Economics David Colander 11e - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Economics, 11e (Colander) Chapter 5 Using Supply and Demand 1) When gasoline prices rose in the early 2000s, the demand for SUVs fell. An economist would predict that SUV prices …
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Economics David Colander 11e – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Economics, 11e (Colander)
Chapter 5 Using Supply and Demand
1) When gasoline prices rose in the early 2000s, the demand for SUVs fell. An economist would predict that SUV prices would decline or at least not rise as quickly.
Answer: TRUE
Explanation: A shift in demand leads to a reduction in prices.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) Real-world experience shows that when weather conditions reduce crop yields, the price of agricultural products will fall.
Answer: FALSE
Explanation: The effect of reduced yield would be to shift supply to the left, resulting in a higher equilibrium price.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
3) The effect of successful compliance with recycling regulation by homeowners on the market for recycled paper along with a concurrent rise in demand for products made with recycled paper is best shown by a shift to the right in the supply of and demand for recyclable paper and a certain drop in its price.
Answer: FALSE
Explanation: Successful compliance with recycling regulation and increased demand for products using recycled paper would have the described effects on supply and demand. A shift to the right in supply would lead to a certain drop in prices, but a shift to the right in demand would offset that decline leading to uncertain effects on price.
Difficulty: 3 Hard
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) Trade sanctions imposed on Iraq that limited Iraq’s production of oil after the 1990 Gulf War on the oil market are best shown graphically with a price ceiling below equilibrium price.
Answer: FALSE
Explanation: Trade sanctions imposed on Iraq after the 1990 Gulf War on the oil market is best shown graphically with a shift to the left in the world supply of oil. Equilibrium price of oil rose as a consequence.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
5) The minimum wage is an example of a price floor.
Answer: TRUE
Explanation: The minimum wage is the lowest wage a firm can legally pay its employees. This fits the definition of a price floor.
Difficulty: 1 Easy
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) A price floor causes excess demand, resulting in the need to ration by some means other than price.
Answer: FALSE
Explanation: An effective price floor is a price above the equilibrium price so that there is excess supply NOT excess demand.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
7) Given a downward sloping demand curve, a tax on the supply of a good will result in an increase in equilibrium price that is less than the amount of the tax.
Answer: TRUE
Explanation: At a price equal to the original price plus the tax, demanders are not willing to purchase the original quantity. At the original equilibrium price plus the tax, quantity supplied exceeds quantity demanded. To eliminate excess supply, suppliers lower the price until quantity demanded equals quantity supplied.
Difficulty: 3 Hard
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) Tariffs increase equilibrium price and quantity.
Answer: FALSE
Explanation: Tariffs increase equilibrium price and reduce equilibrium quantity. A tariff shifts the supply curve to the left resulting in higher equilibrium price and lower equilibrium quantity.
Difficulty: 1 Easy
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) When the person who chooses how much to purchase doesn’t have to bear the full cost, the quantity demanded tends to be higher.
Answer: TRUE
Explanation: The price to the consumer is lower, so the quantity demanded goes up.
Difficulty: 2 Medium
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
10) When a hurricane destroys a significant portion of an apple crop:
Answer: C
Explanation: This shifts the supply of apples to the left, raising prices and reducing quantity.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
11) The standard supply/demand framework:
Answer: A
Explanation: The standard supply/demand framework can be modified to explain real-world events.
Difficulty: 1 Easy
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
12) Suppose a recent and widely circulated medical article reports new benefits of exercise. Simultaneously, the price of the parts needed to make bikes falls. What is the likely effect on the equilibrium price and quantity of exercise bikes sold?
Answer: D
Explanation: The report shifts the demand for bikes to the right and the fall in input prices for bikes shifts the supply of bikes to the right. The effect on price is ambiguous, but the quantity sold increases.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
13) The U.S. Postal Service printed 150,000 sheets of a stamp depicting Bill Pickett, but recalled them when the USPS realized the image on the stamp was Bill’s brother, Ben, instead. They were unable to recall 183 sheets that had already been sold. The effect of this recall was to:
Answer: C
Explanation: There were 150,000 sheets on the market originally and the recall caused this number to fall to 183 sheets. Graphically, the supply curve shifts to the left and the equilibrium price rises. The demand for these stamps by collectors would likely have been very strong had the postal service not decided to issue the remaining sheets when it recognized it could not recall all of them.
Difficulty: 3 Hard
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
14) The Katrina disaster in New Orleans decreased the ability of oil companies to purify crude oil into gasoline. This caused the:
Answer: A
Explanation: A reduction in gas production unrelated to changes in price shifts the supply of gas inward to the left.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
15) European Union subsidizes its farmers. How do these subsidies make it difficult for farmers in developing economies to compete in the world farm market?
Answer: B
Explanation: The subsidies shift the supply curve out to the right, lowering the price of farm products. Developing countries, who would otherwise have a comparative advantage in agricultural production, cannot compete with the artificially low subsidized prices. Subsidies are not price controls or tariffs.
Difficulty: 3 Hard
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
16) Which of the following would be the most likely effect of a 75 percent tax on punitive awards by juries?
Answer: D
Explanation: The tax would reduce the incentive for plaintiffs to pursue legal actions, resulting in fewer lawsuits. Defendants would likely offer lower amounts to settle out of court and plaintiffs would be more likely to accept a settlement to avoid the tax.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
17) The U.S. imposes substantial taxes on cigarettes but not on loose tobacco. When the tax on cigarettes went into effect, the demand for home cigarette rolling machines most likely:
Answer: C
Explanation: The demand went up enormously; many companies more than quadrupled their sales.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
18) Suppose the price of tomatoes dramatically increases. Which of the following could cause this change?
Answer: A
Explanation: A price rise can be caused by either a leftward shift in supply or a rightward shift in demand. Here is the former, caused by weather.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
19) Online music stores such as Apple’s iTunes provide an alternative to buying CDs. The introduction of online music stores has shifted:
Answer: D
Explanation: The development of a substitute for CDs affects the buyers and makes them less willing to buy CDs. The demand curve for CDs shifts left.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
20) Refer to the following graphs.
Floods in the U.S. Midwest reduce the U.S. corn crop. Which graph depicts the effect of the floods on the U.S. corn market?
Answer: D
Explanation: A flood reduces supply shown by a shift to the left in the supply curve for corn.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
21) At a Chicago Bulls game 20,000 tickets were sold at $30 apiece. The game was sold out and some people did not get tickets. This suggests that the selling price:
Answer: B
Explanation: Since there was excess demand, quantity demanded exceeded quantity supplied suggesting selling price was below equilibrium price.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
22) Season tickets to the Miami Heat games are sold out at $30 a game and some people who wanted to get tickets couldn’t buy them. As the season progresses, it is clear that the Heat will make it to the playoffs. What is the effect on resale price of tickets to Miami Heat games, assuming resale is legal?
Answer: B
Explanation: Prospects of seeing a playoff team will shift demand for resale tickets to the right. As a result the price of resale tickets will rise as will quantity supplied.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
23) In the late 1990s “mad cow” disease caused people to buy less beef. It also caused the EU to ban imported British beef and the British government to ban the sale of older cattle. What is the effect of the following on price and quantity of British beef sold worldwide?
Answer: D
Explanation: The “mad cow disease” scare and the ban on British beef in the EU initially shifted demand for British beef to the left. The move by the British government banning the sale of older cattle shifts the supply of beef to the left increasing price (regaining previous losses), but quantity sold falls even more.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
24) In 1990 the UN placed trade sanctions on Iraqi oil. In 1996, Iraq was allowed limited export of oil to make war reparations. What was the predicted effect of the two events on equilibrium price and quantity of oil?
Answer: C
Explanation: The trade sanction shifts the supply of oil to the left. Price rises and quantity sold falls. Limited ability to export shifts the supply curve to the right (but not as much as the previous shift to the left) and price falls and quantity sold rises.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
25) When computer manufacturers overcame the enormous 13,000 Chinese character barrier by creating a workable keyboard through voice and handwriting recognition, PCs became more accessible to the Chinese. What was the predicted effect of the events on equilibrium price and quantity of PCs sold in China?
Answer: D
Explanation: The innovation that made PCs better able to utilize the Chinese language shifted the demand curve for computers to the right. The price and quantity rose.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
26) U.S. baby boomers are beginning to retire and withdraw their savings for retirement. What effect should we expect this to have on equilibrium price and quantity of financial assets?
Answer: D
Explanation: The retiring of the U.S. baby boomers decreases the demand for financial assets, decreasing the equilibrium price and quantity.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
27) More and more devices are being introduced into the market that perform tasks similar to that of PCs, such as tablets and smartphones. At the same time, the price of computer chips to make high-end PCs continues to fall. What is the effect of the events on equilibrium price and quantity of high-end PCs?
Answer: C
Explanation: The innovations of the Internet as a substitute for high-end PCs shifts the demand for high-end PCs to the left reducing both their price and quantity sold. The reduction in the price of chips to make computers, however, shifts the supply of high-end PCs to the right which further depresses prices, but leads to increased quantity sold (recouping earlier losses).
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
28) An increase in price and decrease in quantity are consistent with a:
Answer: B
Explanation: Only a leftward shift in supply and no shift in demand will result in an increase in price and a decrease in quantity with certainty.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
29) An increase in price and an indeterminate change in quantity are consistent with a:
Answer: D
Explanation: Only a leftward shift in supply and a rightward shift in demand will result in a higher price, but indeterminate change in quantity. A leftward shift in supply and no shift in demand increase price, but also reduce quantity sold.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
30) A decrease in price and an indeterminate change in quantity are consistent with a:
Answer: C
Explanation: Only a leftward shift in demand and a rightward shift in supply will result in a lower price, but indeterminate change in quantity. A leftward shift in demand and no shift in supply decrease price, but also reduce quantity sold.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
31) An increase in quantity and an indeterminate change in price are consistent with a:
Answer: B
Explanation: Only a rightward shift in demand and supply will result in a higher quantity, but indeterminate change in price.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
32) A decrease in quantity and price is consistent with a:
Answer: A
Explanation: Only a leftward shift in demand keeping supply constant will lead (with certainty) to a decrease in quantity and price. A rightward shift in supply and demand increases quantity, but has an indeterminate effect on price. A rightward shift in demand and a leftward shift in supply increase price but have an indeterminate effect on quantity.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
33) Refer to the following graphs.
A recent report indicates that the device known as the right heart catheter used to diagnose heart conditions poses more risks than previously thought. The effect of the report on the market for right heart catheters is best shown by which of the graphs?
Answer: A
Explanation: The report will most likely reduce the demand for the device to the extent that patients and doctors perceive it as harmful. This is shown as a shift to the left in a demand curve and a reduction in both quantity sold and its price.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
34) Refer to the following graphs.
A recent report indicated that 50 intensive-care unit patients die for every 1,000 who are managed with a heart device known as the right heart catheter. Suppose as a result, the FDA limited supply of the heart catheters. The effect of the report and subsequent action by the FDA on the market for right heart catheters is best shown by which of the graphs?
Answer: C
Explanation: The report will most likely reduce the demand for the device to the extent that patients and doctors perceive it as harmful. The FDA action will shift supply to the left. This is shown as a shift to the left in the demand and supply curves.
Difficulty: 3 Hard
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
35) Refer to the following graphs.
Americans nationwide have been complying with recycling regulations with unexpected zeal. The effect on the market for recycled paper is best shown by which graph?
Answer: A
Explanation: A glut of recycled paper shown by a shift in the supply of recycled paper led to a greater than 90 percent decline in the price of waste paper.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
36) Suppose caviar sales soars at the same time price increases. What would lead to both a higher quantity sold and higher price of caviar?
Answer: C
Explanation: The recent interest in caviar is represented by a shift to the right in demand. The shrinking supply of Russian caviar shifts the supply curve to the left. The shift in supply, however, must be small relative to the shift in demand so that quantity sold remains higher than before.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
37) Suppose that there is a renewed interest in eating caviar at the same time that the supply of Russian caviar shrinks. What would be the most likely effect of these events on the price and quantity of caviar sold?
Answer: B
Explanation: The renewed interest in caviar shifts the demand for caviar to the right while the collapse of the Soviet Union shifts the supply of caviar to the left. Price rises, while the effect on quantity sold is ambiguous.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
38) Honus Wagner, a major league baseball player from 1897 to 1917 and one of the first five men inducted into the Baseball Hall of Fame, had his baseball card pulled from cigarette packs because he wasn’t being paid for their distribution. What best describes the effect of his action on the market for his baseball card?
Answer: A
Explanation: The supply of Honus Wagner cards shifted to the left when Honus pulled his card from the cigarette packs. As a result price rose causing a decline in the quantity of cards demanded.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
39) Helped by desktop publishing, the number of vintage baseball card forgeries has flooded the market for vintage baseball cards. Dealers left the market for fear of purchasing a phony. What was the effect on the market for vintage baseball cards assuming phonies could not be detected?
Answer: D
Explanation: The surge of forgeries, to the extent that they cannot be distinguished from the real thing, shifted the supply of vintage cards to the right. When dealers left the market for fear of purchasing phonies, the demand for vintage cards shifted to the left. Both shifts caused the price of vintage cards to fall.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
40) A Wall Street Journal headline reads: “Cigar Shortage Draws New Brands into Market.” The shortage resulted from a renewed interest in smoking cigars. What best describes facts behind the headline?
Answer: B
Explanation: The renewed interest in cigars shifted the demand for cigars to the right. Since a shortage of cigars still exists, price has not risen enough to equilibrate supply and demand. There is no evidence of declining supply.
Difficulty: 3 Hard
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
41) A Wall Street Journal headline reads: “Cigar Shortage Draws New Brands into Market.” The shortage resulted from a renewed interest in smoking cigars. What best describes the facts behind the headline?
Answer: B
Explanation: A shortage results when price is below equilibrium price. The option “demand exceeds supply” is incorrect because demand and supply refer to the entire curve.
Difficulty: 3 Hard
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
42) After several years of slow economic growth, world demand for petroleum began to rise rapidly in the 1990s. Much of the increase in demand was met by additional supplies from sources outside OPEC. OPEC during this time was unable to restrain output among members in its effort to lift oil prices. What best describes these events?
Answer: C
Explanation: An increase in world demand for oil is reflected by a shift to the right in the demand for oil. As a result, price rose and quantity supplied also rose. That existing suppliers supplied more oil, is reflected by the movement along the existing supply curve. OPEC had no effect on the market.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
43) Fishing for king crabs for a living is risky business. Their migration habits along the Bering Strait are just not understood. The king crabs seem to disappear one year but return mysteriously a few years later, wreaking havoc on the income of crabbers. When crabs disappear, consumers buy lobster instead. What best describes this situation in the king crab market?
Answer: A
Explanation: The disappearance and reappearance of the crabs shifts supply to the left and right respectively first increasing price and then lowering price. Consumers substituting lobster for crab is shown as a movement up along the demand curve, NOT a shift of the demand curve.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
44) Refer to the following graphs.
In the early 1990s, mounds of newspapers and worthless plastic piled up at recycling centers. As the nation’s economy continued to grow, increased demand eliminated the mounds and turned them into shortages. In the mid-1990s, as recycling became more popular, the mounds of recycled materials returned. What graph best depicts these events on the market for recycled materials?
Answer: C
Explanation: The mounds of newspapers suggested that the price of recycled materials was too high. Growth in the economy shifted the demand for recycled materials to the right, eliminating the surplus. Popularity of recycling shifted the supply curve of recycled materials to the right, once again leading to excess supply at existing prices.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
45) Stricter environmental regulations and increased demand for energy have caused an increase in the demand for relatively clean natural gas. In the last several years, improved extraction technologies and new discoveries have increased the availability of natural gas. What has been the net effect on price and quantity for natural gas?
Answer: D
Explanation: With the improvements in extraction technology and new discoveries, the supply of natural gas shifted to the right, lowering price and increasing quantity demanded. Environmental regulations and increased demand for energy shifted the demand for natural gas to the right, raising price and increasing quantity sold even further. The net effect on price is ambiguous.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
46) Suppose a scientific report states that fish contain dangerously high levels of mercury (toxic to humans). At the same time, the price of diesel fuel, used by fishermen to fuel their boats, falls. What is the effect on the market for fish?
Answer: C
Explanation: The report decreases demand while the decline in the price of fuel shifts supply out. Price falls with both shifts, but the shifts have opposite effects on quantity. The change in quantity is ambiguous.
Difficulty: 2 Medium
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
47) What events most likely explain the following Wall Street Journal headline, “Cities Couldn’t Give Away Their Trash; Now They Get Top Dollar”?
Answer: A
Explanation: That the cities couldn’t give away their trash suggests a surplus, or quantity supplied exceeded quantity demanded. That they now get top dollar must have resulted from a shift to the right in demand or to the left in supply. Since no option includes a shift to the left in supply, it must be a shift to the right in demand.
Difficulty: 3 Hard
Topic: Real-World Supply and Demand Applications
Learning Objective: 05-01 Apply the supply and demand model to real-world events.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
48) When people heard that there was a shortage of specialty dolls, they wanted even more of them. Because of this effect the pressure on the price of these dolls increased. The price of the dolls remained the same however. Thus, the shortage of these dolls:
Answer: A
Explanation: The increased interest in the dolls due to the shortage shifted the demand curve to the right worsening the shortage at the existing price.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
49) An effective price ceiling is best defined as a price:
Answer: A
Explanation: A price ceiling is a government-imposed limit on how high a price can be charged. To be an effective price ceiling it must be below equilibrium price.
Difficulty: 1 Easy
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
50) Price ceilings and price floors:
Answer: B
Explanation: Prices will allocate resources efficiently only if allowed to equilibrate quantity supplied and quantity demanded. Because price ceilings and price floors cause shortages and surpluses respectively, the price mechanism is not allowed to allocate resources efficiently.
Difficulty: 1 Easy
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
51) To keep the price of gas from rising quickly after a hurricane, the government sometimes institutes price ceilings on the price of gasoline. These price ceilings cause ________ in the gasoline market.
Answer: D
Explanation: An effective price ceiling creates shortages.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
52) Some years ago, Stuyvesant Town and Peter Cooper Village in Manhattan were sold for redevelopment. These villages had been rent controlled, but now that these neighborhoods are no longer rent controlled, one would expect the:
Answer: C
Explanation: Because the ceiling is being removed, rent will likely rise. The apartments will also likely be better maintained since landlords can earn a greater return on their real estate holdings.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
53) An increase in the Federal minimum wage, assuming the minimum is higher than equilibrium wage and that all other things remain constant, will:
Answer: B
Explanation: Pushing up the minimum wage will create a higher price floor that will increase the quantity of people looking for work as well as reduce the quantity demanded. This will increase the number of unemployed.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
54) A number of states have a minimum wage that is higher than the federal minimum. In those states that impose such a minimum wage, it is more likely that the minimum wage acts as a binding:
Answer: A
Explanation: If the market equilibrium wage is above the minimum wage, then the minimum wage is nonbinding. Other things the same, a higher minimum wage makes it more likely that the price floor is binding and a binding price floor causes excess supply or a market surplus.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
55) Refer to the following graph.
A price ceiling would be binding, resulting in a market shortage if it is set at:
Answer: C
Explanation: Given the supply and demand curves in the graph, equilibrium price is $2.25. A price ceiling will be binding only if it is below the equilibrium price. Therefore only a price ceiling of $1.50 will create a shortage.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
56) Suppose the equilibrium price of oranges is $0.79 an orange, but government takes steps to prevent the price from exceeding $0.60 an orange. The likely result will be a:
Answer: C
Explanation: A price ceiling for a good does not shift the demand or supply curves of that product. A price ceiling below equilibrium price results in a greater quantity demanded than supplied, or a shortage.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
57) When an effective price ceiling is removed, we would expect the price of the good to:
Answer: A
Explanation: An effective price ceiling is below equilibrium price. Removing a price ceiling, therefore, would result in movement up in price toward equilibrium. As price rises, quantity demanded will fall and quantity supplied will rise until they are equal at equilibrium price.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
58) When the polio vaccine first became available in the United States, the government controlled the price with an effective price ceiling. Production of the vaccine was not sufficient to fill all orders and the government had to regulate its distribution. Had the vaccine been sold without government intervention, the shortage would have been eliminated by price:
Answer: D
Explanation: The removal of a price ceiling will cause price to rise to equilibrium; it will not cause supply or demand to change, it will change only quantity demanded and quantity supplied.
Difficulty: 3 Hard
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
59) Refer to the following graph.
If the price is set at Pc:
Answer: B
Explanation: When a price ceiling below market price creates a shortage, the limited quantity supplied must be rationed in some other way. The quantity supplied, Q0, is insufficient to meet the quantity demanded, Q1, so a nonprice rationing mechanism must be used.
Difficulty: 3 Hard
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
60) Refer to the following graph.
Which price will create the greatest shortage?
Answer: A
Explanation: The further away price is from equilibrium price, the greater the shortage or surplus. Since only prices below equilibrium lead to shortages, P0 will create the largest shortage.
Difficulty: 3 Hard
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
61) The most likely impact of an effective price floor is:
Answer: C
Explanation: An effective price floor is above equilibrium price. At any price higher than equilibrium, quantity supplied exceeds quantity demanded, and there is a surplus of goods. A change in the price (even if imposed by government) will only lead to movements along the supply or demand curve, not shifts in supply or demand.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
62) A surplus of a good could possibly be eliminated by:
Answer: A
Explanation: A surplus occurs when price is higher than equilibrium price. A price floor is such an example. If price were too high, the price ceiling must be above the existing price. Removing a price ceiling that is above equilibrium price would do nothing. A decrease in demand or an increase in supply would only exacerbate the surplus if price were to remain constant.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
63) Which price ceiling will cause the greatest excess demand?
Answer: A
Explanation: A price ceiling must be below equilibrium price (in this case $2) to cause a shortage.
Difficulty: 3 Hard
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
64) Refer to the following graph.
A government-imposed price floor of $2 will result in:
Answer: B
Explanation: A price floor is a government-imposed limit on how low a price can be charged. To be effective, a price floor must be above equilibrium price. Since $2 is below equilibrium price, the price floor is not effective and quantity demanded equals quantity supplied at $3.
Difficulty: 3 Hard
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
65) Suppose a price floor is imposed on eggs above their equilibrium price. The likely result will be:
Answer: C
Explanation: A price floor above equilibrium price will result in a higher quantity supplied and a lower quantity demanded. Price floors will not shift the supply or demand curves for the good in question. A higher price will result in a decrease in the quantity demanded, according to the law of demand.
Difficulty: 3 Hard
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
66) Refer to the following graph.
Suppose this graph represents the market for cheese. In order to keep the price of cheese at Pf, government must:
Answer: D
Explanation: At the price above equilibrium, there is a surplus rather than a shortage, so there is no need to ration cheese to consumers. If supply shifts right or demand shifts left, the surplus grows larger, resulting in increased downward pressure on the price of cheese. Only by preventing the excess supply of cheese from reaching the market can government keep the price of cheese high.
Difficulty: 3 Hard
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
67) New York City has been experiencing a housing emergency for quite some time. Apartments are difficult to come by. In fact, the vacancy rate has been below 5 percent since World War II. The most likely cause of the housing emergency is:
Answer: B
Explanation: In New York City, many apartments have government-imposed rents below market price. As a result, the quantity of apartments demanded exceeds quantity supplied. The price ceiling (rent control) has perpetuated the housing emergency.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
68) Rent control makes apartments:
Answer: A
Explanation: Rent control is a government-imposed price ceiling on rent resulting in a shortage of apartments.
Difficulty: 1 Easy
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
69) The invention of a machine that increases milk production is discovered. If farmers were to decry the effect of this new technology on the price of milk and lobby government to set the price of milk at the price before the invention, what would be the result?
Answer: B
Explanation: The self-milking machine shifts the supply of milk to the right and the price of milk falls. If government were to set milk prices at their previous (higher) levels, the quantity of milk supplied would exceed quantity demanded and an excess supply of milk would result.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
70) Refer to the following graph.
In New York City, the rent on many apartments is set below market rates. As a result, many people find that the only way to obtain an apartment is to make illegal payments to landlords. If Pc is the controlled rent, a best estimate of such “key” money is shown as:
Answer: D
Explanation: Renters would be willing to pay up to Pf for the available apartments when rent is set at Pc. The best estimate of “key” money is lower than the difference between Pf and Pc and higher than zero.
Difficulty: 3 Hard
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
71) Refer to the graph shown. Without government intervention, market forces would result in:
Answer: A
Explanation: Market forces would result in an equilibrium solution, where quantity demanded equals quantity supplied.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
72) Refer to the graph shown. Which of the following wage rates would be an effective price floor?
Answer: D
Explanation: An effective or binding price floor must be set above the equilibrium wage of $6.50 per hour.
Difficulty: 2 Medium
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
73) Refer to the graph shown. If government establishes a minimum wage at $7.25 per hour:
Answer: B
Explanation: At $7.25 per hour, the quantity supplied exceeds the quantity demanded, resulting in a surplus of labor hours. The minimum wage imposes no requirement on how many workers firms must hire.
Difficulty: 3 Hard
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
74) Refer to the graph shown. If government establishes a price floor of $7.25 per hour, there will be a:
Answer: B
Explanation: At $7.25 per hour, the quantity demanded is 500 and the quantity supplied is 900, resulting in a surplus of 400.
Difficulty: 3 Hard
Topic: Government Intervention: Price Ceilings and Price Floors
Learning Objective: 05-02 Demonstrate the effect of a price ceiling and a price floor on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
75) Which of the following is the best example of an excise tax?
Answer: C
Explanation: An excise tax is a tax that is levied on a specific good, like gasoline. Taxes on capital gains, employment taxes, and export taxes are not good examples of an excise tax.
Difficulty: 2 Medium
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
76) If the government imposes an excise tax on cars equal to $5,000 per automobile, the supply of automobiles will shift to the:
Answer: B
Explanation: An excise tax on suppliers shifts the supply curve up by the amount of the tax. The change in equilibrium price depends on the shape of the demand curve (the price will increase by $5,000 only if demand is vertical).
Difficulty: 2 Medium
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
77) If the government imposes an excise tax on a good equal to $5 per unit and the demand curve for this good is vertical, the supply of this good will shift:
Answer: A
Explanation: An excise tax on suppliers shifts the supply curve up by the amount of the tax. The equilibrium price will increase by $5 if demand is vertical.
Difficulty: 2 Medium
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
78) If the government imposes an excise tax on gasoline equal to $0.25 per gallon and the demand curve for gasoline is downward-sloping, the supply of gasoline will:
Answer: B
Explanation: An excise tax on suppliers shifts the supply curve up by the amount of the tax. If demand is downward-sloping, the increase in equilibrium price will be less than the amount of the tax as part of the burden of the tax is shifted to consumers.
Difficulty: 2 Medium
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
79) A tariff is:
Answer: A
Explanation: By definition a tariff is a tax placed on imports.
Difficulty: 1 Easy
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
80) When a country imposes a tariff:
Answer: B
Explanation: A tariff shifts the supply of the imported good to the left resulting in a higher price and lower quantity consumed. Domestic production rises.
Difficulty: 1 Easy
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
81) Tariffs can be thought of as indirect:
Answer: B
Explanation: A tariff is a tax placed on imports. It allows domestic producers to raise their prices, acting as an indirect subsidy to domestic producers.
Difficulty: 3 Hard
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
82) Refer to the following graph.
Demand and supply are initially D and S1, respectively. Which of the following best describes the effect of a $0.50 per pound tariff on Danish hams imported into the United States?
Answer: D
Explanation: A tariff shifts the supply curve to the left by the amount of the tax. Equilibrium price is determined where quantity demanded equals quantity supplied, at $2.25 a pound and 60 thousand pounds.
Difficulty: 3 Hard
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
83) Refer to the graph shown. Given supply, S0, and demand, D, what tariff would the government have to impose on lumber imported from Canada to reduce imports to 600 tons?
Answer: D
Explanation: A tariff that shifts supply to where it intersects demand at $9 a ton and 600 tons would reduce imports to 600. This would happen with a tariff of $13 minus $7, or $6 a ton.
Difficulty: 3 Hard
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
84) Refer to the graph shown. With a tariff on lumber imported from Canada of $6 per ton, the revenue the government would collect from the import of lumber would be:
Answer: B
Explanation: With a tariff of $6 per ton, imports would fall to 600 tons, providing revenue equal to $6 × 600 = $3,600.
Difficulty: 3 Hard
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
85) If the United States imposes tariffs on steel imports the:
Answer: C
Explanation: Tariffs are a tax on imports. Because it raises the cost to producers, tariffs shift the supply curve to the left, increasing equilibrium price.
Difficulty: 2 Medium
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
86) Refer to the following graph.
With a tariff of $10 a blouse on imported silk blouses from China, the revenue the government would collect from the import of silk blouses from China would be:
Answer: C
Explanation: With a tariff of $10 a blouse, 700 blouses are imported and the government collects $10 per blouse, or $7,000.
Difficulty: 3 Hard
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
87) Refer to the following graph.
Suppose the graph depicted market demand for British cars sold in the United States. A tariff of $1,000 a car would result in tax revenue of:
Answer: B
Explanation: The tax of $1,000 would shift the supply curve up by $1,000. At $21,000 fewer people demand British cars and quantity sold declines. The tax revenue would equal $1,000 times quantity sold (less than 10,000), or less than $10 million.
Difficulty: 3 Hard
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
88) Refer to the following graph.
If this graph represents the supply of and demand for an imported product, a tariff of t will result in revenue for the government shown by area:
Answer: B
Explanation: A tariff of t shifts the supply curve up from S0 to S1. Quantity sold is now OE. Tariff revenue is t times quantity OE shown by the rectangle BDGH.
Difficulty: 3 Hard
Topic: Government Intervention: Excise Taxes and Tariffs
Learning Objective: 05-03 Explain the effect of excise taxes and tariffs on a market.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
89) If government were to issue a fixed number of licenses to produce a good or provide a service, this would likely:
Answer: C
Explanation: Licenses reduce the quantity of a good supplied, in some cases, by setting a legal limit to the number of licenses issued. This lowers quantity sold, but increases the price received by those who have licenses.
Difficulty: 2 Medium
Topic: Government Intervention: Quantity Restrictions
Learning Objective: 05-04 Explain the effect of quantity restrictions on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
90) Refer to the graph shown. A quantity restriction of QR will:
Answer: B
Explanation: Quantity restrictions reduce quantity supplied and raise price. They do not create surpluses or shortages.
Difficulty: 2 Medium
Topic: Government Intervention: Quantity Restrictions
Learning Objective: 05-04 Explain the effect of quantity restrictions on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
91) Refer to the graph shown. A quantity restriction of QR will:
Answer: A
Explanation: Quantity restrictions reduce quantity supplied and raise price. Because the restricted quantity is less than equilibrium quantity, it raises the price to the price consumers are willing to pay, or P0.
Difficulty: 2 Medium
Topic: Government Intervention: Quantity Restrictions
Learning Objective: 05-04 Explain the effect of quantity restrictions on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
92) Refer to the graph shown. Given the quantity restriction of QR, a reduction in demand will:
Answer: D
Explanation: Although the reduction in demand will likely have no effect on equilibrium quantity (unless it falls dramatically) it will reduce the price consumers are willing to pay for the restricted quantity, thus reducing the price of the restricted good.
Difficulty: 2 Medium
Topic: Quantity Restrictions
Learning Objective: 05-04 Explain the effect of quantity restrictions on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
93) Quantity restrictions become more valuable to those holding the rights to sell the good when:
Answer: C
Explanation: Changes in supply will have no impact on the value of the right to sell. Increases in demand, however, will increase the price consumers are willing to pay for the restricted good, increasing the value of the rights to sell.
Difficulty: 2 Medium
Topic: Government Intervention: Quantity Restrictions
Learning Objective: 05-04 Explain the effect of quantity restrictions on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
94) Taxi medallions were issued in New York City to:
Answer: B
Explanation: Medallions were instituted to raise wages. The initial licenses were issued at a very low cost. Raising revenue was not a reason.
Difficulty: 1 Easy
Topic: Government Intervention: Quantity Restrictions
Learning Objective: 05-04 Explain the effect of quantity restrictions on a market.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
95) Quantity restrictions benefit which group the most?
Answer: C
Explanation: Quantity restrictions raise the price for those who have the right to sell the good; that is, existing suppliers.
Difficulty: 2 Medium
Topic: Government Intervention: Quantity Restrictions
Learning Objective: 05-04 Explain the effect of quantity restrictions on a market.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
96) Refer to the graph shown that depicts a third-party payer market for prescription drugs. If the co-payment is $2 per pill, what will be the quantity demanded?
Answer: C
Explanation: Quantity demanded is determined by the demand curve. For $2, consumers demand 45 pills.
Difficulty: 2 Medium
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
97) Refer to the graph shown that depicts a third-party payer market for prescription drugs. If the co-payment is $6 per pill, total expenditures under the third-party payer system will be:
Answer: C
Explanation: Because the co-payment is greater than the equilibrium price, the system will be ineffective. Suppliers will charge a price that is lower than the co-payment.
Difficulty: 2 Medium
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
98) Refer to the graph shown that depicts a third-party payer market for prescription drugs. If the co-payment is $2 per pill, what will be the total market expenditures on prescription drugs?
Answer: C
Explanation: Because the co-payment is $2, consumers demand a quantity of 45. Producers require $6 per pill for that quantity so that total expenditures are $270.
Difficulty: 3 Hard
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
99) Refer to the graph shown that depicts a third-party payer market for prescription drugs. What happens to total expenditures in this market if a $2 co-pay is established compared to a free-market equilibrium?
Answer: B
Explanation: Because the co-payment is $2, consumers demand a quantity of 45. Producers require $6 per pill for that quantity so that total expenditures are $270. If the market were free, consumers would pay $4 per pill for 30 pills, for total expenditures of $120.
Difficulty: 3 Hard
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
100) Refer to the graph shown that depicts a third-party payer market for prescription drugs. What happens to expenditures by consumers in this market if a $2 co-pay is established compared to a free-market equilibrium?
Answer: A
Explanation: With a co-payment of $2, consumers demand a quantity of 45 and pay a total of $90. With a free market, consumers pay $4, but reduce quantity demanded to 30. Total expenditures are $120. Consumer expenditures fall by $30 with co-payment.
Difficulty: 3 Hard
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
101) Refer to the graph shown that depicts a third-party payer market for prescription drugs. What is the cost of this program to the third-party if a $2 co-pay is established?
Answer: C
Explanation: The consumer pays $2 for 45 pills, for cost of $90. The supplier receives $6, for a total revenue of $270. The difference, $180 is the cost to the third party.
Difficulty: 3 Hard
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
102) In a third-party payer system:
Answer: B
Explanation: Because the co-payment is lower than the equilibrium price, total expenditures and quantity demanded generally rise.
Difficulty: 1 Easy
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
103) Refer to the table shown that depicts a third-party payer market. What is the cost of this program to the third-party if a $2 co-pay is established?
| Price | Quantity Demanded | Quantity Supplied |
| $0 | 1,200 | 0 |
| $1 | 600 | 150 |
| $2 | 300 | 300 |
| $3 | 0 | 450 |
| $4 | 0 | 600 |
| $5 | 0 | 750 |
| $6 | 0 | 900 |
| $7 | 0 | 1,050 |
Answer: A
Explanation: The co-payment equals the equilibrium price, so the cost to the third party is zero.
Difficulty: 2 Medium
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
104) Refer to the table shown that depicts a third-party payer market. What is the quantity demanded if a $1 co-pay is established?
| Price | Quantity Demanded | Quantity Supplied |
| $0 | 1,200 | 0 |
| $1 | 600 | 150 |
| $2 | 300 | 300 |
| $3 | 0 | 450 |
| $4 | 0 | 600 |
| $5 | 0 | 750 |
| $6 | 0 | 900 |
| $7 | 0 | 1,050 |
Answer: C
Explanation: Read off the demand column. At $1, consumers demand 600 units.
Difficulty: 2 Medium
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
105) Refer to the table shown that depicts a third-party payer market. What is the price the supplier will charge for the quantity consumers demand if a $1 co-pay is established?
| Price | Quantity Demanded | Quantity Supplied |
| $0 | 1,200 | 0 |
| $1 | 600 | 150 |
| $2 | 300 | 300 |
| $3 | 0 | 450 |
| $4 | 0 | 600 |
| $5 | 0 | 750 |
| $6 | 0 | 900 |
| $7 | 0 | 1,050 |
Answer: C
Explanation: For $1, consumers demand 600 units. Suppliers will charge $4 to supply that many units.
Difficulty: 2 Medium
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
106) Refer to the table shown that depicts a third-party payer market. What is the cost of this program to the third-party if a $1 co-pay is established?
| Price | Quantity Demanded | Quantity Supplied |
| $0 | 1,200 | 0 |
| $1 | 600 | 150 |
| $2 | 300 | 300 |
| $3 | 0 | 450 |
| $4 | 0 | 600 |
| $5 | 0 | 750 |
| $6 | 0 | 900 |
| $7 | 0 | 1,050 |
Answer: C
Explanation: For $1 co-payment, the consumer demands 600 units. The supplier requires $4 per unit for that quantity, for a total of $2,400. The third party pays $2,400 minus $600, or $1,800.
Difficulty: 3 Hard
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
107) A company switches from a medical plan that covered all medical costs to a medical plan with a high deductible, making employees responsible for the first $1,500 of health care costs. Other things the same, a higher deductible is expected to:
Answer: A
Explanation: Whole Foods Market, Inc. did just this and medical claim costs fell by 13 percent and hospital admissions fell by 22 percent. Increasing cost will reduce quantity demanded.
Difficulty: 2 Medium
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
108) Refer to the graph shown. If buyers must pay $5, quantity demanded will equal:
Answer: C
Explanation: Read the quantity demanded from the demand curve.
Difficulty: 1 Easy
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
109) Refer to the graph shown. If sellers receive a price of $15, quantity supplied will equal:
Answer: C
Explanation: Read the quantity supplied from the supply curve.
Difficulty: 1 Easy
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
110) Refer to the graph shown. If consumers have a $15 co-pay, total expenditure on the product by both the third party and the consumer will equal:
Answer: B
Explanation: The quantity demanded at a price of $15 is 25. The third party pays nothing and consumers pay $375.
Difficulty: 3 Hard
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
111) Suppose that a consumer has a health insurance program with co-payments of $10 per doctor visit. If the consumer purchases 6 doctor visits and the bill charged by the doctor for 6 visits is $360, the portion of this cost covered by a third-party payer is:
Answer: B
Explanation: With the co-payment, the consumer pays a total of $60, leaving $300 to be covered by the third-party payer.
Difficulty: 2 Medium
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
112) Singapore has a system of traffic regulation called Electronic Road Pricing, in which traffic congestion is reduced by charging motorists who drive into the city center during certain hours of the day. Charging for use of a road is:
Answer: D
Explanation: Since taxpayers, not motorists, pay for most roads the market for roads can be thought of a third-party-payer market.
Difficulty: 3 Hard
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
113) Suppose that a consumer has a health insurance program with $10 co-payment per doctor visit. If the consumer purchases 6 doctor visits and the bill charged by the doctor for 6 visits is $360, the cost per visit paid by a third party is:
Answer: B
Explanation: Since 6 visits cost $360, one visit costs $60, with $10 of this paid by the consumer. Therefore, the third party pays $50 for each visit.
Difficulty: 2 Medium
Topic: Third-Party-Payer Markets
Learning Objective: 05-05 Explain the effect of a third-party-payer system on equilibrium price and quantity.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
114) Suppose that the market labor supply and labor demand equations are given by Qs = 5W and Qd = 30 – 5W. If a minimum wage is set at $4.00 (W = 4), then:
Answer: C
Explanation: Substitute W = 4 into the supply equation to find quantity supplied = 20. Substitute W = 4 into the demand equation to find quantity demanded = 10.
Difficulty: 3 Hard
Topic: Price Floor
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
115) The total demand for wheat in the U.S. is given by Qd = 1,750 − 130P. Domestic supply is given by, Qs = 1,000 + 170P. Price is measured in dollars/ton and quantity is measured in thousands of tons. The equilibrium price and quantity of wheat are:
Answer: D
Explanation: To find equilibrium price, set Qd = Qs and solve for P. Doing so gives you $2.50. Substituting P = 2.5 into either equation you find that Q = 1,425.
Difficulty: 3 Hard
Topic: Market Equilibrium
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
116) Demand for single occupancy apartments is Qd = 400,000 – 250P. Supply is given by Qs = 200,000 + 250P. Price of an apartment is measured in hundreds of dollars and quantity is measured in thousands of apartments. What is equilibrium rent and quantity of apartments rented?
Answer: A
Explanation: To find equilibrium price, set Qd = Qs and solve for P. Doing so gives you $400. Substituting P = 400 into either equation you find that Q = 300,000.
Difficulty: 3 Hard
Topic: Market Equilibrium
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
117) Consider a market for fish whose market demand and market supply for fish is specified as Qd = 300 − 2.5P and Qs = − 20 + 1.5P, respectively. The equilibrium price and quantity is:
Answer: B
Explanation: To find equilibrium price, set Qd = Qs and solve for P. Doing so gives you $80. Substituting P = 80 into either equation you find that Q = 100.
Difficulty: 3 Hard
Topic: Market Equilibrium
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
118) Refer to the following graph.
Which of the following pairs of equations describes the supply and demand curves?
Answer: D
Explanation: To figure out each curve, remember the equation for a straight line: Y − mX + b. Where m is the slope (rise over run) and b is the Y-axis intercept. Y is price and X is quantity. For supply, b = 10 and m = 2/5. Rewrite the equation with Q on the left. For the horizontal demand curve, P = 30 for any value of quantity demanded.
Difficulty: 3 Hard
Topic: Market Equilibrium
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
119) Which of the following pairs of equations describes the supply and demand curves given in the accompanying demand and supply tables?
| Price | Quantity Supplied | Quantity Demanded |
| $0 | 0 | 3 |
| $1 | 0 | 2 |
| $2 | 1 | 1 |
| $3 | 2 | 0 |
| $4 | 3 | 0 |
| $5 | 4 | 0 |
Answer: D
Explanation: To figure out each curve, remember the equation for a straight line: Y = mX + b. Where m is the slope (rise over run) and b is the Y-axis intercept. Y is price and X is quantity. For supply, m = 1 and for demand, m = −1. For supply, b = 1 and for demand, b = 3. Rewrite the equations with Q on the left. Remember, it is impossible to have a negative price or quantity.
Difficulty: 3 Hard
Topic: Market Equilibrium
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
120) Which of the following pairs of equations describes the supply and demand curves given in the accompanying demand and supply tables?
| Price | Quantity Supplied | Quantity Demanded |
| $20 | 0 | 40 |
| $25 | 10 | 40 |
| $30 | 20 | 40 |
| $35 | 30 | 40 |
| $40 | 40 | 40 |
| $45 | 50 | 40 |
Answer: C
Explanation: To figure out each curve, remember the equation for a straight line: Y = mX + b. Where m is the slope (rise over run) and b is the Y-axis intercept. Y is price and X is quantity. For supply, m=1/2 and b = 20. Rewrite the equation with Q on the left. For demand, Qd = 40 for every price.
Difficulty: 3 Hard
Topic: Market Equilibrium
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
121) Refer to the following graph.
Which of the following pairs of equations describes the supply and demand curves?
Answer: A
Explanation: To figure out each curve, remember the equation for a straight line: Y = mX + b. Where m is the slope (rise over run) and b is the Y-axis intercept. Y is price and X is quantity. For supply, Qs = 10 for every price. For demand, m = −4 and b = 48. Rewrite the equation with Q on the left.
Difficulty: 3 Hard
Topic: Market Equilibrium
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Analytical Thinking; Knowledge Application
Accessibility: Keyboard Navigation
122) Given the equations for demand and supply: Qd = 48 − 4P and Qs = 4P − 16, respectively, the quantity demanded equals the quantity supplied at a price of:
Answer: B
Explanation: To solve for equilibrium price, set Qd equal to Qs. Doing so yields a price of $8.
Difficulty: 2 Medium
Topic: Market Equilibrium
Learning Objective: 05-Appendix
Bloom’s: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
123) Given the equations for demand and supply: Qd = 48 − 4P and Qs = 4P − 16, respectively, the market is in equilibrium when the quantity bought and sold is:
Answer: B
Explanation: To solve for equilibrium price, set Qd equal to Qs. Doing so yields a price of $8. Next, substitute P = 8 into either the demand equation or the supply equation to find quantity.
Difficulty: 3 Hard
Topic: Market Equilibrium
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
124) Suppose that initially, supply is given by the equation Qs = 4P − 16. If, as a result of lower production costs, the quantity supplied increases by 4 at every price, the new supply equation would be:
Answer: D
Explanation: The quantity intercept increases by 4, from negative 16 to negative 12.
Difficulty: 3 Hard
Topic: Shifts in Demand and Supply
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
125) Suppose that initially, demand is given by the equation Qd = 48 − 4P. If, as a result of an increase in income, the quantity demanded increases by 12 at every price, the new demand equation would be:
Answer: A
Explanation: The quantity intercept increases by 12, from 48 to 60.
Difficulty: 3 Hard
Topic: Shifts in Demand and Supply
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
126) Suppose that initially, the equations for demand and supply are Qd = 48 − 4P and Qs = 4P − 16, respectively. If the quantity supplied increases by 4 at every price (so that the supply curve shifts to the right), the equilibrium price will change from:
Answer: A
Explanation: To solve for equilibrium price, set Qd equal to Qs. The initial equilibrium price is $8. The equation for the new supply curve is Qs = 4P − 12 and the new equilibrium price is $7.50.
Difficulty: 3 Hard
Topic: Shifts in Demand and Supply
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
127) Suppose that initially, the equations for demand and supply are Qd = 48 − 4P and Qs = 4P − 16, respectively. If the quantity demanded increases by 12 at every price (so that the demand curve shifts to the right), the equilibrium price will change from:
Answer: A
Explanation: To solve for equilibrium price, set Qd equal to Qs. The initial equilibrium price is $8. The equation for the new demand curve is Qd = 60 − 4P and the new equilibrium price is $9.50.
Difficulty: 3 Hard
Topic: Shifts in Demand and Supply
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
128) Suppose that initially, supply is given by the equation Qs = 4P − 16. If, as a result of higher production costs, the quantity supplied decreases by 4 at every price, the new supply equation would be:
Answer: C
Explanation: The quantity intercept decreases by 4, from negative 16 to negative 20.
Difficulty: 3 Hard
Topic: Shifts in Demand and Supply
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
129) Suppose that initially, the equations for demand and supply are Qd = 48 − 4P and Qs = 4P − 16, respectively. If the quantity supplied decreases by 4 at every price (so that the supply curve shifts to the left), the equilibrium price will change from:
Answer: B
Explanation: To solve for equilibrium price, set Qd equal to Qs. The initial equilibrium price is $8. The equation for the new supply curve is Qs = 4P − 20 and the new equilibrium price is $8.50.
Difficulty: 3 Hard
Topic: Shifts in Demand and Supply
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
130) Suppose that the free market labor supply and labor demand equations are given by Qs = 5W and Qd = 30 − 5W. If the minimum wage were set at $2.50 an hour, how many people would not be able to find work?
Answer: D
Explanation: Setting Qs equal to Qd and solve for wage, you find equilibrium wage is $3 an hour, above the minimum wage. Since the price floor is below the equilibrium price, quantity demanded equals quantity supplied. Everyone who is looking for work can find a job.
Difficulty: 3 Hard
Topic: Shifts in Demand and Supply
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
131) Suppose that the market labor supply and labor demand equations are given by Qs = 5W and Qd = 30 − 5W. If the minimum wage were set at $6 an hour, how many people would not be able to find work?
Answer: A
Explanation: At $6 an hour, 30 (5 × 6) people are looking for work and 0 (30 − 5 × 6) workers are demanded. The difference, 30, is the number of people looking for work but cannot find it.
Difficulty: 3 Hard
Topic: Price Floor
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
132) Suppose that the market labor supply and labor demand equations are given by Qs = 5W and Qd = 30 − 5W. The government has passed a law that subsidizes wages by $1 per hour. The equilibrium wage and quantity of labor with the subsidy is:
Answer: C
Explanation: The new demand equation with the subsidy is Qd = 30 − 5(w − 1) or Qd = 35 − 5w. Set Qs equal to Qd and solve for the wage rate that workers will receive after the subsidy. The new wage rate, $3.50, minus the subsidy, $1.00, is the wage rate that employers actually pay. To find quantity, substitute the wage rate of $3.50 into either the supply equation or the new demand equation, or substitute the wage that employers actually pay into the old demand equation.
Difficulty: 3 Hard
Topic: Price Floor
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
133) The Rent Control Authority of Chicago has found that total market demand for single occupancy apartments is Qd = 400,000 − 250 P. The Authority also noted that supply is given by Qs = 200,000 + 250P. Price of an apartment is measured in hundreds of dollars and quantity is measured in thousands of apartments. Suppose the Authority decides to impose a rent control of $300 per single-occupant apartment, how many people will be unable to find an apartment at that price?
Answer: C
Explanation: At $300 an apartment, quantity demanded is (400,000 − 250 × 300) 325,000 and quantity supplied is (200,000 + 250 × 300) 275,000. The difference, 50,000 is the number of people who want apartments but cannot find one.
Difficulty: 3 Hard
Topic: Price Ceiling
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
134) Consider a market for fish whose market demand and market supply for fish are specified as Qd = 300 − 2.5P and Qs = − 20 + 1.5P, respectively. The government decides to impose a price ceiling of $50 per ton. What would be the resulting market distortion?
Answer: A
Explanation: At a price ceiling of $50, suppliers are willing to supply (−20 + 1.5 × 50) 55 tons and demanders want (300 − 2.5 × 50) 175 tons of fish. Quantity demanded exceeds quantity supplied by (175 − 55) 120 tons.
Difficulty: 3 Hard
Topic: Price Ceiling
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
135) Consider a market for fish whose market demand and market supply for fish are specified as Qd = 300 − 2.5P and Qs = − 20 + 1.5P, respectively. The government decides to impose a price ceiling of $50 per ton. The possible black market price after the ceiling is:
Answer: C
Explanation: At a price ceiling of $50, suppliers are willing to supply (− 20 + 1.5 × 50) 55 tons. For those 55 tons, demanders are willing to pay (55 = 300 − 2.5P and solve for P) $98. The black market price will be between $50 and $98.
Difficulty: 3 Hard
Topic: Price Ceiling
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
136) Consider a market for fish whose market demand and market supply for fish are specified as Qd = 300 − 2.5P and Qs = − 20 + 1.5P, respectively. The government decides to impose a price floor of $50 per ton. What would be the resulting market distortion?
Answer: D
Explanation: To find equilibrium price, set Qd = Qs and solve for P. Doing so gives you $80. Since the price floor is below equilibrium price, the price floor is not binding and there is no market distortion.
Difficulty: 3 Hard
Topic: Price Floor
Learning Objective: 05-Appendix
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
