Deck 5: Market in Motion and Price Controls

Question 1

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

Answer 1

False

Question 2

An increase in demand will cause a shortage at the original market price.

Answer 2

True

Question 3

When demand decreases and supply increases, there will be a decrease in the equilibrium price.

Answer 3

True

Question 4

When a binding price floor is placed on a good, some suppliers who want to sell the good cannot do so.

Question 5

A price floor set above the equilibrium price is binding.

Question 6

To be binding, a price floor must be set below the equilibrium pricE.​

Question 7

A decrease in supply will cause a surplus at the original market price.

Question 8

Exhibit 5-1
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Refer to Exhibit 5-1. A price floor set at $40 would create a surplus of 30 units.

Question 9

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

Question 10

Exhibit 5-1
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Refer to Exhibit 5-1. A price ceiling set at $15 would cause a shortage of 10 units.

Question 11

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

Question 12

Exhibit 5-1
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Refer to Exhibit 5-1. A price floor set at $15 would create a shortage of 20 units

Question 13

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

Question 14

An increase in supply will cause a shortage at the original market price.

Question 15

Exhibit 5-1
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Refer to Exhibit 5-1. A price ceiling set at $35 would not cause a shortage.

Question 16

When the sale of a good is illegal, it is like setting a price ceiling at zero.

Question 17

Exhibit 5-1
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Refer to Exhibit 5-1. A price floor set at $10 would not cause a surplus.

Question 18

Exhibit 5-1
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Refer to Exhibit 5-1. A price floor set at $40 would create a surplus of 40 units.

Question 19

A decrease in demand will cause a surplus at the original market price

Question 20

A price floor set below the equilibrium price causes quantity supplied to exceed quantity demanded.

Question 21

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 22

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

Question 23

If buyers expected the future price of a good to increase, it would tend to increase the current quantity exchanged.

Question 24

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

Question 25

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 26

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

Question 27

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

Question 28

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

Question 29

A price ceiling set below the equilibrium price is nonbinding.

Question 30

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

Question 31

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 32

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

Question 33

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

Question 34

A binding price ceiling causes a shortage in the market.

Question 35

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 36

If buyers expected the future price of a good to decrease, it would tend to increase the current quantity exchanged.

Question 37

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

Question 38

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

Question 39

A price ceiling set below the equilibrium price is binding.

Question 40

One common example of a price ceiling is rent control.

Question 41

If the price of a good decreased,

A)​It would also increase the quantity exchanged if it was caused by an increase in demand.
B)It would also decrease the quantity exchanged if it was caused by an increase in supply.
C)We would not know how quantity would change if we didn't know whether it was due to a change in demand or a change in supply.
D)All of the above would be true.

Question 42

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 43

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 44

If the quantity of a good exchanged decreased,

A)​It would also increase the price if it was caused by a shift in demand.
B)​It would also increase the price if it was caused by a shift in supply.​
C)​It would always decrease the price as well.
D)​None of the above would be true.

Question 45

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 46

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 47

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 48

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

Question 49

If buyers expect the price of a good to fall in the near future, we would expect that to cause the current price and the quantity traded to decrease as a result.
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Question 50

A price floor set above the equilibrium price is binding.

Question 51

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

Question 52

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 53

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

Question 54

If buyers expect the price of a good 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 55

If the price of a good increased,

A)It would also increase the quantity exchanged if it was caused by an increase in demand.
B)It would also decrease the quantity exchanged if it was caused by an increase in supply.
C)​We would not know how quantity would change if we didn't know whether it was due a change in demand or a change in supply.
D)​All of the above would be true.

Question 56

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

Question 57

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 58

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

Question 59

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

Question 60

For the quantity exchanged in a market to remain the same, while the price increased, both supply and demand would have to shift to the right.

Question 61

Exhibit 5-4
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Refer to Exhibit 5-4. 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 62

A safety report is released that contends that sport utility vehicles are more prone to roll over during crashes than was previously thought. 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 63

Exhibit 5-4
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Refer to Exhibit 5-4. 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 64

Exhibit 5-4
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Refer to Exhibit 5-4. 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 65

Exhibit 5-2
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The diagram below represents the market for butter.
Refer to Exhibit 5-2. If a price floor of $4 is imposed, ____ units of butter will be purchased.

A)7,000
B)​5,000
C)​4,000
D)​3,000

Question 66

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 67

Exhibit 5-2
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The diagram below represents the market for butter.
Refer to Exhibit 5-3. For a price floor to be binding in this market, it could be set at

A)​any price below $25.
B)​any price above $25.
C)​a price between $15 and $20.
D)None of the above are true.

Question 68

Exhibit 5-2
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The diagram below represents the market for butter.
Refer to Exhibit 5-3. Which of the following price controls would cause a surplus of 20 units of the good?

A)​a price floor set at $15
B)​a price ceiling set at $15
C)​a price floor set at $35
D)​a price ceiling set at $35

Question 69

Exhibit 5-2
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The diagram below represents the market for butter.
Refer to Exhibit 5-2. If a price floor of $4 is imposed, a surplus of _____units of butter will be created.

A)​zero
B)​3,000
C)​4,000
D)​7,000

Question 70

Exhibit 5-2
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The diagram below represents the market for butter.
Refer to Exhibit 5-2. If a price floor of $3 is imposed, a shortage of _____units of butter will be created.

A)​zero
B)​3,000
C)​5,000
D)​8,000

Question 71

Exhibit 5-2
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The diagram below represents the market for butter.
Refer to Exhibit 5-2. If a price ceiling of $3 is imposed, a shortage of _____units of butter will be created.

A)​zero
B)​3,000
C)​4,000
D)​7,000

Question 72

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

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

Question 73

Exhibit 5-4
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Refer to Exhibit 5-4. 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 74

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 75

Exhibit 5-4
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Refer to Exhibit 5-4. 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 76

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 77

Exhibit 5-2
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The diagram below represents the market for butter.
Refer to Exhibit 5-2. If a price ceiling of $4 is imposed, we would expect that ____ units of butter will be purchased.

A)​7,000
B)​5,000
C)​4,000
D)​3,000

Question 78

Exhibit 5-2
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The diagram below represents the market for butter.
Refer to Exhibit 5-2. If a price ceiling of $2 is imposed, a shortage of _____units of butter will be created.

A)​zero
B)​3,000
C)​5,000
D)​8,000

Question 79

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

A)​8,000
B)​5,000
C)​4,000
D)​3,000

Question 80

Exhibit 5-2
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The diagram below represents the market for butter.
Refer to Exhibit 5-3. Which of the following price controls would cause a shortage of 20 units of the good?

A)​a price floor set at $15
B)​a price ceiling set at $15
C)​a price floor set at $35
D)​a price ceiling set at $35