Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
The adverse effects of rent controls include
1)
A)
excessive construction of new rental housing.
B)
reduced incentive to construct new rental housing.
C)
increased incentives for people to purchase their own homes.
D)
keeping rental rates too high in a normal market.
2)
The price of milk increases. Which of the following is NOT part of the likely chain of events that
follows from this price change?
2)
A)
The producers of feed for dairy cows increase production.
B)
Some milk consumers reduce their consumption of milk.
C)
Milk producers increase their production of milk.
D)
The manufacturers of milking machines lay off some workers.
3)
A price floor set below the equilibrium price will cause which of the following?
3)
A)
a surplus
B)
a shortage
C)
an increase in demand
D)
none of the above
4)
What has been the market outcome of government–enforced price floors for agricultural products?
4)
A)
A shortage of agricultural products has resulted.
B)
Farmers have been made worse off.
C)
A surplus of agricultural products has resulted.
D)
Not enough food has been produced.
5)
In 2010, a British Petroleum oil rig exploded in the Gulf of Mexico. The explosion resulted in a
major oil spill and a decrease in the supply of oil. At the same time, the average price of gasoline
decreased. Which of the following best explains the decrease in the price of gasoline?
5)
A)
The demand for gasoline decreased, and the effect of the decrease in demand on the gasoline
price was greater than the price effect of the decrease in supply.
B)
The quantity demanded of gasoline increased.
C)
The demand for gasoline increased, and the effect of the increase in demand on the gasoline
price was less than the price effect of the decrease in supply.
D)
The demand for gasoline remained unchanged.
6)
Price ceilings often generate
6)
A)
equilibriums that utilize rationing by price.
B)
rapid increases in supply to meet the excess demand.
C)
market clearing prices.
D)
black markets.
D
7)
The price system
7)
A)
is used to set resource prices only.
B)
is used only in countries that are developing.
C)
is the voluntary exchange system used in the United States.
D)
is old fashioned and is no longer used.
C
8)
What would happen in the market for bread if its demand increased but the price was NOT
allowed to change?
8)
A)
The supply of bread would decrease.
B)
The supply of bread would increase.
C)
There would be a shortage of bread.
D)
There would be a surplus of bread.
C
A
9)
If an excess quantity of labor demanded exists in a free market, there is a tendency for
9)
A)
the wage rate to rise.
B)
quantity demanded to fall.
C)
quantity supplied to rise.
D)
the wage rate to fall.
10)
Suppose the market clearing price for gasoline is $4.75 per gallon. Now suppose that policy
makers pass a law requiring that the maximum price that can be charged is $3.75 per gallon. Such a
situation is an example of
10)
A)
a price floor that will lead to a surplus of gasoline on the market.
B)
a price floor that will lead to a shortage of gasoline on the market.
C)
a price ceiling that will lead to a shortage of gasoline on the market.
D)
a price control that will lead to a surplus of gasoline on the market.
11)
Rationing occurs for goods
11)
A)
that have a positive price.
B)
that have a zero price.
C)
that are not manufactured.
D)
that have a negative price.
12)
A black market is a market in which
12)
A)
goods are traded at prices above their legal maximum prices.
B)
goods are sold at outlet prices.
C)
sales take place exclusively at outlet prices.
D)
sales taxes are effectively doubled.
13)
Refer to the above figure. A price control has been set which has led to a shortage. This means that
a
13)
A)
price ceiling has been set at P2.
B)
price ceiling has been set at P1.
C)
price floor has been set at P1.
D)
price floor has been set at P2.
14)
In New York City, apartment rent can be adjusted only when a tenant leaves. This lead
14)
A)
businesses to build new rental units.
B)
tenants to stay in apartments longer than they would otherwise.
C)
people to change apartments often.
D)
landlords to encourage tenants to stay in their apartments.
B
15)
As compared to the market clearing price, the total amount of consumer surplus and producer
surplus is
15)
A)
the same as a government–imposed price floor that is higher than that market clearing price.
B)
smaller for a government–imposed price ceiling that is lower than that market clearing price.
C)
greater for a government–imposed price ceiling that is lower than that market clearing price.
D)
greater for a government–imposed price floor that is higher than that market clearing price.
B
16)
Ways to ration goods include
16)
A)
political power.
B)
prices.
C)
first–come, first–served.
D)
all of the above.
D
A
17)
What will happen when there is a rightward shift in the demand curve?
17)
A)
Product prices do not change in this situation.
B)
A new, higher price is not instantaneously achieved, but the price will rise over time.
C)
Producers will decrease the product price.
D)
The product price will instantaneously adjust downward.
18)
Refer to the above figure for the corn market. The government wants to set an effective price
support in the corn market. To be effective the price should be set
18)
A)
at P3.
B)
at P2.
C)
below P1.
D)
at P1.
19)
Consider the above table. If the government imposes a price ceiling on garbanzo beans of $8, what
would be the likely result?
19)
A)
The quantity demanded of garbanzo beans would fall to zero.
B)
a surplus of 2,000 garbanzo beans on the market
C)
Market equilibrium will be reached.
D)
a shortage of 2,000 garbanzo beans on the market
20)
When the government establishes a minimum price for an agricultural product above the
equilibrium price, the government is creating a(n)
20)
A)
price ceiling.
B)
surplus price.
C)
price floor.
D)
elevated price.
21)
In a market system, intermediaries in the exchange process are known as
21)
A)
consumers.
B)
producers.
C)
free agents.
D)
middlemen.
22)
Total producer surplus in a market is measured as the
22)
A)
area bounded above the market clearing price and beneath the market demand curve.
B)
vertical distance from the horizontal (quantity) axis to the market clearing price.
C)
horizontal distance from the vertical (price) axis to the equilibrium quantity.
D)
area bounded below the market clearing price and above the market supply curve.
23)
If price increases and the quantity purchased increases, we know that
23)
A)
demand decreased.
B)
supply decreased.
C)
supply increased.
D)
demand increased.
24)
An effective price ceiling usually generates
24)
A)
fire sales as firms try to unload their excess inventories.
B)
happy sellers and dissatisfied buyers.
C)
the use of nonprice rationing devices.
D)
higher nominal prices.
C
25)
Suppose a price ceiling is set above the equilibrium price. Now suppose that policy makers decide
to raise the price ceiling. This increase in the price ceiling will cause which of the following to
occur?
25)
A)
The surplus in the market will decrease.
B)
The shortage in the market will increase.
C)
The surplus in the market will increase.
D)
None of the above.
D
26)
If the demand for a product remains the same and the supply falls,
26)
A)
the market clearing price will rise and the equilibrium quantity will fall.
B)
the market clearing price will fall and the equilibrium quantity will rise.
C)
both the market clearing price and the equilibrium quantity will fall.
D)
both the market clearing price and the equilibrium quantity will rise.
A
D
27)
Refer to the above figure. At a price of $2 per gallon, there is
27)
A)
a shortage of 40,000 gallons per month.
B)
a surplus of 20,000 gallons per month.
C)
a shortage of 80,000 gallons per month.
D)
a shortage of 60,000 gallons per month.
28)
Refer to the above figure. A price floor of $60 results in
28)
A)
a surplus of 100 units.
B)
a surplus of 200 units.
C)
a shortage of 100 units.
D)
a shortage of 200 units.
29)
A limit on the amount of strawberries that can be imported into the United States is an example of
29)
A)
the rationing function of prices protecting domestic strawberry farmers.
B)
a price ceiling set by government.
C)
a price floor set by the government.
D)
an import quota.
30)
We cannot predict the effect on the equilibrium quantity, but know that the market clearing price
will decrease when
30)
A)
supply decreases and demand increases.
B)
supply increases and at the same time demand decreases.
C)
supply decreases and at the same time demand increases.
D)
supply increases and demand decreases.
B
31)
Rent controls are
31)
A)
used to provide incentives to contractors to build new apartments.
B)
when rents are set below the market clearing level.
C)
used to generate revenue for the local government.
D)
when rents are set above the market clearing level to aid landlords.
B
32)
Of the following groups, who gains from rent controls?
32)
A)
High–income people who live in rent–controlled apartments
B)
Poor people who have a hard time earning enough income to pay high rents
C)
Construction workers and their union leaders
D)
Landlords
A
D
33)
Suppose that 20,000 tickets were sold at $120 for an NBA game at Madison Square Garden in New
York. The game was sold out and some fans could not get tickets. This suggests that
33)
A)
the game was advertised too heavily.
B)
selling price was below equilibrium price.
C)
selling price was at equilibrium.
D)
selling price was above equilibrium price.
34)
If the government imposes a price ceiling that is lower than the market clearing price, then
34)
A)
consumer surplus will increase while producer surplus will decrease.
B)
both consumer surplus and producer surplus will increase.
C)
both consumer surplus and producer surplus will decrease.
D)
consumer surplus will decrease while producer surplus will increase.
35)
In a price system, changes in prices
35)
A)
signal to everyone in the system what goods are relatively more or less scarce.
B)
imply that people have made mistakes in the past.
C)
signal to policy makers what goods should and should not be taxed more.
D)
make it difficult for the system to function well.
36)
If supply and demand both simultaneously increase,
36)
A)
the market clearing price definitely falls ,and the effect on the equilibrium quantity is
indeterminate.
B)
the effect on the market clearing price is indeterminate, and the equilibrium quantity
definitely rises.
C)
the market clearing price definitely rises, and the equilibrium quantity definitely falls.
D)
the market clearing price definitely rises, and the effect on the equilibrium quantity is
indeterminate.
37)
Assume that the market clearing price for a shirt is $20, but that the maximum price that can be
charged is $15. This is an example of
37)
A)
markets failing to ration a fixed quantity of a good.
B)
a price ceiling that will likely lead to a shortage of shirts on the market.
C)
a price control that will lead to a surplus of shirts on the market.
D)
a price floor that will lead to a shortage of shirts on the market.
38)
Which of the following is a main characteristic of exchanges in the market system?
38)
A)
Exchanges are highly regulated by the government.
B)
Sellers hire economists to determine the market clearing price.
C)
Decisions to trade are based on individuals’ self interest.
D)
Exchanges are part of the legislative imperative.
39)
Intermediaries, known as middlemen, specialize in
39)
A)
negotiating high prices for sellers.
B)
encouraging consumers to buy goods on credit, rather than with cash.
C)
negotiating low prices for buyers.
D)
reducing transaction costs.
40)
Under rent controls,
40)
A)
the number of rental units available for rent is lower than under freely competitive markets.
B)
landlord–tenant relationships are more harmonious than under freely competitive markets.
C)
the quantity demanded of rental units is less than it would be under freely competitive
markets.
D)
apartments tend to be nicer than they would be under freely competitive markets.
41)
Voluntary exchange
41)
A)
never involves transactions costs.
B)
is a nonprice rationing device.
C)
will eliminate scarcity.
D)
is trading so that the consumer and producers are better off.
42)
If producers must receive a higher price to be induced to produce any quantity, we can conclude
that
42)
A)
supply decreased.
B)
demand decreased.
C)
demand increased.
D)
both supply and demand increased.
Explanation:
43)
Some oil refineries were damaged by Hurricane Katrina of 2005, leading to
43)
A)
a decrease in quantity supplied of gasoline.
B)
a decrease in supply of gasoline.
C)
a decrease in quantity demanded for gasoline.
D)
a decrease in demand for gasoline.
Explanation:
44)
Price ceilings are adopted in most cases because
44)
A)
the government wants to create surpluses.
B)
the government favors a non–intervention policy.
C)
producers need incentives to produce more of the good or service.
D)
the government views the current equilibrium price as too high for consumers.
Explanation:
Explanation:
45)
Total consumer surplus in a market is measured as the
45)
A)
area bounded below the market clearing price and above the market supply curve.
B)
vertical distance from the horizontal (quantity) axis to the market clearing price.
C)
area bounded above the market clearing price and beneath the market demand curve.
D)
horizontal distance from the vertical (price) axis to the equilibrium quantity.
46)
Which of the following is NOT an attempt to evade rent controls?
46)
A)
Make life unpleasant for tenants
B)
Using the courts to challenge the sublease of a tenant
C)
Require tenants to get furniture from the landlord
D)
Subletting
47)
If both supply and demand simultaneously decrease,
47)
A)
the market clearing price definitely falls, and the effect on the equilibrium quantity is
indeterminate.
B)
the market clearing price definitely rises, and the equilibrium quantity definitely falls.
C)
the effect on the market clearing price is indeterminate, and the equilibrium quantity
definitely falls.
D)
the market clearing price definitely rises, and the effect on the equilibrium quantity is
indeterminate.
48)
If supply decreases and demand increases,
48)
A)
the effect on the market clearing price is indeterminate, and the equilibrium quantity
definitely falls.
B)
the market clearing price definitely rises, and the equilibrium quantity falls.
C)
the market clearing price definitely falls, and the effect on the equilibrium quantity is
indeterminate.
D)
the market clearing price definitely rises, and the equilibrium quantity is indeterminate.
49)
Suppose that there is an improvement in technology in the market for iPods. Which of the
following is true?
49)
A)
Demand will increase and the market clearing price will fall.
B)
Demand will increase and the market clearing price will rise.
C)
Supply will increase and the market clearing price will fall.
D)
Supply will increase and the market clearing price will rise.
50)
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?
50)
A)
Quantity will increase, but the effect on price is indeterminate.
B)
Price will decrease, but the effect on quantity is indeterminate.
C)
Quantity will decrease, but the effect on price is indeterminate.
D)
Price will increase, but the effect on quantity is indeterminate.
D
51)
A price floor that is set above market equilibrium will cause
51)
A)
an excess quantity demanded.
B)
a surplus.
C)
a shortage.
D)
queuing on the part of consumers.
B
52)
If a price ceiling were established above the equilibrium price,
52)
A)
it would create a shortage.
B)
it would have no effect on the quantity demanded.
C)
it would create a surplus.
D)
none of the above.
B
C
53)
Following adjustments to a new equilibrium in a market, the equilibrium quantity remains
unchanged, but the market clearing price is now lower. Which of the following could definitely
have caused this outcome?
53)
A)
Demand and supply both increased.
B)
Demand and supply both decreased.
C)
Demand decreased, and supply increased.
D)
Demand increased, and supply decreased.
54)
Refer to the above figure. Suppose the demand curve shifts from DA to DB, while the supply curve
remains at SA. Which of the following statements is FALSE?
54)
A)
There has been an increase in demand.
B)
Supply has increased.
C)
The new equilibrium price is P2, and the new equilibrium quantity is F.
D)
More consumers in the market might have caused the demand curve to shift.
55)
Refer to the above figure. Suppose that the supply curve shifts from SA to SB while the demand
curve remains at DA. Which of the following is true?
55)
A)
Supply has increased.
B)
Only quantity demanded has decreased.
C)
Only quantity supplied has increased.
D)
Supply has decreased.
56)
Price controls
56)
A)
interfere with the rationing function of prices.
B)
do not include rent controls.
C)
do not include black markets.
D)
are another name for the price system.
57)
Refer to the above figure. If the government imposes a price floor of $20,
57)
A)
the quantity traded will be 200, and the price will be $20.
B)
the quantity traded will be 150, and the price will be $20.
C)
the quantity traded will be 100, and the price will be $20.
D)
none of the above.
D
58)
There has recently been an increase in the price of dairy products used in the production of ice
cream. High temperatures have also induced people to consume more ice cream. In the market for
ice cream, the effects these changes will have on equilibrium price and quantity are:
58)
A)
price will increase, and the effect on quantity is indeterminate.
B)
price will decrease, and quantity will increase.
C)
price will decrease, and the effect on quantity is indeterminate.
D)
price will increase, and quantity will decrease.
A
A
59)
In the 1970s, the government placed price ceilings on gasoline prices. A shortage of gasoline
occurred, and long lines formed at the pumps. Some gas stations required that in addition to
paying the price on the pump you had to buy a blank will. The action of having to purchase the
will in order to purchase gas is known as
59)
A)
a black market.
B)
a surplus.
C)
a price support.
D)
the price system.
60)
In the automobile industry, workers have just negotiated a new contract giving workers a large
raise. There has also been an increase in the number of licensed drivers who are in the market for a
new car. In the market for new automobiles, the effects that these changes will have on the
equilibrium price and quantity are:
60)
A)
price will increase, and the effect on quantity is indeterminate.
B)
price will decrease, and quantity will increase.
C)
price will decrease, and the effect on quantity is indeterminate.
D)
price will increase, and quantity will decrease.
61)
An increase in the equilibrium quantity of good X can be caused by
61)
A)
an increase the price of inputs utilized in producing good X.
B)
an increase in the price of good X.
C)
a reduction in the number of producers of good X.
D)
a technological improvement in the process of producing good X.
62)
In a market system, the costs associated with exchanging goods are known as
62)
A)
wholesale costs.
B)
transaction costs.
C)
signaling costs.
D)
voluntary costs.
63)
Which one of the following statements is true?
63)
A)
When the market clearing price of a good is the equilibrium, then everyone can afford it.
B)
An effective price ceiling results in a surplus of the good.
C)
The market clearing price of a good reflects its relative scarcity.
D)
An effective price floor results in a shortage of the good.
64)
We cannot predict the effect on the market clearing price, but know that the equilibrium quantity
will increase when
64)
A)
supply and demand for a product simultaneously increase.
B)
supply decreases and demand increases.
C)
supply increases and demand decreases.
D)
supply and demand for a product simultaneously decrease.
65)
Suppose Matt Damon and Cameron Diaz wear matching platinum jewelry in their new movie.
After the movie is released, suppose that consumers increase their demand for the jewelry and at
the same time manufacturers increase the supply of the jewelry. As a result,
65)
A)
the equilibrium quantity will decrease, and the equilibrium price will increase.
B)
the equilibrium quantity and price are both indeterminate.
C)
the equilibrium price and quantity will both decrease.
D)
the equilibrium quantity will increase, and there is an indeterminate change in the
equilibrium price.
66)
All of the following reduce the transaction costs for consumers EXCEPT
66)
A)
eBay.
B)
a shopping mall.
C)
a grocery store.
D)
the Supreme Court decisions regarding the Second Amendment.