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342 Miller Economics Today, 16th Edition
115) When supply increases and at the same time demand decreases, we
A) can predict that both equilibrium price and quantity will increase.
B) can predict that both equilibrium price and quantity will decrease.
C) cannot predict equilibrium quantity, but know that equilibrium price will decrease.
D) cannot predict the change in either the equilibrium quantity or equilibrium price.
116) Suppose there is a simultaneous increase in demand and increase in supply. Given this
information, we know with certainty that
A)
b
oth the equilibrium price and the equilibrium quantity will increase.
B) the equilibrium price will increase, and the equilibrium quantity will increase.
C) the equilibrium quantity will increase.
D) the equilibrium price will increase.
117) If producers must receive a higher price to be induced to produce any quantity, we can conclude
that
A) supply decreased. B) demand decreased.
C)
b
oth supply and demand increased. D) demand increased.
118) In the market for domestic avocados, what would happen to the market clearing price and the
equilibrium quantity if there was a drought in avocado growing areas?
A) The market clearing price would rise, and the equilibrium quantity would rise.
B) The market clearing price would fall, and the equilibrium quantity would rise.
C) The market clearing price would rise, and the equilibrium quantity would fall.
D) The market clearing price would fall, and the equilibrium quantity would fall.
119) Using a graph, show a market equilibrium. Suppose the costs of inputs increase. How is this
shown on the graph? Explain what is happening in the market.
120) Suppose that the market for coffee is in equilibrium at a price of $1.50 per pound and a monthly
quantity of 20 million pounds. News of a freeze in Brazil arrives so that people know that the
supply of coffee months from now will be sharply reduced. What, if anything, will happen in
the coffee market now? Explain.
121) Suppose that initially a market is in equilibrium at a price of $10 and a quantity of 5000 units per
day. Several months later, the market is in a new equilibrium at a price of $5 and a quantity of
5000 units per day. What happened in the market?
122) Describe the market process that should occur if the price of a product is below its equilibrium
price; now describe what would occur if the price is above its equilibrium price, assuming no
market interference.
123) Would it take longer for a labor market to move to a new equilibrium for house painters or
architects? Why?
124) Assume that CDs are a normal good and that the price of stereo equipment falls while the labor
costs of producing CDs increase. What will happen in the market for CDs?
125) Suppose local educators argue that teachers salaries are too low. At the same time it is said that
the school district received 750 applications for 5 new openings. Are salaries too low? Explain.
4.3 The Rationing Function of Prices
1) In economic terms, the total price of a pound of meat for an individual who has waited in line is
A) the money price paid to the butcher for the pound of meat.
B) the money price of meat relative to the price of bread or other necessity.
C) the money price of the meat plus the opportunity cost of time spent waiting in line.
D) the money price of an equal amount of meat substitute, such as beans and rice.
2) According to the text, during World War II rationing was conducted in the U.S. through the use
of
A) queuing. B) lotteries. C) coupons. D) sharing.
3) In a market, the rationing function of prices results in
A) long queues or waiting lines. B) a price ceiling.
C) equilibrium. D) a shortage or surplus.
4) Queuing is a way to ration goods
A) on a first come, first serve basis. B) through prices.
C) through the use of political power. D) through markets.
5) Which of the following statements about a price system is true?
I. Prices ration goods and services.
II. Prices indicate relative scarcity.
A) I only B) II only C) Both I and II D) Neither I nor II
6) Ways to ration goods include
A) first come, first served. B) political power.
C) prices. D) all of the above.
7) A long line at the campus bookstore at the beginning of the term is an example of
A) price rationing. B) an ineffective price ceiling.
C) a non price rationing device. D) an ineffective price floor.
8) Other things being equal, a higher price induces
A)
b
uyers to reduce the amount they want to buy and sellers to increase the amount they are
willing to sell.
B)
b
uyers to increase the amount they want to buy and sellers to reduce the amount they are
willing to sell.
C)
b
uyers to reduce the amount they want to buy and sellers to reduce the amount they are
willing to sell.
D)
b
uyers to increase the amount they want to buy and sellers to increase the amount they are
willing to sell.
9) Prices in a market economy perform a rationing function because they reflect
A) the demand of all buyers in the market.
B) the extent to which the goods are necessities.
C) the strength of the supply curve.
D) the relative scarcity of the goods.
10) When a government imposes price controls, the result is that
A) the rationing function of prices is not allowed to function freely.
B) the price system operates more efficiently.
C) all trades are as mutually beneficial to each party as possible.
D) scarcity usually disappears.
11) In a world of scarcity, there has to be some way to ration the available resources. According to
economists, the most efficient use of available resources occurs when rationing occurs via
A) queuing. B) lotteries.
C) political power. D) the price system.
12) Which of the following will tend to occur when a surplus exists in a market?
A) supply will increase and demand will decrease until the surplus disappears.
B) supply will decrease and demand will increase until the surplus disappears.
C) the price will tend to rise over time.
D) the price will tend to decrease over time.
13) Relative scarcities are indicated by
A) supply and demand being out of equilibrium.
B) surpluses.
C) excess demand and excess supply.
D) relative prices.
14) The rationing function of prices refers to
A) the situation when government must intervene in a market when there is a large shortage
or surplus.
B) the synchronization of decisions by buyers and sellers that leads to an equilibrium.
C) the synchronization of decisions by buyers and sellers through the direction of
government agencies.
D) the situation when only the rich get the goods they want.
15) All other factors being constant, a reduction in price tends to cause which of the following?
A) an increase in supply and an increase in demand.
B) a reduction in supply and an increase in demand.
C) an increase in quantity supplied and a reduction in quantity demanded.
D) a reduction in quantity supplied and an increase in quantity demanded.
16) Prices provide the rationing function best when
A) prices are flexible.
B) prices are inflexible.
C) they are used in conjunction with queuing.
D) price controls are in place and ration coupons are used too.
17) When prices are used as a rationing device, goods that are relatively more scarce than they used
to be will have
A) greater demand. B) lower excess demands.
C) higher prices. D) long queues.
18) Which of the following statements is NOT true about the rationing of goods?
A) Goods can only be rationed by price.
B) Goods can be rationed on a first come first serve basis.
C) Goods can be rationed by random.
D) Goods can be rationed by the use of coupons.
19) Prices ration goods to
A) the people who most deserve it.
B) the people with the lowest opportunity cost of time.
C) the people willing and able to pay the highest price.
D) the richest people.
20) In a freely operating market system, queuing is most likely to occur when
A) selling necessities.
B) the market clearing price increases.
C) demand fluctuates unpredictably and quickly.
D) demand increases gradually over time.
21) In situations in which prices cannot be used to signal relative scarcities of goods, which of the
following can serve as a rationing mechanism?
A) queuing B) political power
C) random assignment D) all of the above
22) Rationing through the price system
A) leads to an inefficient use of available resources.
B) leads to high prices.
C) works only with government interference.
D) leads to an efficient use of available resources.
23) Rationing of resources, goods, and services
A) is not required under the price system. B) is required because of scarcity.
C) must be done by the government. D) happens only when the price is zero.
24) Rationing occurs for goods
A) that have a positive price. B) that have a zero price.
C) that have a negative price. D) that are not manufactured.
25) Rationing goods on the basis of price is a direct result of
A) scarcity. B) queuing.
C) government intervention. D) the profit motive.
26) What would happen in the market for bread if its demand increased but the price was NOT
allowed to change?
A) There would be a surplus of bread. B) There would be a shortage of bread.
C) The supply of bread would increase. D) The supply of bread would decrease.
27) Why does a sports car cost more than a mountain bike?
A)
b
ecause sports car manufacturers are greedier than mountain bike manufacturers
B)
b
ecause sports cars are priced higher in order to make them attractive as status symbols
C)
b
ecause more scarce resources are required to produce a sports car than to produce a
mountain bike
D)
b
ecause mountain bike manufacturers know that their customers have relatively low
incomes
28) Why does an economy need a rationing mechanism?
A)
b
ecause of scarcity
B)
b
ecause it preserves the power of the wealthy
C)
b
ecause it eliminates poverty
D) All of the above are correct.
29) Prices play a role in a market
A)
b
ecause they distribute scarce goods to those consumers who value them most highly.
B)
b
ecause when prices are in equilibrium, product shortages or surpluses can occur.
C)
b
ecause they help eliminate poverty.
D)
b
ecause they eliminate scarcity.
30) Which of the following statement is false?
A) Only the price system can be used to ration goods.
B) Random assignment can be a method of rationing.
C) Coupons can be used to ration goods.
D) Queuing can be used for rationing.
31) Which one of the following statements is true?
A) An effective price ceiling results in a surplus of the good.
B) An effective price floor results in a shortage of the good.
C) When the market clearing price of a good is the equilibrium, then everyone can afford it.
D) The market clearing price of a good reflects its relative scarcity.
32) All of the following are methods of rationing goods EXCEPT
A) political power. B) the profit motive.
C) first come, first served. D) prices.
33) Because of scarcity, rationing is
A) unimportant because people get what they want.
B) necessary because people cannot get everything they want.
C) unimportant because prices clear markets.
D) not a problem because governments can determine what everybody wants.
34) Which of the following are ways to ration goods and services?
A) price B) physical force
C) political power D) All of the above are correct.
35) The price rationing mechanism of a freely functioning market leads to the most efficient use of
resources because
A) all gains from mutually beneficial trade are captured.
B) the Federal Trade Commission regulates the market.
C) of the rise of the legislative apparatus that supports trade.
D) the Justice Department monitors market activities.
36) Which rationing system leads to the most efficient use of available resources?
A) free market B) physical force
C) first come, first served D) random assignment
37) Scarcity implies that some way of rationing goods must be found. Explain what this statement
means. How is this rationing done?
4.4 The Policy of Government Imposed Price Controls
1) Price floors are designed to
A) establish a minimum allowable price.
B) allow free market prices to be achieved.
C) create shortages where none existed before.
D) none of the above.
2) In order to be effective, a price floor
A) must be set below equilibrium price. B) must be set above equilibrium price.
C) must be set at equilibrium price. D) must be a zero price.
3) If the government sets a minimum price at which a good or service can be sold, it thereby
creates
A) a price ceiling. B) a black market price.
C) a price floor. D) an illegal price control.
4) Price ceilings are adopted in most cases because
A) the government views the current equilibrium price as too high for consumers.
B) the government wants to create surpluses.
C) the government favors a non intervention policy.
D) producers need incentives to produce more of the good or service.
5) Which of the following statements is FALSE?
A) The rationing function of prices is not allowed to freely operate when the government
imposes price controls.
B) Price controls may take the form of price ceilings or price floors.
C) Price ceilings below the equilibrium price can cause black markets to develop.
D) Rent controls are examples of price floors.
6) Price ceilings set below the equilibrium price cause
A) shortages. B) surpluses.
C) a new market equilibrium. D) a greater number of exchanges.
7) Price floors
A) provide free market incentives for producers.
B) create surpluses by setting the price above equilibrium.
C) create shortages by setting the price above equilibrium.
D) are used by advocates of the free market.
8) A price floor set above a market equilibrium price causes
A) a surplus. B) a shortage.
C) producers to receive lower prices. D) consumers to pay lower prices.
9) Governments may intervene in private markets through
A) rationing by political power. B) price floors.
C) price ceilings. D) all of the above.
10) Price controls may be thought of as
A) a restraint on the rationing function of prices.
B) useful tools that promote production.
C) necessary in market economies.
D) the freeing up of free market forces.
11) If a price floor is set below the current market clearing price, then
A) a surplus must immediately occur.
B) a shortage must immediately occur.
C) there will be incentives for black markets to develop.
D) quantity demanded will remain equal to quantity supplied at the current market clearing
price.
12) Excess quantity demanded may result from
A) a government imposed minimum price above market equilibrium.
B) a government imposed maximum price below market equilibrium.
C) an oversupply of output.
D) technological progress.
13) If a price ceiling is set above the current market clearing price, then
A) a surplus must immediately occur.
B) a shortage must immediately occur.
C) there will be incentives for black markets to develop.
D) quantity demanded will remain equal to quantity supplied at the current market clearing
price.
14) A price floor above the market clearing price typically results in
I. an excess quantity supplied
II. a shortage
III. an excess quantity demand
A) I only B) II only C) III only D) II and III only
15) Which of the following is most likely to generate a surplus?
A) A price floor B) A price ceiling
C) An illegal market D) All of these
16) A price ceiling is
A) the lowest price a seller can charge for a good without losing all her customers.
B) a legal minimum price that can be charged for a particular good or service.
C) a legal maximum price that can be charged for a particular good or service.
D) the lowest price a buyer can pay for a good without having to report the purchase to the
government.
17) 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
A) a price control that will lead to a surplus of shirts on the market.
B) a price floor that will lead to a shortage of shirts on the market.
C) markets failing to ration a fixed quantity of a good.
D) a price ceiling that will likely lead to a shortage of shirts on the market.
18) A price floor that is set above market equilibrium will cause
A) an excess quantity demanded. B) a shortage.
C) a surplus. D) queuing on the part of consumers.
19) A maximum legal price that may be charged for a particular good or service is known as a
A) price floor. B) price ceiling. C)
b
lack market. D) price support.
20) Refer to the above figure. Other things being equal, when the government imposes a price floor
at P2, then we would expect
A) the quantity demanded is Q2.
B) a surplus will occur.
C) price to decline until an equilibrium is achieved at P0.
D) consumers to bid against each other for goods and force the price even higher.
21) Refer to the above figure. If government sets the maximum legal price of gasoline at $2 per
gallon, then the $2 limit acts as
A) a price floor. B) a price ceiling.
C) an equilibrium price. D) a just price.
22) Refer to the above figure. At a price of $2 per gallon, there is
A) a surplus of 20,000 gallons per month. B) a shortage of 40,000 gallons per month.
C) a shortage of 80,000 gallons per month. D) a shortage of 60,000 gallons per month.
23) Refer to the above figure. At a price of $2 per gallon, the quantity demanded of gasoline is
A) 80,000 gallons per month. B) 100,000 gallons per month.
C) 60,000 gallons per month. D) 140,000 gallons per month.
24) Refer to the above figure. If the government set a price floor of $3.50 per gallon, there would be
A) an excess quantity demanded equal to 100,000 gallons.
B) an excess quantity supplied equal to the distance BD.
C) an excess quantity supplied equal to the distance BF.
D) an excess quantity supplied equal to 100,000 gallons.
25) Government policies such as price controls, rent controls, and quantity restrictions have the
effect of
A) promoting the attainment of an unhindered market equilibrium.
B) allowing quantity demanded to adjust to equality with aggregate supply.
C) creating excess quantities demanded or excess quantities supplied.
D) pushing prices to market clearing levels more rapidly than private market forces.
26) In a situation in which rationing is by queues, the total price of the rationed good is
A) equal to the funds paid for the good.
B) less than the funds paid for the good.
C) equal to the funds paid for the good plus the opportunity cost of the time spent waiting.
D) equal to the funds paid for the good less the opportunity cost of the time spent waiting.
27) When the government sets a maximum price that can be charged for a good or service, it creates
A) a price support. B) a price floor.
C) a white market. D) a price ceiling.
28) A black market is a market in which
A) goods are traded at prices above their legal maximum prices.
B) sales taxes are effectively doubled.
C) goods are sold at outlet prices.
D) sales take place exclusively at outlet prices.
29) If a price ceiling were established above the equilibrium price,
A) it would have no effect on the quantity demanded.
B) it would create a shortage.
C) it would create a surplus.
D) none of the above.
30) A price ceiling below the market clearing price results in
I. excess quantity demand
II. excess quantity supplied
III. entry of new producers
A) I only B) II only C) III only D) Both I and III
31) Which of the following is NOT a predictable result of a price ceiling set below the market
clearing price?
A) An illegal market in the good B) Excess quantity supplied
C) Excess quantity demanded D) Lines to purchase the product
