100. Suppose a price floor is set by the government above the market equilibrium price. Which of the
following will result?
a.
There will be a surplus.
b.
The quantity demanded will exceed the quantity supplied.
c.
The demand curve will shift to the left.
d.
None of these.
101. Which of the following is the most likely result of an increase in the minimum wage?
a.
An increase in the employment of unskilled workers.
b.
A decrease in the number of workers seeking minimum wage jobs.
c.
An increase in the demand for unskilled workers.
d.
A decrease in the employment of unskilled workers.
102. A price floor that sets the price of a good above market equilibrium will cause:
a.
a decrease in quantity demanded of the good.
b.
an increase in quantity supplied of the good.
c.
a surplus of the good.
d.
all of these.
103. If a government-imposed price floor legally sets the price of milk above market equilibrium, which of
the following will most likely happen?
a.
The quantity of milk demanded will increase.
b.
The quantity of milk supplied will decrease.
c.
There will be a surplus of milk.
d.
There will be a shortage of milk.
104. If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor
above market equilibrium, which of the following will most likely occur in the unskilled labor market?
a.
An increase in quantity of unskilled labor demanded.
b.
A decrease in the quantity of unskilled labor supplied.
c.
A shortage of unskilled labor.
d.
A surplus of unskilled labor (unemployment).
105. A legally mandated minimum wage is an example of:
a.
the invisible hand principle.
c.
a price ceiling.
b.
a price floor.
d.
a fringe benefit.
106. A price floor (support price) set above equilibrium:
a.
is a minimum legal price set by government above equilibrium.
b.
causes the quantity supplied to exceed the quantity demanded.
c.
creates a surplus.
d.
can represent the effect of a minimum wage.
e.
all of these.
107. 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
e.
usually set equal to equilibrium price.
108. A side effect of a price floor set above the equilibrium price is:
a.
the new price is below equilibrium price.
b.
an excess supply of the good is created.
c.
an excess demand for the good is created.
d.
the supply of the good decreases.
e.
the demand for the good increases.
109. Price floors are instituted because the government wants to:
a.
help consumers.
b.
help producers.
c.
raise tax revenue.
d.
prevent imports.
e.
increase demand.
110. The minimum price for a good set by the government above the equilibrium price is called a:
a.
price ceiling.
b.
price floor.
c.
parity price ratio.
d.
market-generated price.
e.
deficiency price.
111. 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.
e.
there will be an excess demand for the product.
112. A price floor would be established in cases where the government believed the market equilibrium
price would:
a.
result in a surplus.
b.
be too high.
c.
result in a shortage.
d.
be too low.
e.
yield excess profits.
113. A market consequence of the establishment of a price floor program is that price will be:
a.
too low, and an excess supply will result.
b.
too low, and a shortage will result.
c.
too high, and an excess supply will result.
d.
too high, and a shortage will result.
e.
below the market equilibrium price.
114. Price floors are used as a method to:
a.
ensure 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.
combat excess demand in the market.
e.
ensure sellers a minimum price for their goods.
115. One of the problems created by price floors set above the equilibrium is:
a.
consumers complain about high prices.
b.
firms don’t have incentives to reduce costs.
c.
the creation of surplus.
d.
how to cope with the shortages.
e.
the impact on firm profitability.
116. If the government imposes a price floor above the market equilibrium price, then:
a.
b and e.
b.
there will be excess supply.
c.
there will be excess demand.
d.
consumers will benefit.
e.
producers will benefit.
117. The excess supply created when governments impose a price floor is:
a.
shrinking as the floor rises.
b.
the difference between the old quantity supplied and new quantity demanded.
c.
the difference between the new quantity supplied and the old quantity demanded.
d.
the difference between the new quantity supplied and the new quantity demanded.
e.
actually efficient because prices are higher for suppliers.
118. A good example of a price floor is:
a.
rent controls on apartments in major cities.
b.
general admission tickets to concerts.
c.
the minimum wage law.
d.
food stamp regulations.
e.
rock concert tickets.
119. Minimum wage legislation:
a.
sets a price ceiling above the market-clearing price.
b.
has no impact if the minimum wage is above the market-clearing price.
c.
has the same impact in all labor markets.
d.
creates unemployment when the minimum wage is above the equilibrium wage.
e.
is opposed by organized labor.
120. A minimum wage that is set below the equilibrium wage will:
a.
cause increased unemployment.
b.
have no effect on employment.
c.
cause the overall wage to increase.
d.
cause the overall wage to decrease.
e.
create more jobs.
Exhibit 4-10 Supply and demand data for apricots
Bushels demanded
per month
Price per
bushel
Bushels supplied
per month
50
$5
80
55
4
75
60
3
70
65
2
65
70
1
55
121. In Exhibit 4-10, the equilibrium price is:
a.
$1.
c.
$3.
b.
$2.
d.
$4.
122. Which of the following would occur if the government set a price ceiling of $1 in the market shown in
Exhibit 4-10?
a.
There would be a shortage of apricots.
b.
Buyers would not want to purchase all of the apricots that are supplied.
c.
There would be a surplus of apricots.
d.
Farmers would reduce the number of acres allocated to the growing of apricots.
123. Which of the following would occur if the government sets a price floor of $4 in the market shown in
Exhibit 4-10?
a.
There would be a shortage of apricots.
b.
Buyers would not purchase all of the apricots that are grown.
c.
Buyers would purchase more apricots than are currently being supplied.
d.
Farmers would reduce the number of acres allocated to the growing of apricots.
124. In Exhibit 4-10, assume that the government initially sets a price floor of $4 for apricots, and then
removes the $4 price floor. What effect will this price change have?
a.
The price of apricots will rise.
b.
The quantity of apricots demanded will fall.
c.
The quantity of apricots supplied will decline.
d.
Quantity supplied will continue to exceed quantity demanded.
Exhibit 4-11 Data on supply and demand
Bushels demanded
per month
Price per
bushel
Bushels supplied
per month
45
$5
77
50
4
73
56
3
68
61
2
61
67
1
57
125. In Exhibit 4-11, the equilibrium price per bushel of wheat is:
a.
$1.
c.
$3.
b.
$2.
d.
$4.
126. Which of the following would occur if the government imposed a price floor (support price) of $4 per
bushel in the wheat market shown in Exhibit 4-11?
a.
Buyers would want to purchase more wheat than is supplied.
b.
Buyers would not purchase all of the wheat grown.
c.
Shortage of wheat would increase the price of wheat.
d.
Farmers would grow less wheat.
127. Market failure can result from market outcomes that:
a.
result in too few resources devoted to a good.
b.
result in too many resources devoted to a good.
c.
may justify government intervention.
d.
all of these.
128. Which of the following is an example of market failure?
a.
Public goods.
c.
Lack of competition.
b.
Externalities.
d.
all of these.
129. Which of the following is not a market failure?
a.
A lack of competition in some markets.
b.
Prices determined in competitive markets, which consumers, as individuals, have no
control over.
c.
The presence of externalities in some markets.
d.
A lack of public goods desired by a majority of citizens.
e.
Income inequality.
130. Collusive action among producers creates higher prices for consumers because it:
a.
causes overproduction and inefficiency.
b.
creates negative externalities.
c.
forces producers to be more competitive.
d.
allows producers to artificially restrict their supply.
131. Which of the following correctly describes the external benefit resulting from an individual’s purchase
of a winter flu shot?
a.
The flu shot is cheaper than the cost of treatment when you get the flu.
b.
The income of doctors increases when you get the flu shot.
c.
The flu shot reduces the likelihood others will catch the flu.
d.
The flu shot reduces the likelihood you will miss work as the result of sickness; therefore,
you will earn more income.
132. Which of the following is the best example of an action that imposes an external cost?
a.
Wear and tear on your car as the result of frequent use.
b.
Deterioration in the average quality of a house you own as the result of poor maintenance.
c.
Water pollution from an upstream factory that increases the cost of providing clean water
to downstream residents.
d.
A rose garden on your property from which your neighbor gets much enjoyment.
133. Compared to ideal economic efficiency, when the production of a good generates external costs,
competitive markets will result in an output that is too:
a.
large and a price that is too high.
c.
small and a price that is too high.
b.
large and a price that is too low.
d.
small and a price that is too low.
134. When the consumption of a good generates an external benefit:
a.
the private benefit consumers receive from the good will be higher than the true social
benefit.
b.
too much of the good will tend to be produced from the viewpoint of economic efficiency.
c.
the community generally suffers an exactly offsetting external cost from the production of
the good.
d.
the market demand curve will understate the total benefits derived from consumption of
the good, and as a result, too little of it will be produced and consumed.
135. A vaccination shot provides a(n):
a.
beneficial opportunity cost.
c.
out-resourcing benefit.
b.
positive externality.
d.
managed-care opportunity benefit.
136. A cost or benefit of a good imposed on people other than the consumers or producer of a good is called
a(n):
a.
public good.
c.
private good.
b.
merit good.
d.
externality.
137. 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.
138. Why do negative externalities like pollution result in inefficiency?
a.
Because producers artificially restrict their supply.
b.
Because producers ignore the external costs they impose on third-parties.
c.
Because producers manufacture more goods than people can afford to buy.
d.
Because producers will receive an unequal distribution of profits.
139. External benefits cause the market to:
a.
underallocate resources.
c.
set excessively high prices.
b.
be more efficient.
d.
have persistent shortages.
140. A good that provides external benefits to society has:
a.
too few resources devoted to its production.
b.
too many resources devoted to its production.
c.
the optimal resources devoted to its production.
d.
not provided profits to producers of the good.
141. A third party is:
a.
the party to which a contractual agreement is meant to benefit.
b.
a person, or persons, who are unintentionally affected by a market transaction.
c.
the third person in a three-way contract.
d.
the person who owns the property right in a contract.
e.
when the government attempts to mediate a dispute between management and labor.
142. 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.
unintended benefits or costs imposed on third parties as a result of economic activity.
e.
an act, caused by a firm located in this country, which has an effect on a person in a
foreign country.
143. Which of the following is an example of a negative externality?
a.
A Japanese company begins to produce cars, which causes American workers to lose their
jobs.
b.
An employee of a chemical company spills acid on his arm, causing severe damage.
c.
John plants fruit trees in his front yard, which attracts bees, which sting neighbor Mary.
d.
Sally buys coffee at McDonald’s, spills some on her, and burns her arm.
e.
Jack attempts to fix his roof, falls off, and breaks his leg.
144. 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.
e.
won the state lottery.
145. Market failure occurs when supply and demand curves only reflect:
a.
private or market costs and benefits.
c.
external benefits.
b.
external costs and benefits.
d.
external costs.
146. Which of the following is a free rider?
a.
Butch breeds the feared pit bulls, and his neighbors now erect fences around their
property.
b.
Fred watches many public television programs, but he has never sent in a contribution.
c.
Barry steals candy from the store where he works.
d.
Betty regularly uses the local public library.
e.
Joe drives 20,000 miles a year on public streets, but he pays no more in taxes than Sam,
who only drives 1,000 miles.
147. 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 cleanup due to the presence of cigarette butts.
d.
Price of the pack of cigarettes.
e.
Cost to the government to pay the hospital expenses of indigent smokers.
148. Which of the following would be an external cost to the consumption of cigarettes?
a.
Price of a pack of cigarettes.
b.
Loss of income resulting from extra missed days of work.
c.
Higher life insurance premiums due the practice of smoking.
d.
The loss in utility received because the smoker must stand outside her office building in
the winter to smoke.
e.
Increased risk of cancer to the nonsmoking passengers in the smoker’s carpool.
149. Which of the following would be a private cost to a cigarette manufacturer?
a.
Price of leaf tobacco.
b.
Cost to the government of the hospital expenses of indigent smokers.
c.
Increased risk of cancer to the nonsmoking passengers in the smoker’s carpool.
d.
Price of a pack of cigarettes.
e.
The loss in utility received because the smoker must stand outside her office building in
the winter to smoke.
150. Which of the following would be an external cost associated with the manufacture of cigarettes?
a.
Price of a pack of cigarettes.
b.
Price of leaf tobacco.
c.
Cost to the government of the hospital expenses of indigent smokers.
d.
Cost to the employer of the higher health insurance premiums due to the hiring of a
smoker.
e.
Cost to the employer of the extra effort lost due to the increased missed days of work as a
result of smoking.
151. 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.
e.
overstate the true cost of producing the product.
152. 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 these products through subsidies.
e.
Establish strict limits on the amount of pollution allowed.
153. The possibility of a free rider exists:
a.
in the presence of external costs and benefits.
b.
only in the presence of external costs.
c.
only in the presence of external benefits.
d.
only in the presence of internal costs.
e.
only in the presence of a government-produced good.
154. 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
e.
external costs of consumption.
155. In the presence of positive externalities, a free market will choose a price which is too ____ and
produce an output which is too ____ compared with the social optimum.
a.
high; low
b.
low; low
c.
high; high
d.
low; high
e.
marginal; inequitable
156. Unintended costs that are imposed in third parties as a result of an economic activity are called:
a.
marginal costs.
b.
direct costs.
c.
negative externalities.
d.
positive externalities.
e.
positive costs.
157. If a chemical factory causes noxious fumes to be emitted in the neighborhood, a third party would be:
a.
workers at the factory.
b.
factory managers.
c.
chemical customers.
d.
local homeowners.
e.
owners of the factory.
158. Which of the following would generate positive externalities?
a.
Flu vaccinations.
b.
Farmers’ use of pesticides.
c.
Cigarette smoking in elevators.
d.
Litter left at the beach.
e.
An unkept front yard.
159. Which of the following is an example of a negative externality?
a.
Planting flowers in your front yard.
b.
Talking loudly when others are trying to study economics.
c.
People donating money to charity.
d.
The price of bread increases.
e.
Accidentally pushing someone as you try to cross the street.
160. 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.
c.
a negative externality.
b.
external costs.
d.
a positive externality.
161. Bobby’s neighbor is growing a tree that is blocking Bobby’s ocean view. Bobby is considering taking
his neighbor to court. This is most likely an example of a:
a.
considerate neighbor.
b.
public good.
c.
free rider.
d.
positive externality.
e.
negative externality.
162. 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 neighbor’s beautiful front yard increases your home value.
d.
Someone drives a car that emits thick black smoke.
e.
People who live near a bakery enjoy the smell of baked bread.
163. Third-party beneficiaries are called:
a.
polluters.
b.
property owners.
c.
free riders.
d.
efficient market.
e.
losers.
164. Pete throws leftover bread onto his front lawn because he enjoys watching the pigeons feeding. His
neighbor 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.
privatization.
d.
third-party benefits.
e.
well-defined property rights.
165. Dina is driving to work on an interstate highway at 90 MPH, well in excess of the legal speed of 65
MPH. Sandy is also driving to work at the same time, going 85 MPH. A state trooper pulls Dina over
and gives her a speeding ticket. Sandy continues driving, but if Dina had not been speeding, the
trooper would have ticketed Sandy instead. In terms of externalities, this story shows that:
a.
Sandy’s actions gave Dina a positive externality.
b.
Dina’s actions gave Sandy a positive externality.
c.
Sandy’s actions gave Dina a negative externality.