

Question 49

If the equilibrium price of aspirins is $5.50 for 250 tablets and the government imposes a price ceiling at $5.00 for 250 tablets, the eventual result will be:

A) a shift in the demand curve to the right.
B) a shift in the supply curve to the right.
C) an accumulation of inventories of unsold aspirins.
D) a shortage of aspirin.

Question 50

Price floors are instituted because the government wants to:

A) help consumers to switch to the new product.
B) help people on low income.
C) raise tax revenue.
D) increase supply.

Question 51

A market consequence of the establishment of a price floor program is that the price will be:

A) too low and an excess supply will result.
B) too low and a shortage will result.
C) below the market equilibrium price.
D) too high and an excess supply will result.

Question 52

A market consequence of a price floor program is that:

A) a shortage of the product will develop.
B) producers will stop supplying the product.
C) some rationing device must then be instituted.
D) a surplus of the product will develop.

Question 53

Narrbegin Exhibit 4.5 Supply and demand data for cars
$$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Cars demanded } \\\text { per manth }\end{array} & \begin{array} { c } \text { Price per } \\\text { car (\$) }\end{array} & \begin{array} { c } \text { Cars supplied } \\\text { per manth }\end{array} \\\hline 50 & 50 \text { 000 } & \text { 80 } \\\hline 55 & 40 \text { 000 } & 75 \\\hline 60 & 30000 & 70 \\\hline 65 & 20000 & 65 \\\hline 70 & 10000 & 55 \\\hline\end{array}$$ Narrend

-In Exhibit 4.5, assume that the government sets a price ceiling of $10 000 for cars. What effect will this price change have?

A) The quality of cars will improve.
B) The quantity of cars demanded will fall.
C) A black market for cars is likely to develop.
D) The price of cars will rise.

Question 54

External benefits cause the market to:

A) under-allocate resources.
B) be more efficient.
C) set excessively high prices.
D) have persistent shortages.

Question 55

Assume that the production of a good imposes external costs upon third parties. If the price and quantity of this good is set by supply and demand, the price will be too:

A) high and quantity too low for efficient resource allocation.
B) low and quantity too low for efficient resource allocation.
C) low and quantity too high for efficient resource allocation.
D) high and quantity too high for efficient resource allocation.

Question 56

Economists argue that the minimum wage may result in:

A) more bargaining power for unskilled workers.
B) zero impact if the minimum wage is above the market-clearing price.
C) a shortage of workers.
D) a more equal income distribution and is worth the loss of some jobs.

Question 57

The shortage occurs because:

A) the quantity supplied is more than the quantity demanded at this price.
B) of the black market.
C) the quantity supplied is less than the quantity demanded at this price.
D) the price floor was set by the government.

Question 58

A minimum wage results in:

A) market equilibrium.
B) increased demand for workers.
C) unemployment if it is set above the market clearing wage.
D) a shortage of workers.

Question 59

Narrbegin Exhibit 4.5 Supply and demand data for cars
$$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Cars demanded } \\\text { per manth }\end{array} & \begin{array} { c } \text { Price per } \\\text { car (\$) }\end{array} & \begin{array} { c } \text { Cars supplied } \\\text { per manth }\end{array} \\\hline 50 & 50 \text { 000 } & \text { 80 } \\\hline 55 & 40 \text { 000 } & 75 \\\hline 60 & 30000 & 70 \\\hline 65 & 20000 & 65 \\\hline 70 & 10000 & 55 \\\hline\end{array}$$ Narrend

-In Exhibit 4.5, assume that the government initially sets a price floor of $30 000 for cars, and then removes this price floor. What effect will this price change have?

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

Question 60

Narrbegin Exhibit 4.5 Supply and demand data for cars
$$\begin{array} { | c | c | c | } \hline \begin{array} { c } \text { Cars demanded } \\\text { per manth }\end{array} & \begin{array} { c } \text { Price per } \\\text { car (\$) }\end{array} & \begin{array} { c } \text { Cars supplied } \\\text { per manth }\end{array} \\\hline 50 & 50 \text { 000 } & \text { 80 } \\\hline 55 & 40 \text { 000 } & 75 \\\hline 60 & 30000 & 70 \\\hline 65 & 20000 & 65 \\\hline 70 & 10000 & 55 \\\hline\end{array}$$ Narrend

-In Exhibit 4.5, the equilibrium price is:

A) $10 000.
B) $20 000.
C) $30 000.
D) $40 000.

Question 61

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

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.

Question 62

When there is a positive externality associated with the watering of one's lawn, the free market results in:

A) not enough lawn watering.
B) too much lawn watering.
C) the socially optimal level of lawn watering.
D) people watering each other's lawns.

Question 63

Albert, Betty, Christine and David are all very good students. When they hold their study sessions, they often discuss very difficult concepts in great detail. Christine's roommate, Elizabeth, who takes completely different classes, still learns from the discussions of the others. This is the case of a/an _____, which _____ a _____.

A) public good; benefits; third party
B) externality; imposes a cost on; free rider
C) market failure; results from; third party
D)
Externality; benefits; third party

Question 64

Cindy discovers that when she goes to the beach, she does not have to bring her radio. She can put her blanket near someone who has a radio and listen all day (without having to carry her radio, get sand in her speakers or buy new batteries). This is an example of:

A) private property abuse.
B) external costs.
C) a negative externality.
D) a positive externality.

Question 65

A free rider is a person who:

A) is harmed by another's actions.
B) is subject to a negative externality.
C) receives benefits from someone else's action but does not pay for them.
D) pays less than the full value for a product.

Question 66

Unintended costs that are imposed on third parties as a result of an economic activity are called:

A) marginal costs.
B) direct costs.
C) negative externalities.
D) positive externalities.

Question 67

When there are positive externalities associated with the consumption of a good, we can expect:

A) the private demand curve to lie above the social demand curve.
B) the private supply curve to lie below the social supply curve.
C) the private supply curve to lie above the social supply curve.
D) the private demand curve to lie below the social demand curve.

Question 68

The government would use production taxes to remedy the problem of substantial:

A) internal benefits of production.
B) external benefits of production.
C) external costs of production.
D) external benefits of consumption

Question 69

Pete throws leftover bread onto his front lawn because he enjoys watching the pigeons feeding. His neighbour, John, is not happy about the pigeons, since they leave a mess on his property. This is an example of:

A) a negative externality.
B) a public good.
C) privatisation.
D) third-party benefits.

Question 70

If it costs $2000 to pick up the litter along a highway, then the cost of the externality is:

A) $0.
B) more than $0 but less than $2000.
C) $2000.
D) more than $2000 but finite.

Question 71

Which of the following would be a social cost?

A) Price of a pack of cigarettes.
B) Cost of the hospitalisation due to smoking related illnesses.
C) Costs of new more efficient equipment to produce cigarettes.
D) Cost of electricity to produce cigarettes.

Question 72

When there is market failure due to a negative externality:

A) there are no ways of correcting it.
B) setting the price of the good equals to its marginal social cost will solve it.
C) the free market produces output at a too high price.
D) externalities have been taken into account.

Question 73

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

A) Create private property rights.
B) Levy pollution taxes.
C) Create obligatory controls.
D) Reward the production of the products through subsidies.

Question 74

An externality is:

A) always a benefit to the recipient.
B) always a detriment to the recipient.
C) an activity that occurs in a business which is unknown to management.
D) an unintended benefit or cost imposed on third parties as a result of economic activity.

Question 75

Which of the following is an example of a positive externality?

A) Planting flowers in your front yard.
B) Talking loudly when others are trying to study economics.
C) Accidentally pushing someone as you try to cross the street.
D) Littering on the street.

Question 76

Which of the following is not an example of an externality?

A) Drunk drivers raise everyone's auto insurance premiums.
B) The price of lumber increases as lumberjacks' wages increase.
C) The neighbour's beautiful front yard increases your home value.
D) Someone drives a car that emits thick black smoke.

Question 77

Which of the following would be a private cost to a cigarette smoker?

A) Cost to the employer of the higher health insurance premiums due to the hiring of a smoker.
B) Cost to the employer of the extra effort lost due to the increased missed days of work as a result of smoking.
C) Cost to the city of extra park clean up due to the presence of cigarette butts.
D) Price of a pack of cigarettes.

Question 78

The reason individual homeowners usually do not hire a private contractor to fill the potholes on their street is because:

A) it costs too much.
B) the value to the neighbourhood exceeds the cost of repair.
C) others who use the street will be free riders.
D) they do not trust the government.

Question 79

Much of the nation's coal is extracted by strip mining. This process leaves a huge barren hole in the ground when complete and the cost of replanting the trees is approximately $10 per ton of coal. Burning the coal for electricity causes air pollution. No one knows how much damage the air pollution causes, but we know that for another $10 per ton the power plant can be outfitted with a pollution-control device. What is one measure of the true social cost of coal-fired electricity, in dollars per ton?

A) Private marginal cost plus the $10 replanting charge.
B) Private marginal cost plus the $10 emission control charge.
C) Only the $20 of replanting and emission control charges, because the other costs are private, not social.
D) Private marginal cost plus the $20 of replanting and emission control charges.

Question 80

John paints the exterior of his house and, as a result, his neighbour Christine is able to sell her home for $5,000 more than she could have before. John's house-painting:

A) creates a negative externality for Christine.
B) shows John is a free rider.
C) results in an efficient market outcome for both.
D) creates a positive externality for Christine.