99. The “invisible hand” refers to
a.
the marketplace guiding the self-interests of market participants into promoting general economic well-being.
b.
the fact that social planners sometimes have to intervene, even in perfectly competitive markets, to make those
markets more efficient.
c.
the equality that results from market forces allocating the goods produced in the market.
d.
the automatic maximization of consumer surplus in free markets.
100. The “invisible hand” is
a.
used to describe the welfare system in the United States.
b.
a concept developed by Adam Smith to describe the virtues of free markets.
c.
a concept used by J.M. Keynes to describe the role of government in guiding the allocation of resources in the
economy.
d.
a term used by some economists to characterize the role of government in an economy — inevitable but
invisible.
101. Laissez-faire is a French expression which literally means
a.
b.
c.
d.
102. The French expression used by free-market advocates, which literally translates as “allow them to do,” is
a.
laissez-faire.
b.
je ne sais pas.
c.
si’l vous plait.
d.
tête-à-tête.
103. If the government allowed a free market for transplant organs such as kidneys to exist, the
a.
shortage of organs would be eliminated, and there would be no surplus of organs.
b.
shortage of organs would be eliminated, but a surplus of organs would develop.
c.
shortage of organs would persist.
d.
overall well-being of society would remain unchanged.
104. If the government allowed a free market for transplant organs such as kidneys to exist, critics argue that such a
market would
a.
not reduce the shortage of organs.
b.
benefit rich people but not poor people.
c.
be inefficient because markets are not good at allocating scarce resources.
d.
be inferior to a plan imposed by a benevolent dictator.
105. If the government allowed a free market in organs for transplant there would be
a.
a decrease in the shortage of organs for transplant.
b.
a decrease in producer surplus.
c.
an decrease in consumer surplus
d.
an increase in the waiting period for transplant organs.
106. At present, the maximum legal price for a human kidney is $0. The price of $0 maximizes
a.
consumer surplus but not producer surplus.
b.
producer surplus but not consumer surplus.
c.
both consumer and producer surplus.
d.
neither consumer nor producer surplus.
107. If the United States changed its laws to allow for the legal sale of a kidney, which of the following is likely to occur?
a.
The price of kidneys would rise to balance supply and demand.
b.
The gains from trade would make both buyers and sellers better off.
c.
Thousands of lives would be saved.
d.
All of the above are correct.
108. If the United States changed its laws to allow for the legal sale of a kidney, which of the following is least likely to
occur?
a.
The supply of kidneys would increase.
b.
The shortage of kidneys would decrease.
c.
Many lives would be saved.
d.
The allocation of kidneys would be fair.
109. According to many economists, government restrictions on ticket scalping do all of the following except
a.
inconvenience the public.
b.
reduce the audience for cultural and sports events.
c.
waste police officers’ time.
d.
keep the cost of tickets to all consumers low.
110. Economists tend to see ticket scalping as
a.
a way for a few to profit without producing anything of value.
b.
an inequitable interference in the orderly process of ticket distribution.
c.
a way of increasing the efficiency of ticket distribution.
d.
an unproductive activity which should be made illegal everywhere.
111. Many economists believe that restrictions against ticket scalping result in each of the following except
a.
a smaller audience for cultural and sporting events.
b.
shorter lines at cultural and sporting events.
c.
less tax revenue for the state.
d.
an increase in ticket prices.
112. The 2005 Boston Globe article discussing ticket scalping points out that the price people will pay for tickets will rise
when
a.
supply and demand are both limited.
b.
supply is limited and demand is not limited.
c.
supply is limited and demand is not limited.
d.
supply and demand are both not limited.
113. Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for
widgets to $6, producer surplus
a.
would necessarily increase even if the higher price resulted in a surplus of widgets.
b.
would necessarily decrease because the higher price would create a surplus of widgets.
c.
might increase or decrease.
d.
would be unaffected.
114. Suppose that the equilibrium price in the market for tomatoes is $3 per pound. If a law reduced the maximum legal
price for tomatoes to $2 per pound,
a.
any possible increase in consumer surplus would be larger than the loss of producer surplus.
b.
any possible increase in consumer surplus would be smaller than the loss of producer surplus.
c.
the resulting increase in producer surplus would be larger than any possible loss of consumer surplus.
d.
the resulting increase in producer surplus would be smaller than any possible loss of consumer surplus.
115. Suppose that the equilibrium price in the market for widgets is $5. If a law increased the minimum legal price for
widgets to $6,
a.
the resulting increase in consumer surplus would be larger than any possible loss of producer surplus.
b.
the resulting increase in consumer surplus would be smaller than any possible loss of producer surplus.
c.
any possible increase in producer surplus would be larger than the loss of consumer surplus.
d.
any possible increase in producer surplus would be smaller than the loss of consumer surplus.
116. Total surplus in a market will increase when the government
a.
imposes a binding price floor or a binding price ceiling on that market.
b.
imposes a tax on that market.
c.
Both a and b are correct.
d.
Neither a nor b is correct.
117. Total surplus in a market will increase when the government
a.
imposes a tax on that market.
b.
imposes a binding price floor on that market.
c.
removes a binding price ceiling from that market.
d.
None of the above is correct.
118. If a market is allowed to adjust freely to its equilibrium price and quantity, then an increase in demand will
a.
increase producer surplus.
b.
reduce producer surplus.
c.
not affect producer surplus.
d.
Any of the above are possible.
119. If a market is allowed to move freely to its equilibrium price and quantity, then an increase in supply will
a.
increase consumer surplus.
b.
reduce consumer surplus.
c.
not affect consumer surplus.
d.
Any of the above are possible.
120. A simultaneous increase in both the demand for MP3 players and the supply of MP3 players would imply that
a.
both the value of MP3 players to consumers and the cost of producing MP3 players has increased.
b.
both the value of MP3 players to consumers and the cost of producing MP3 players has decreased.
c.
the value of MP3 players to consumers has decreased, and the cost of producing MP3 players has increased.
d.
the value of MP3 players to consumers has increased, and the cost of producing MP3 players has decreased.
121. Tomato sauce and spaghetti noodles are complementary goods. A decrease in the price of tomatoes will
a.
increase consumer surplus in the market for tomato sauce and decrease producer surplus in the market for
spaghetti noodles.
b.
increase consumer surplus in the market for tomato sauce and increase producer surplus in the market for
spaghetti noodles.
c.
decrease consumer surplus in the market for tomato sauce and increase producer surplus in the market for
spaghetti noodles.
d.
decrease consumer surplus in the market for tomato sauce and decrease producer surplus in the market for
spaghetti noodles.
122. Hot dogs and hot dog buns are complements. An increase in the price of flour used to make hot dogs buns will
a.
increase consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot
dogs.
b.
increase consumer surplus in the market for hot dogs and increase producer surplus in the market for hot dog
buns.
c.
decrease consumer surplus in the market for hot dog buns and increase producer surplus in the market for hot
dogs.
d.
decrease consumer surplus in the market for hot dog buns and decrease producer surplus in the market for hot
dogs.
123. Steak and chicken are substitutes. A sharp reduction in the supply of steak would
a.
increase consumer surplus in the market for steak and decrease producer surplus in the market for chicken.
b.
increase consumer surplus in the market for steak and increase producer surplus in the market for chicken.
c.
decrease consumer surplus in the market for steak and increase producer surplus in the market for chicken.
d.
decrease consumer surplus in the market for steak and decrease producer surplus in the market for chicken.
124. Corn chips and potato chips are substitutes. Good weather that sharply increases the corn harvest would
a.
increase consumer surplus in the market for corn chips and decrease producer surplus in the market for potato
chips.
b.
increase consumer surplus in the market for corn chips and increase producer surplus in the market for potato
chips.
c.
decrease consumer surplus in the market for corn chips and increase producer surplus in the market for potato
chips.
d.
decrease consumer surplus in the market for corn chips and decrease producer surplus in the market for potato
chips.
125. PlayStations and PlayStation games are complementary goods. A technological advance in the production of
PlayStations will
a.
increase consumer surplus in the market for PlayStations and decrease producer surplus in the market for
PlayStation games.
b.
increase consumer surplus in the market for PlayStations and increase producer surplus in the market for
PlayStation games.
c.
decrease consumer surplus in the market for PlayStations and increase producer surplus in the market for
PlayStation games.
d.
decrease consumer surplus in the market for PlayStations and decrease producer surplus in the market for
PlayStation games.
126. If the current allocation of resources in the market for hammers is inefficient, then it must be the case that
a.
producer surplus exceeds consumer surplus in the market for hammers.
b.
consumer surplus exceeds producer surplus in the market for hammers.
c.
the sum of consumer surplus and producer surplus could be increased by moving to a different allocation of
resources.
d.
the costs that sellers of hammers are incurring could be reduced by moving to a different allocation of
resources.
127. If the current allocation of resources in the market for wallpaper is efficient, then it must be the case that
a.
producer surplus equals consumer surplus in the market for wallpaper.
b.
the market for wallpaper is in equilibrium.
c.
on the last unit of wallpaper that was produced and sold, the value to buyers exceeded the cost to sellers.
d.
All of the above are correct.
128. Five hundred units of good x are currently bought and sold. The marginal buyer is willing to pay $40 for the 500th
unit, and the cost to the marginal seller is $35 for the 500th unit. We know that
a.
the equilibrium price of good x is somewhere between $35 and $40.
b.
the equilibrium quantity of good x exceeds 500 units.
c.
500 units is not an efficient quantity of good x.
d.
All of the above are correct.
129. A simultaneous decrease in both the demand for MP3 players and the supply of MP3 players would imply that
a.
both the value of MP3 players to consumers and the cost of producing MP3 players has increased.
b.
both the value of MP3 players to consumers and the cost of producing MP3 players has decreased.
c.
the value of MP3 players to consumers has decreased, and the cost of producing MP3 players has increased.
d.
the value of MP3 players to consumers has increased, and the cost of producing MP3 players has decreased.
130. Economists say that a market where goods are not consumed by those valuing the goods most highly is
a.
laissez-faire..
b.
unequal.
c.
inefficient.
d.
rational.
131. Which of the following is not equal to total surplus?
a.
consumer surplus – producer surplus
b.
buyers’ willingness to pay – sellers’ costs
c.
value to buyers – amount paid by buyers + amount received by sellers – cost to sellers
d.
value to buyers – cost to sellers
132. Total surplus measures the
a.
loss to buyers from paying higher prices plus the benefit to sellers from receiving lower prices.
b.
buyers’ willingness to pay less the sellers’ costs.
c.
fairness of the distribution of resources in society.
d.
value to the government of goods and services sold in society.
133. Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost.
Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than
Cassie. Which of the following market outcomes is efficient?
a.
Firm A produces a monitor that Cassie buys. David does not purchase a monitor.
b.
Firm A produces a monitor that David buys.
c.
Firm B produces a monitor that Cassie buys. David does not purchase a monitor.
d.
Firm B produces a monitor that David buys.
134. Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost.
Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than
Cassie. If Firm B produces a monitor that David buys, then the market outcome illustrates which of the following
principles?
(i)
Free markets allocate the supply of goods to the buyers who value them most highly, as
measured by their willingness to pay.
(ii)
Free markets allocate the demand for goods to the sellers who can produce them at the
least cost.
a.
(i) only
b.
(ii) only
c.
both (i) and (ii)
d.
neither (i) nor (ii)
135. Suppose that Firms A and B each produce high-resolution computer monitors, but Firm A can do so at a lower cost.
Cassie and David each want to purchase a high-resolution computer monitor, but David is willing to pay more than
Cassie. If Firm A produces a monitor that Cassie buys but David does not, then the market outcome illustrates which of
the following principles?
(i)
Free markets allocate the supply of goods to the buyers who value them most highly, as
measured by their willingness to pay.
(ii)
Free markets allocate the demand for goods to the sellers who can produce them at the
least cost.
a.
(i) only
b.
(ii) only
c.
both (i) and (ii)
d.
neither (i) nor (ii)