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Chapter 4 Extensions of Demand and Supply Analysis 395
9) The effect of legislation establishing a minimum wage above the market clearing wage is
A) unemployment. B) a shortage of labor.
C) higher wages for all workers. D) a shift of the demand for labor curve.
10) As a result of establishing a legal minimum wage above the market clearing wage,
A) there will be a shortage of workers. B) firms will hire fewer workers.
C) firms will hire more workers. D) fewer workers will want to work.
11) Refer to the above figure. A minimum wage has been set at WM. The amount of unemployment
is
A) zero.
B) at Qe.
C) QSminus QD.
D) not computable from the information given.
12) A reduction in the minimum wage will tend to cause which of the following?
A) a reduction in poverty
B) an increase in the number of workers employed
C) an increase in the quantity supplied of labor
D) a reduction in the quantity demanded of labor
13) An increase in the minimum wage will tend to cause which of the following to occur?
A) an increase in the size of the surplus of labor
B) a leftward shift in the demand for labor
C) a rightward shift in the supply of labor
D) a reduction in the unemployment rate
14) Since the minimum wage rate began it has typically stayed at about what percentage of the
average manufacturing wage?
A) 10 20 % B) 20 30 % C) 40 50 % D) 75 80 %
15) Many economists estimate that for every 10 % increase in relative minimum wage rates, there is
a corresponding decrease in employment of those affected equal to
A) 5 10 %. B) 1 2 %. C) 10 20 %. D) 30 40 %.
16) The minimum wage laws seek to
A) penalize employers that are not complying with labor laws.
B) assure a minimum standard of payment for work.
C) assure that all workers are paid the same wage rate.
D) help teenagers find work.
17) The effect of a legal minimum wage set above the equilibrium wage rate is
A) an excess quantity of labor demanded.
B) an excess quantity of labor supplied.
C) an increase in the quantity of labor demanded.
D) a decrease in quantity of labor supplied.
18) Minimum wages are examples of
A) a price floor.
B) a price ceiling.
C) the rationing function of prices not working.
D) government increasing the demand for certain products.
19) What are the effects of an increase in the minimum wage? Who would be most affected?
4.8 Quantity Restrictions
1) An import quota is an example of
A) a price ceiling. B) a price floor.
C) a queuing device. D) a quantity restriction.
2) An import quota for sugar results in an increase in
A) the domestic market price of sugar. B) the domestic demand for sugar.
C) the domestic market supply of sugar. D) sugar imports.
3) Government imposed quantity restrictions
A) generate a higher price for the good than would prevail under freely competitive markets.
B) generate a lower price for the good than would prevail under freely competitive markets.
C) does not affect the price of the good because quantity restrictions always ban sale of the
good completely.
D) can cause prices to either be higher or lower, but always cause excess quantities supplied
to develop.
4) An example of a quantity restriction is
A) the minimum wage. B) an import quota.
C) rent controls. D) price supports in agriculture.
5) An import quota will
A) lead to a shift of the demand curve.
B) leave the equilibrium price unchanged and increase the quantity sold.
C) limit the amount of a foreign good that can be brought into the United States.
D) limit the amount of a good local producers can make.
6) A supply restriction that restricts the amount of a good that can be imported is a(n)
A) price floor. B) price ceiling. C)
b
lack market. D) import quota.
7) An import quota is
A) a quantity restriction.
B) a price ceiling.
C) a price floor.
D) something imposed on agricultural goods grown by American farmers.
8) When the government restricts the quantity of a good to zero
A) an underground market develops.
B) there is none of the good available anywhere.
C) people s demand for the product evaporates.
D) producers stop all production.
9) If the government should decide to legalize marijuana, all other things remaining the same, we
should expect to see
A) a decrease in the price of marijuana.
B) an increase in the price of marijuana.
C) a decrease in the demand for marijuana.
D) an increase in the use of imported versus domestic marijuana.
10) A supply restriction on imported goods, such as the government s restriction of imported oil for
many years, is referred to as
A) an export quota. B) an import quota.
C) a price floor. D) a price ceiling.
11) An import quota is a limit on the
A) number of foreign workers allowed to work in a country.
B) number of container ships allowed to enter the territorial waters of the United States.
C) value of low priced foreign goods that are allowed to be imported into the United States.
D) amount of a product that may be imported.
12) A limit on the amount of strawberries that can be imported into the United States is an example
of
A) the rationing function of prices protecting domestic strawberry farmers.
B) a price floor set by the government.
C) a price ceiling set by government.
D) an import quota.
13) When import quotas are imposed by a government,
A) the domestic producers always lower the prices of their products to ensure that their
products are sold.
B) the government is trying to discourage consumers from buying foreign made goods.
C) the supply of the product on the domestic market increases.
D) the price ceiling for the product has to be lowered.
14) An unexpected import restriction imposed on mangoes by the USDA
A) will reduce the price of mangoes in the United States.
B) will increase the price of mangoes in the United States.
C) will discourage American producers of mangoes.
D) will reduce the price of mango juice in the United States.
15) An import quota
A) is a price ceiling imposed on an imported good.
B) is a price floor imposed on an imported good.
C) is a supply restriction limiting the quantity of a good that can be imported.
D) is a legislative requirement stating that firms which import some of their merchandise
must hire a certain number of immigrant workers.
16) The difference between quantity restrictions and price ceilings as to their effect on the market is
that
A) only price ceilings make the market inefficient.
B) only quantity restrictions make the market inefficient.
C) while some consumers gain from price ceilings, no consumers gain from quantity
restrictions.
D) while price ceilings are efficient, quantity restrictions are not.
17) The U.S. government imposes import quotas on many agricultural products, especially products
that receive price supports. Offer an economic explanation for this.
402 Miller Economics Today, 16th Edition
4.9 Appendix B: Consumer Surplus
1) Consumer surplus is
A) the total difference between the total amount that consumers actually pay for an item and
the total amount that they would have been willing to pay.
B) the total difference between the total costs firms incur in producing an item and the utility
consumers derive from purchasing the item.
C) the total difference between the total amount that consumers would have been willing to
pay for an item and the total amount that they actually pay.
D) the total difference between the utility consumers derive from purchasing an item and the
total costs firms incur in producing the item.
2) When consumers would have been willing to pay higher prices at various quantities consumed
than the market clearing price, the differences are called
A) consumer surplus. B) monopoly profits.
C) opportunity cost. D) deadweight loss.
3) Total consumer surplus in a market is measured as the
A) area bounded above the market clearing price and beneath the market demand curve.
B) area bounded below the market clearing price and above the market supply curve.
C) vertical distance from the horizontal (quantity) axis to the market clearing price.
D) horizontal distance from the vertical (price) axis to the equilibrium quantity.
4) For a given market demand curve, if the market clearing price decreases, then the amount of
consumer surplus will
A) decrease.
B) increase.
C)
b
ecome negative.
D) none of the above due to insufficient information
5) The difference between the total amount that people would have been willing to pay for the
total quantity produced and consumed in a market and what they actually pay at the market
clearing price is called
A) production excess. B) excess demand.
C) market surplus. D) consumer surplus.
6) If Niki is willing to pay up to $5 for an ice cream bar but she actually pays $2 for it. The
consumer surplus of the ice cream bar for Niki
A) is $2.
B) is $3.
C) is $7.
D) cannot be determined without information about the market structure.
4.10 Appendix B: Producer Surplus
1) Producer surplus is
A) the total difference between the total amount that producers actually receive for an item
and the total amount that they would have been willing to accept.
B) the total difference between the total costs firms incur in producing an item and the utility
consumers derive from purchasing the item.
C) the total difference between the total amount that consumers are willing to pay for an item
and the total amount that producers would like to receive.
D) the total difference between the utility consumers derive from purchasing an item and the
total costs firms incur in producing the item.
2) When producers would have been willing to accept lower prices at various quantities produced
than the market clearing price, the differences are called
A) producer surplus. B) monopoly profits.
C) opportunity cost. D) deadweight loss.
3) Total producer surplus in a market is measured as the
A) area bounded above the market clearing price and beneath the market demand curve.
B) area bounded below the market clearing price and above the market supply curve.
C) vertical distance from the horizontal (quantity) axis to the market clearing price.
D) horizontal distance from the vertical (price) axis to the equilibrium quantity.
4) For a given market demand curve, if the market clearing price increases, then the amount of
producer surplus will
A) decrease.
B) increase.
C)
b
ecome negative.
D) none of the above due to insufficient information
5) The difference between the total amount that producers would have been willing to accept for
the total quantity produced in a market and what they actually received at the market clearing
price is called
A) production excess. B) excess demand.
C) market surplus. D) producer surplus.
6) If a producer is willing to receive at least $5 for a pen that she manufactures but she actually
receives $7 for it. The producer surplus of the pen for that producer is
A) $5. B) $2. C) $7. D) $5.
Chapter 4 Extensions of Demand and Supply Analysis 405
4.11 Appendix B: Gains from Trade Within a Price System
1) The gains from trade within a price system is
A) the sum of consumer surplus and producer surplus.
B) consumer surplus less producer surplus.
C) consumer surplus divided by producer surplus.
D) consumer surplus multiplied by producer surplus.
2) The gains from consumer surplus and producer surplus occur when
A)
b
oth consumers and producers engage in voluntary exchange.
B) consumers are willing to buy a good but producers are not willing to provide it.
C) producers are willing to provide a good but consumers are not willing to pay for it.
D) the government supplies the good instead of firms.
3) The total gains from trade within a price system is
A) the area beneath the market demand curve and above the market clearing price plus the
area above the market supply curve and beneath the market clearing price.
B) the area beneath the market supply curve and above the market clearing price plus the
area above the market demand curve and beneath the market clearing price.
C) the area beneath the market demand curve and above the market clearing price minus the
area beneath the market supply curve and beneath the market clearing price.
D) always equal to zero.
4.12 Appendix B: Price Controls and Gains from Trade
1) If the government imposes a price ceiling that is lower than the market clearing price, then
A) consumer surplus will increase while producer surplus will decrease.
B) consumer surplus will decrease while producer surplus will increase.
C)
b
oth consumer surplus and producer surplus will decrease.
D)
b
oth consumer surplus and producer surplus will increase.
2) If the government imposes a price floor that is higher than the market clearing price, then
A) consumer surplus will increase while producer surplus will decrease.
B) consumer surplus will decrease while producer surplus will increase.
C)
b
oth consumer surplus and producer surplus will decrease.
D)
b
oth consumer surplus and producer surplus will increase.
3) The total amount of consumer surplus and producer surplus is at its maximum when
A) consumers and producers are allowed to trade at the market clearing price.
B) the government imposes a price floor that is higher than the market clearing price.
C) the government imposes a price ceiling that is lower than the market clearing price.
D) free market exchanges do not exist.
4) As compared to the market clearing price, the total amount of consumer surplus and producer
surplus is
A) greater for a government imposed price floor that is higher than that market clearing
price.
B) greater for a government imposed price ceiling that is lower than that market clearing
price.
C) the same as a government imposed price floor that is higher than that market clearing
price.
D) smaller for a government imposed price ceiling that is lower than that market clearing
price.
