Deck 4: Demand and Supply Applications

Question 1

In a "black market,"

A) suppliers take advantage of buyers.
B) price is illegally below market price.
C) illegal trading at market prices takes place.
D) only illegal goods and services are traded.

Answer 1

C

Question 2

In the short run, it is necessary to non-price ration a good whenever ________ exists.

A) excess demand
B) excess supply
C) a surplus
D) market equilibrium

Answer 2

A

Question 3

If the equilibrium price of gasoline is $4.00 per gallon and the government will not allow oil companies to charge more than $3.00 per gallon of gasoline, which of the following will happen?

A) Demand must eventually decrease so that the market will come into equilibrium at a price of $3.00.
B) Supply must eventually increase so that the market will come into equilibrium at a price of $3.00.
C) A nonprice rationing system such as ration coupons must be used to ration the available supply of gasoline.
D) The market will be in equilibrium at a price of $3.00.

Answer 3

C

Question 4

Among the methods of nonprice rationing are

A) coupons.
B) favored customers.
C) waiting in line.
D) all of the above

Question 5

The price system

A) automatically distributes scarce goods.
B) is inefficient.
C) requires government help to allocate goods.
D) is the only way to allocate goods.

Question 6

Refer to the information provided in Figure 4.1 below to answer the questions that follow. Figure 4.1
Refer to Figure 4.1. If the United States levies no taxes on apples, the price of apples in the United States would fall to ________, and the United States would import ________.

A) 20 cents per apple; 10 million apples per day
B) 30 cents per apple; 6 million apples per day
C) 40 cents per apple; 2 million apples per day
D) The price of apples in the United States after the U.S. government eliminated all taxes on imported apples cannot be determined from this information.

Question 7

An example of an ineffective price ceiling would be the government setting the price of wheat at ________ per bushel when the market price is at $5.00 per bushel.

A) $2.25
B) $3.00
C) $4.75
D) $6.00

Question 8

People scalping tickets for a jazz festival will be successful at selling the tickets for a profit

A) any time the jazz festival is popular.
B) when the price set by the festival organizers is less than the market equilibrium price.
C) when prices are too high.
D) only when there is excess supply.

Question 9

Refer to the information provided in Figure 4.1 below to answer the questions that follow. Figure 4.1
Refer to Figure 4.1. If a 10-cent-per-apple tax is levied on imported apples, the United States will

A) import 2 million apples per day.
B) import 4 million apples per day.
C) import 6 million apples per day.
D) import 8 million apples per day.

Question 10

Refer to the information provided in Figure 4.1 below to answer the questions that follow. Figure 4.1
Refer to Figure 4.1. Assume that initially there is free trade. If the United States then imposes a 10-cent tax per apple,

A) the quantity of apples demanded will be reduced by 4 million apples per day.
B) the quantity of apples supplied by U.S. firms will increase by 6 million apples per day.
C) the price of apples in the United States will increase to 40 cents per apple.
D) U.S. imports of apples will increase by 6 million per day.

Question 11

People scalping tickets for the Super Bowl will be successful at selling the tickets for a profit

A) any time the Super Bowl is popular.
B) when prices are too high.
C) when the price set by the National Football League is less than the market equilibrium price.
D) only when there is excess supply.

Question 12

When supply is fixed or the product is unique, then price is

A) supply determined.
B) demand determined.
C) government determined.
D) indeterminate.

Question 13

Attempts to bypass price rationing in the market

A) are efficient.
B) are easily administered.
C) are costly.
D) always fail.

Question 14

If the market price of coffee is $3.00 per pound but the government will not allow coffee growers to charge more than $2.00 per pound of coffee, which of the following will happen?

A) Demand must eventually decrease so that the market will come into equilibrium at a price of $2.50.
B) There will be a shortage of coffee.
C) Supply must eventually increase so that the market will come into equilibrium at a price of $2.50.
D) The market will be in equilibrium at a price of $2.00.

Question 15

Refer to the information provided in Figure 4.2 below to answer the questions that follow. Figure 4.2
Refer to Figure 4.2. The market is initially in equilibrium at Point A and supply shifts from S1 to S2. Which of the following statements is true?

A) Price will still serve as a rationing device causing quantity supplied to rise from 8 to 11 soft pretzels.
B) There is no need for price to serve as a rationing device in this case because the new equilibrium quantity is higher than the original equilibrium quantity.
C) Price will still serve as a rationing device causing quantity demanded to fall from 11 to 8 soft pretzels.
D) The market cannot move to a new equilibrium until there is also a change in supply.

Question 16

If the government imposes a maximum price that is above the equilibrium price,

A) this maximum price will have no economic impact.
B) quantity demanded will be less than quantity supplied.
C) demand will be greater than supply.
D) the available supply will have to be rationed with a nonprice rationing mechanism.

Question 17

Favored customers are customers who receive special treatment from dealers during periods of

A) excess demand.
B) excess supply.
C) price above equilibrium.
D) equilibrium.

Question 18

An example of a price ceiling would be the government setting the price of sugar

A) above the equilibrium market price.
B) at the equilibrium market price.
C) below the equilibrium market price.
D) none of the above

Question 19

Refer to the information provided in Figure 4.1 below to answer the questions that follow. Figure 4.1
Refer to Figure 4.1. Assume that initially there is free trade. If the United States then imposes a 10-cent tax per apple,

A) the quantity of apples demanded will be reduced by 2 million apples per day.
B) the quantity of apples supplied by U.S. firms will increase by 2 million apples per day.
C) the price of apples in the United States will increase to 40 cents per apple.
D) all of the above

Question 20

Refer to the information provided in Figure 4.1 below to answer the questions that follow. Figure 4.1
Refer to Figure 4.1. At the world price of 30 cents per apple the United States imports ________ million apples per day.

A) 2
B) 4
C) 6
D) 10

Question 21

It is necessary to ration a good whenever ________ exists.

A) excess demand
B) excess supply
C) a surplus
D) market equilibrium

Question 22

A price floor is

A) a minimum price set by government that sellers must charge for a good.
B) a maximum price set by government that sellers may charge for a good.
C) the difference between the initial equilibrium price and the equilibrium price after a decrease in supply.
D) the minimum price that consumers are willing to pay for a good.

Question 23

The government imposes a price ceiling on sugar that is above the market price. You are asked to suggest a rationing scheme that will minimize the misallocation of resources. You suggest

A) using rationing coupons that cannot be resold.
B) using rationing on a first-come, first-served basis.
C) using rationing coupons that can be resold.
D) that no rationing system will be necessary.

Question 24

Refer to the information provided in Figure 4.3 below to answer the questions that follow. Figure 4.3
Refer to Figure 4.3. At an effective price ceiling for pencils,

A) quantity demanded is greater than quantity supplied.
B) quantity demanded is less than quantity supplied.
C) quantity demanded is equal to quantity supplied.
D) price is above equilibrium.

Question 25

The type of non-price rationing that most closely approaches the market outcome is

A) coupon rationing with coupons that can be resold.
B) coupon rationing with coupons that cannot be resold.
C) first-come, first-served basis or queuing.
D) favored customer rationing.

Question 26

Refer to the information provided in Figure 4.3 below to answer the questions that follow. Figure 4.3
Refer to Figure 4.3. An example of an effective price floor would be the government setting the price of pencils at

A) $0.00.
B) $0.40.
C) $0.45.
D) $0.50.

Question 27

People scalping tickets for a rock concert can sell their tickets for at least a normal profit

A) any time the rock group is popular.
B) when the price set by the concert hall is less than the market equilibrium price.
C) when prices are too high.
D) only when there is excess supply.

Question 28

The government imposes a maximum price on apartments that is ABOVE the equilibrium price. You accurately predict that

A) the law will have no economic impact.
B) the law will create a surplus of apartments.
C) renters will find that landlords start offering to furnish the apartments.
D) landlords are less likely to do routine maintenance work in the apartments.

Question 29

If the price floor is set below the equilibrium price,

A) quantity demanded will be less than quantity supplied.
B) there will be a surplus.
C) there will be a shortage.
D) the floor will be ineffective.

Question 30

If the price ceiling is set below the equilibrium price,

A) quantity demanded will equal quantity supplied.
B) there will be a surplus.
C) there will be a shortage.
D) demand will be less than supply.

Question 31

Refer to the information provided in Figure 4.3 below to answer the questions that follow. Figure 4.3
Refer to Figure 4.3. If the government will not allow the retailers to charge more than $0.40 for a pencil, which of the following will happen?

A) Demand must eventually decrease so that the market will come into equilibrium at a price of $0.40.
B) Supply must eventually increase so that the market will come into equilibrium at a price of $0.40.
C) A nonprice rationing system such as queuing must be used to ration the available supply of pencils.
D) The market will be in equilibrium at a price of $0.40.

Question 32

A minimum price, set by the government, that sellers may charge for a good is known as

A) a price floor.
B) a price rationing mechanism.
C) a price ceiling.
D) a subsidy.

Question 33

The adjustment of ________ is the rationing mechanism in market economies.

A) quantity
B) price
C) supply
D) demand

Question 34

Refer to the information provided in Figure 4.3 below to answer the questions that follow. Figure 4.3
Refer to Figure 4.3. An example of an effective price ceiling would be government setting the price of pencils at

A) $0.40.
B) $0.45.
C) $0.50.
D) $0.55.

Question 35

A price ceiling is

A) a minimum price set by government that sellers must charge for a good.
B) a maximum price set by government that sellers may charge for a good.
C) the difference between the initial equilibrium price and the equilibrium price after a decrease in supply.
D) the minimum price that consumers are willing to pay for a good.

Question 36

A maximum price, set by the government, that sellers may charge for a good is known as

A) a price floor.
B) a price rationing mechanism.
C) a price ceiling.
D) a subsidy.

Question 37

If the price floor is set above the equilibrium price,

A) quantity demanded will equal quantity supplied.
B) there will be a surplus.
C) there will be a shortage.
D) the floor will be ineffective.

Question 38

If the price ceiling is set above the equilibrium price,

A) quantity demanded will equal quantity supplied.
B) there will be a surplus.
C) there will be a shortage.
D) demand will be less than supply.

Question 39

Refer to the information provided in Figure 4.3 below to answer the questions that follow. Figure 4.3
Refer to Figure 4.3. If the government will not allow retailers to charge less than $0.50 for a pencil, which of the following will happen?

A) Demand must eventually increase so that the market will come into equilibrium at a price of $0.50.
B) Supply must eventually decrease so that the market will come into equilibrium at a price of $0.50.
C) Retailers will have an excess supply of pencils.
D) The market will be in equilibrium at a price of $0.50.

Question 40

The government imposes a price ceiling on gasoline that is below the market price. You are asked to suggest a rationing scheme that will minimize the misallocation of resources. You suggest

A) using rationing coupons that can be resold.
B) using rationing coupons that cannot be resold.
C) using rationing on a first-come, first-served basis.
D) using rationing only on weekdays.

Question 41

Nonprice rationing will happen whenever there is excess supply in a market.

Question 42

In a "black market," goods are traded at market determined prices.

Question 43

Refer to the information provided in Figure 4.4 below to answer the questions that follow. Figure 4.4
Refer to Figure 4.4. Assume that initially there is free trade. To reduce U.S. imports without a tax, the U.S. could

A) increase pollution control regulations.
B) allow drilling for oil in the Alaska National Wildlife Refuge.
C) increase safety regulations for oil refineries.
D) all of the above

Question 44

Ration coupons are tickets or coupons that give someone a right to purchase a certain amount of a product each time period such as a month.

Question 45

Goods are allocated in a market system by price rationing.

Question 46

Favored customers receive special treatment from dealers during periods of excess demand.

Question 47

When supply is fixed, price is supply determined.

Question 48

Refer to the information provided in Figure 4.4 below to answer the questions that follow. Figure 4.4
Refer to Figure 4.4. If a $25 per barrel tax is levied on imported oil, the United States will

A) import 2 million barrels of oil per day.
B) import 6 million barrels of oil per day.
C) import 10 million barrels of oil per day.
D) export 10 million barrels of oil per day.

Question 49

Refer to the information provided in Figure 4.4 below to answer the questions that follow. Figure 4.4
Refer to Figure 4.4. If the United States levies no taxes on imported oil, which of the following would occur?

A) The price of oil in the United States would fall to $100 per barrel, and the United States would import 10 million barrels of oil per day.
B) The price of oil in the United States would be $125 per barrel, and the United States would import 6 million barrels of oil per day.
C) The price of oil in the United States would be $150 per barrel, and the United States would import 2 million barrels of oil per day.
D) The price of oil in the United States after the U.S. government eliminated all taxes on imported oil cannot be determined from this information.

Question 50

With price rationing, those who are both able and willing to pay for a product get it.

Question 51

Refer to the information provided in Figure 4.4 below to answer the questions that follow. Figure 4.4
Refer to Figure 4.4. Assume that initially there is free trade. If the United States then imposes a $25 tax per barrel of imported oil,

A) the quantity demanded of oil will be reduced by 4 million barrels per day.
B) the quantity of oil supplied by U.S. firms will increase by 8 million barrels per day.
C) U.S. imports of oil will increase by 4 million barrels per day.
D) the price of oil in the U.S. will increase to $150 per barrel.

Question 52

Queuing, or waiting in line, is an alternative rationing mechanism to price rationing.

Question 53

Related to the Economics in Practice on page 82: If a hurricane results in the supply of hotel rooms decreasing and the equilibrium price for hotel rooms increases, the demand for hotel rooms ________ and total revenue from the sale of hotel rooms ________.

A) has decreased; will decrease
B) has decreased; may increase, decrease, or stay the same
C) may have increased, decreased, or stayed the same; will decrease
D) may have increased, decreased, or stayed the same; may increase, decrease, or stay the same

Question 54

Refer to the information provided in Figure 4.4 below to answer the questions that follow. Figure 4.4
Refer to Figure 4.4. At the world price of $125 per barrel of oil, the United States imports ________ million barrels of oil per day.

A) 4
B) 6
C) 8
D) 10

Question 55

Related to the Economics in Practice on page 88: When acquiring a ticket for a play takes a significant amount of time, the true economic cost of that ticket would include all of the following factors EXCEPT

A) the amount of time spent acquiring the ticket.
B) the utility provided by seeing the play.
C) the earning power of the person acquiring the ticket.
D) the purchase price of the ticket.

Question 56

A shortage is when there is an excess supply in a market.

Question 57

Refer to the information provided in Figure 4.5 below to answer the questions that follow. Figure 4.5
Refer to Figure 4.5. At the world price of $15 per CD-Rom drive, the United States imports ________ million CD-Rom drives.

A) 3
B) 6
C) 9
D) 12

Question 58

Related to the Economics in Practice on page 88: Which of the following best explains why the people who wait for hours to acquire tickets to free performances earn less on average than the people who actually see those performances?

A) The value of time spent waiting in line is less for people who earn less money.
B) People who earn more money are less likely to be aware of the opportunity to acquire free tickets.
C) High-wage individuals are more likely to have schedule conflicts that prevent them from using their tickets.
D) People interested in live performances are likely to have access to other forms of entertainment, such as television and radio.

Question 59

Related to the Economics in Practice on page 82: If a hurricane results in the supply of hotel rooms decreasing and the demand for hotel rooms increases, the equilibrium price for hotel rooms ________ and the equilibrium quantity of hotel rooms ________.

A) will increase; will decrease
B) will increase; may increase, decrease, or stay the same
C) may increase, decrease, or stay the same; will decrease
D) may increase, decrease, or stay the same; may increase, decrease, or stay the same

Question 60

Refer to the information provided in Figure 4.4 below to answer the questions that follow. Figure 4.4
Refer to Figure 4.4. Assume that initially there is free trade. If the United States then imposes a $25 tax per barrel of imported oil, the tax revenue generated will equal

A) $25 million per day.
B) $50 million per day.
C) $100 million per day.
D) $125 million per day.

Question 61

Refer to the information provided in Figure 4.5 below to answer the questions that follow. Figure 4.5
Refer to Figure 4.5. If the United States eliminates all taxes on CD-Rom drives, which of the following would occur?

A) The price of CD-Rom drives in the United States would be $15 per CD-Rom drive, and the United States would import 3 million CD-Rom drives.
B) The price of CD-Rom drives in the United States would be $25 per CD-Rom drive, and the United States would import 3 million CD-Rom drives.
C) The price of CD-Rom drives in the United States would be $15 per CD-Rom drive, and the United States would import 9 million CD-Rom drives.
D) The price of CD-Rom drives in the United States after the U.S. government eliminated all taxes on imported CD-Rom drives cannot be determined from this information.

Question 62

Refer to the information provided in Figure 4.5 below to answer the questions that follow. Figure 4.5
Refer to Figure 4.5. If a $10.00 per CD-Rom drive tax is levied on imported CD-Rom drives, the United States will

A) import 3 million CD-Rom drives.
B) import 6 million CD-Rom drives.
C) import 9 million CD-Rom drives.
D) import 12 million CD-Rom drives.

Question 63

A U.S. import fee on oil would reduce the domestic quantity of oil supplied.

Question 64

The market price of a basketball is $35 and the full cost of producing it is $20, then a basketball producing firm gets producer surplus of

A) 1 basketball.
B) $35.
C) $20.
D) $15.

Question 65

Refer to the information provided in Figure 4.6 below to answer the questions that follow.
Equilibrium in this market occurs at the intersection of curves S and D. Figure 4.6
In figure 4.6 if price is P1, producer surplus is area

A) A.
B) A+B+E.
C) G.
D) B+E+G.

Question 66

Consumer surplus is

A) the difference between the maximum a person is willing to pay and current market price.
B) the difference between current market price and full costs of production for the firm.
C) the difference between the maximum a person is willing to pay and full costs of productions for the firm.
D) current market price.

Question 67

Producer surplus is

A) the difference between the maximum a person is willing to pay and current market price.
B) the difference between current market price and full costs of production for the firm.
C) the difference between willingness to sell and full costs of productions for the firm.
D) current market price.

Question 68

A U.S. import fee on oil would reduce imports and raise the price of U.S. oil products.

Question 69

Refer to the information provided in Figure 4.5 below to answer the questions that follow. Figure 4.5
Refer to Figure 4.5. Assume that initially there is free trade. If the United States then imposes a $10.00 tax per CD-Rom drive on imported CD-Rom drives,

A) the quantity of CD-Rom drives demanded will be reduced by 3 million.
B) the quantity of CD-Rom drives supplied by U.S. firms will increase by 3 million.
C) the price of CD-Rom drives in the United States will increase to $25.
D) all of the above

Question 70

Refer to the information provided in Figure 4.6 below to answer the questions that follow.
Equilibrium in this market occurs at the intersection of curves S and D. Figure 4.6
In figure 4.6 if price is P1, the deadweight loss due to under production is area

A) A+C.
B) C+F
C) E+G.
D) F+G.

Question 71

A U.S. import fee on oil would reduce the domestic quantity demanded of oil.

Question 72

Refer to the information provided in Figure 4.6 below to answer the questions that follow.
Equilibrium in this market occurs at the intersection of curves S and D. Figure 4.6
In figure 4.6 if price is P1, consumer surplus is area

A) A.
B) A+B+E.
C) G.
D) B+C+E+F+G.

Question 73

When there is overproduction in a market,

A) market price is too low.
B) there is excess quantity demanded.
C) the total of consumer and producer surplus is maximized.
D) there is a deadweight loss.

Question 74

Refer to the information provided in Figure 4.5 below to answer the questions that follow. Figure 4.5
Refer to Figure 4.5. Assume that initially there is free trade. If the United States then imposes a $10.00 tax per CD-Rom drive on imported CD-Rom drives,

A) the quantity of CD-Rom drives demanded will be reduced by 6 million.
B) the quantity of CD-Rom drives supplied by U.S. firms will increase by 3 million.
C) the price of CD-Rom drives in the United States will decrease to $5.
D) U.S. imports of CD-Rom drives will increase by 3 million.

Question 75

If the most someone is willing to pay for ticket to see their favorite team is $100 and the market price of the ticket is $35, then this buyer will get consumer surplus of

A) 1 ticket.
B) $35.
C) $65.
D) $100.

Question 76

Refer to the information provided in Figure 4.6 below to answer the questions that follow.
Equilibrium in this market occurs at the intersection of curves S and D. Figure 4.6
In figure 4.6 at equilibrium, consumer surplus is area

A) A.
B) A+B+C.
C) G.
D) E+F+G.

Question 77

Refer to the information provided in Figure 4.6 below to answer the questions that follow.
Equilibrium in this market occurs at the intersection of curves S and D. Figure 4.6
In figure 4.6 at equilibrium, producer surplus is area

A) A.
B) A+B+C.
C) G.
D) E+F+G.

Question 78

The total of consumer plus producer surplus is greatest

A) when consumer surplus is maximized.
B) when producer surplus is maximized.
C) at the market equilibrium.
D) all of the above

Question 79

Refer to the information provided in Figure 4.6 below to answer the questions that follow.
Equilibrium in this market occurs at the intersection of curves S and D. Figure 4.6
In figure 4.6 if price goes from equilibrium to P1, consumer surplus changes by the area

A) E-C.
B) C+E.
C) E+F.
D) B-F.

Question 80

Refer to the information provided in Figure 4.6 below to answer the questions that follow.
Equilibrium in this market occurs at the intersection of curves S and D. Figure 4.6
In figure 4.6 if price goes from equilibrium to P1, producer surplus changes by the area

A) E-C.
B) C+E
C) E+F.
D) B-F.