Economics International Edition 11th Edition by Roger A. Arnold - Test Bank

Economics International Edition 11th Edition by Roger A. Arnold – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Chapter 5—Supply, Demand, and Price: Applications

 

MULTIPLE CHOICE

 

1. Colleges and universities use such things as grade point averages and standardized test scores as

a.	a measure of consumer utility.
b.	non-price rationing devices.
c.	a means to shift the supply curve for a college education.
d.	solely to frustrate prospective students.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #4

 

2. If the purchase and sale of a currently illegal drug (for example, marijuana) were decriminalized, economists would expect

a.	an increase in demand and supply of this drug.
b.	an increase in demand and a decrease in supply of this drug.
c.	a decrease in demand and an increase in supply of this drug.
d.	a decrease in demand and supply of this drug.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #4

 

3. If the purchase and sale of marijuana becomes legalized

a.	the equilibrium price and quantity will both rise.
b.	the equilibrium price will fall, but the change in equilibrium quantity depends upon whether the demand curve shifts rightward more or the supply curve shifts rightward more.
c.	the equilibrium quantity will rise, but the change in equilibrium price depends upon whether the demand curve shifts rightward more or the supply curve shifts rightward more.
d.	the equilibrium price and quantity will both fall.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Challenging

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #4

 

4. If the government legalized the purchase and sale of marijuana, the equilibrium quantity would _________ and the price would ________ if the supply of marijuana increased by _______ than the demand for marijuana increased.

a.	fall; fall; more
b.	fall; rise; more
c.	rise; fall; more
d.	rise; fall; less
e.	none of the above

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Challenging

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #4

 

5. Since most colleges and universities charge the same tuition to every student regardless of what time students choose to take their classes,

a.	the schools must develop some type of non-price rationing device.
b.	it follows that all classes will have a shortage of seats.
c.	it follows that all classes will have a surplus of seats.
d.	it follows that some classes will likely have a shortage of seats while other classes may have a surplus of seats.
e.	a and d

 

 

ANS:  E                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #7

 

6. The space on the freeway is fixed at any instant of time. A supply curve that shows this is

a.	perfectly horizontal.
b.	upward sloping.
c.	downward sloping.
d.	perfectly vertical.

 

 

ANS:  D                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

7. When congestion occurs on the freeway (because of a shortage of freeway space), the economist would most likely explain this by saying that it is because

a.	the freeway has too few miles of roadway.
b.	there are too many cars.
c.	the price of driving on the freeway is below the equilibrium price.
d.	a and c

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

8. If more people join carpools and travel to work together

a.	the demand curve for freeway space shifts leftward.
b.	the supply curve for freeway space shifts rightward.
c.	the supply curve for freeway space shifts leftward.
d.	a and b
e.	none of the above

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

9. A toll of $1 per car is imposed on a road regardless of time of day. If the toll creates equilibrium travel flows at the busiest time of day, it will create a __________ at all other times.

a.	surplus of space
b.	shortage of space
c.	zero money price for space
d.	zero opportunity cost for space

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

Exhibit 5-1

 

10. Refer to Exhibit 5-1, which shows supply and demand for freeway space at both 8 a.m. and 11 p.m. At P = $0, there is a ________ of freeway space at 8 a.m. and ________ at 11 p.m.

a.	shortage; a surplus
b.	surplus; a shortage
c.	surplus; equilibrium
d.	shortage; equilibrium

 

 

ANS:  D                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

11. Refer to Exhibit 5-1, which shows supply and demand for freeway space at both 8 a.m. and 11 p.m. Which toll creates equilibrium at 8 a.m.?

a.	P2
b.	P1
c.	0
d.	It is not constant.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

12. Refer to Exhibit 5-1, which shows supply and demand for freeway space at both 8 a.m. and 11 p.m. A toll of P₁ creates __________ at 8 a.m. and __________ at 11 p.m.

a.	a shortage; a surplus
b.	a surplus; a shortage
c.	equilibrium; a surplus
d.	a shortage; equilibrium

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

13. Refer to Exhibit 5-1, which shows supply and demand for freeway space at both 8 a.m. and 11 p.m. Which toll creates equilibrium at 11 p.m.?

a.	P2
b.	P1
c.	0
d.	It is not constant.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

14. Refer to Exhibit 5-1, which shows supply and demand for freeway space at both 8 a.m. and 11 p.m. A toll of P₂ creates __________ at 8 a.m. and __________ at 11 p.m.

a.	a shortage; a surplus
b.	a surplus; a shortage
c.	equilibrium; a surplus
d.	a shortage; equilibrium

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

15. Refer to Exhibit 5-1, which shows supply and demand for freeway space at both 8 a.m. and 11 p.m. Suppose that the government decides to set the money price of driving on the freeway at zero, but builds more freeways to eliminate the shortage of freeway space at 8 a.m.  Graphically, the result of the increase in freeway space would be shown by

a.	shifting the supply of freeway space curve rightward.
b.	shifting the demand for freeway space curve leftward from D8a.m. to D11p.m.
c.	a movement up along D8a.m. to the point where D8a.m.  intersects the supply curve.
d.	shifting the supply of freeway space curve leftward.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

16. Refer to Exhibit 5-1, which shows supply and demand for freeway space at both 8 a.m. and 11 p.m. Suppose that the government decides to set the money price of driving on the freeway at zero, but creates programs that encourage drivers to carpool. If the carpooling program is sufficiently successful to eliminate the shortage of freeway space at 8 a.m., graphically the result of the increase in carpooling would be a

a.	rightward shift of the supply of freeway space curve.
b.	leftward shift of the demand for freeway space curve from D8a.m. to D11p.m.
c.	movement up along D8a.m. to the point where D8a.m.  intersects the supply curve.
d.	leftward shift of the supply of freeway space curve.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

17. The demand for seats in 10 a.m. classes at the university is higher than the demand for seats in 8 a.m. classes. The supply of seats is fixed. If the university prices classes at the price required to achieve equilibrium at 10 a.m., there will be

a.	a shortage at 8 a.m.
b.	a surplus at 8 a.m.
c.	equilibrium at 8 a.m.
d.	disequilibrium at 8 a.m., but we cannot determine which type.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #12

 

18. The demand for seats in 10 a.m. classes at the university is higher than the demand for seats in 8 a.m. classes. The supply of seats is fixed. If the university can only charge a single price and wishes to maximize the total number of seats purchased during the day, it should set the price

a.	at equilibrium for 8 a.m. classes.
b.	at equilibrium for 10 a.m. classes.
c.	midway between the two equilibria.
d.	below either 8 a.m. or 10 a.m. equilibrium price.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #12

 

Exhibit 5-2

 

 

19. Refer to Exhibit 5-2. If the tuition is set at $60 there will be

a.	a shortage at 10 a.m. and a surplus at 8 a.m.
b.	a surplus at 10 a.m. and a shortage at 8 a.m.
c.	equilibrium at both 10 a.m. and 8 a.m. because the price is half-way between their individual equilibria.
d.	none of the above

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #12

 

20. Refer to Exhibit 5-2. If the tuition is set at $40, there will need to be some kind of non-price rationing device used for

a.	8 a.m. classes.
b.	10 a.m. classes.
c.	a and b
d.	none of the above

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #12

 

21. Refer to Exhibit 5-2. If the tuition is set at $70 there will be

a.	a shortage at 10 a.m. and a surplus at 8 a.m.
b.	a surplus at 10 a.m. and a shortage at 8 a.m.
c.	equilibrium at 10 a.m. and a surplus of seats at 8 a.m.
d.	equilibrium at 10 a.m. and a shortage of seats at 8 a.m.

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #12

 

22. Refer to Exhibit 5-2. If the tuition is set at $50 there will be

a.	a shortage at 10 a.m. and a surplus at 8 a.m.
b.	a surplus at 10 a.m. and a shortage at 8 a.m.
c.	equilibrium at 8 a.m. and a surplus of seats at 10 a.m.
d.	equilibrium at 8 a.m. and a shortage of seats at 10 a.m.

 

 

ANS:  D                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #12

 

23. University A sets tuition at the equilibrium level based on price and then imposes entrance requirements in the form of minimum high school GPA and SAT scores. Enrollment at this school will likely be

a.	at equilibrium.
b.	below equilibrium because of the non-price rationing.
c.	above equilibrium because of the combination of price and non-price rationing.
d.	none of the above

 

 

ANS:  B                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #7

 

24. Suppose that there are two laws proposed for eviction notices. Plan A requires landlords to give a renter 30 days to vacate an apartment once he has been served an eviction notice. Under Plan B, he has 60 days to vacate an apartment once he has been served an eviction notice. It follows that landlords will find

a.	Plan A more expensive than Plan B.
b.	Plan B more expensive than Plan A.
c.	both plans to be equally expensive.
d.	none of the above

 

 

ANS:  B                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #9

 

25. Good weather in cities such as San Diego

a.	is absolutely free for the residents of that city.
b.	is allocated using a weather market.
c.	imposes indirect payments for the residents of that city.
d.	b and c
e.	none of the above

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #10

 

26. Residents of cities with a reputation for good weather, ceteris paribus,

a.	pay a higher price for housing because the demand for housing is higher.
b.	pay a higher price for housing because the supply of housing is higher.
c.	pay a higher price for housing because the supply and demand for housing is higher.
d.	pay the same for housing as they would in cities with a reputation for bad weather.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #10

 

27. Which of the following statements is false?

a.	People who live in cities with good weather receive that benefit for free.
b.	People who own property in cities with good weather receive higher rents, ceteris paribus.
c.	Housing prices are higher in cities with better weather, ceteris paribus.
d.	The demand for housing is higher in cities with good weather, ceteris paribus.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #10

 

28. To an economist, freeway congestion is a sign that the price to drive on the freeway is

a.	below its equilibrium level.
b.	at its equilibrium level.
c.	above its equilibrium level.
d.	either a or c
e.	none of the above

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

29. There is no toll charge to drive on freeway A. If there is freeway congestion at 9 a.m., there will be greater freeway congestion at 11 a.m. if

a.	the demand to drive on the freeway is the same at both times.
b.	the demand to drive on the freeway at 11 a.m. is greater than the demand to drive on the freeway at 9 a.m.
c.	the demand to drive on the freeway at 9 a.m. is greater than the demand to drive on the freeway at 11 a.m.
d.	more people carpool at 11 a.m. than at 9 a.m.
e.	none of the above.

 

 

ANS:  B                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

30. If there is freeway congestion at 8 a.m., we can reduce (or eliminate) the congestion by

a.	building more freeways.
b.	raising the price to drive on the freeway at 8 a.m.
c.	encouraging workers to carpool..
d.	a and b
e.	a, b,  and c

 

 

ANS:  E                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

31. The supply of seats for an economics class at 10 a.m. is the same as the supply of seats for the same class at 12 noon, but while every student who wants to attend this class at 12 noon can, not every student who wants to attend the 10 a.m. class can. Tuition does not vary by time. It follows that the demand for the 10 a.m. class is __________ the demand for the 12 noon class.

a.	lower than
b.	the same as
c.	greater than
d.	either a or b
e.	none of the above

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #12

 

32. The demand to attend a certain college is represented by a downward-sloping demand curve. The supply of spots at the college is represented by a vertical supply curve. At the tuition that students are charged, there is a shortage of spots at the college. If the demand to attend the college rises, but the tuition stays constant, it follows that the

a.	GPA required to attend the college will probably rise.
b.	GPA required to attend the college will probably fall.
c.	SAT score required to attend the college will probably not change.
d.	a and c
e.	There is not enough information to answer this question.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #7

 

33. At college X, students pay $3,000 less than the equilibrium tuition. At college Y, students also pay $3,000 less than the equilibrium tuition. If the supply is the same at both colleges, it follows that the shortage will be greater at

a.	college X than college Y.
b.	college X than the surplus at college Y.
c.	college Y than the surplus at college X.
d.	college X than college Y if the demand is greater at college X.

 

 

ANS:  D                    PTS:   1                    DIF:    Difficulty: Challenging

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #7

 

Exhibit 5-3

 

 

 

34. Refer to Exhibit 5-3 which shows the demand and supply of a college athlete.  Suppose that NCAA rules limit the amount that the college can pay this athlete, such that their payment can not exceed the cost of attending the college (currently, $8,000).  What is the consumers’ surplus for the college (with respect to this one athlete)?

a.	area 1
b.	area 2
c.	area 1 + 2  + 3
d.	area 1 + 2

 

 

ANS:  D                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #11

 

35. Refer to Exhibit 5-3 which shows the demand and supply of a college athlete.  If the college is allowed to pay this student athlete its market equilibrium wage of $10,000, what is the consumers’ surplus for the college that buys this one athlete’s services at this wage?

a.	area 1
b.	area 2
c.	area 3
d.	area 1 + 2

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #11

 

36. Refer to Exhibit 5-3 which shows the demand and supply of a college athlete.  Suppose that NCAA rules limit the amount that the college can pay this athlete, such that their payment can not exceed the cost of attending the college (currently $8,000).  The impact of this ruling would be a loss of income to the athlete of __________ and an equal gain in consumers’ surplus to the college represented by ________________.

a.	$2,000; area 2
b.	$8,000; area 3
c.	$10,000; area 2 + 3
d.	$2,000; area 1 + 2

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #11

 

37. If the government legalized the purchase and sale of marijuana, the equilibrium quantity would _________ and the price would ________ if the supply of marijuana increased by _______ than the demand for marijuana increased.

a.	rise; rise; more
b.	fall; rise; more
c.	rise; fall; more
d.	rise; rise; less
e.	none of the above

 

 

ANS:  D                    PTS:   1                    DIF:    Difficulty: Challenging

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #4

 

38. If patients were allowed to sue their HMO, we would expect

a.	the demand curve for health care services provided by the HMO to shift to the left and the price of HMO-provided health care coverage to fall.
b.	the supply curve for health care services provided by the HMO to shift to the left and the price of HMO-provided health care coverage to rise.
c.	the supply curve for health care services provided by the HMO to shift to the right and the price of HMO-provided health care coverage to fall.
d.	a and b
e.	none of the above

 

 

ANS:  B                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #9

 

39. Suppose that television show A is much more popular than television show B.  The equilibrium price for a ticket to view the taping of show A is $40 and the equilibrium price for a ticket to view the taping of show B is -$30.  If free tickets are offered for the taping of both shows, it is likely that

a.	there will be a shortage of tickets for show A and a surplus of tickets for show B.
b.	there will be a surplus of tickets for show A and a shortage of tickets for show B.
c.	there will be a surplus of tickets for both shows.
d.	there will be a shortage of tickets for both shows.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #1

 

40. If the supply of aisle seats equals the supply of middle seats on an airplane, and the demand for aisle seats is _____________ than the demand for middle seats, then the equilibrium price of aisle seats will be ______________ the equilibrium price of middle seats.

a.	greater; higher than
b.	less; higher than
c.	greater; lower than
d.	less; the same as

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #3

 

41. When the government _____________ mortgage lending standards, the indirect result is likely to be _____________ home prices.

a.	lowers; higher
b.	increases; lower
c.	lowers; lower
d.	increases; higher
e.	a and b

 

 

ANS:  E                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #2

 

42. Suppose that a television studio has two shows, X and Z, and that tickets for viewing the taping of each show is free.  The equilibrium price for a ticket to view the taping of show X is $25 and the equilibrium price for a ticket to view the taping of show B is -$20.  It is likely that tickets to show ________ will need to be rationed on a first-come-first-served basis, while the producers of show ________ will have a much more difficult time filling the seats in the studio since the equilibrium price for tickets to that show is a __________ dollar amount.

a.	Z; X; positive
b.	Z; X; negative
c.	X; Z; positive
d.	X; Z; negative

 

 

ANS:  D                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #1

 

43. If a college sets its tuition __________ the equilibrium tuition, then it will have to use some form of nonprice-rationing device to determine who will be accepted for admission to the college.

a.	above
b.	below
c.	equal to
d.	all of the above

 

 

ANS:  B                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #7

 

Exhibit 5-4

 

 

 

44. Refer to Exhibit 5-4.  If tickets for viewing television show tapings are free, for which show will fans most likely have the longest wait to get tickets?

a.	A
b.	B
c.	C
d.	Wait times for tickets to all shows are equally long.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #1

 

45. Refer to Exhibit 5-4.  If television studio executives choose to charge a price of P_B to view the taping of all shows, they will find that there is a shortage of tickets to view the taping of show ___________ and a surplus of tickets to view the taping of show ______________.

a.	A; C
b.	C; A
c.	B; A
d.	B; C

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #1

 

46. If the government sets out to make home buying easier for more people by forcing lenders to accept ____________ down payments and ______________ interest rates, the result will likely be a(n) _______________ in housing prices.

a.	lower; lower; increase
b.	higher; higher; increase
c.	lower; higher; decrease
d.	higher; lower; decrease

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #2

 

Exhibit 5-5

 

 

 

47. Refer to Exhibit 5-5. If the airline charges price P₂ for both aisle seats and middle seats, the result will be

a.	a surplus of middle seats and the equilibrium quantity of aisle seats.
b.	a surplus of aisle seats and the equilibrium quantity of middle seats.
c.	a shortage of middle seats and the equilibrium quantity of aisle seats.
d.	a shortage of aisle seats and the equilibrium quantity of middle seats.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #3

 

48. Refer to Exhibit 5-5. If the airline charges price P₁ for both aisle seats and middle seats, the result will be

a.	a surplus of middle seats and the equilibrium quantity of aisle seats.
b.	a surplus of aisle seats and the equilibrium quantity of middle seats.
c.	a shortage of middle seats and the equilibrium quantity of aisle seats.
d.	a shortage of aisle seats and the equilibrium quantity of middle seats.

 

 

ANS:  D                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #3

 

49. Refer to Exhibit 5-5. If the airline charges a price that is between P₁ and P₂ for both aisle seats and middle seats, the result will be

a.	a surplus of middle seats and a shortage of aisle seats.
b.	a surplus of aisle seats and a shortage of middle seats.
c.	a shortage of middle seats and the equilibrium quantity of aisle seats.
d.	a shortage of aisle seats and the equilibrium quantity of middle seats.

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #3

 

50. The lower the price of medical care in general, the higher the ____________________________ medical care and the ______________________ specific items that make up medical care (such as x-rays).

a.	quantity demanded of; higher the demand for
b.	demand for; higher the demand for
c.	quantity demanded of; lower the demand for
d.	demand for; higher the quantity demanded of

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #6

 

Exhibit 5-6

 

 

51. Refer to Exhibit 5-6. Under law 1 a renter has 30 days to vacate an apartment after being served with an eviction notice.  Under law 2, the renter has 90 days to vacate after being served with an eviction notice.  This graph shows that the supply of apartments is____________ under law 1 than under law 2, and thus apartment rent is _______________ under law 1 than under law 2.

a.	less; lower
b.	less; higher
c.	greater; lower
d.	greater; higher

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #9

 

52. The higher the price of medical care in general, the lower the ____________________________ medical care and the ______________________  specific items that make up medical care (such as, x-rays).

a.	quantity demanded of; higher the demand for
b.	demand for; higher the demand for
c.	quantity demanded of; lower the demand for
d.	demand for; higher the quantity demanded of

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #9

 

53. The lower the price of medical care in general, the higher the ____________________________ medical care and the ______________________ specific items that make up medical care (such as x-rays).  The result will be a _______________ price for the specific items that make up medical care.

a.	quantity demanded of; higher the demand for; higher
b.	demand for; higher the demand for; higher
c.	quantity demanded of; lower the demand for; lower
d.	demand for; higher the quantity demanded of; higher

 

 

ANS:  A                    PTS:   1                    DIF:    Difficulty: Challenging

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #9

 

54. Profit can be earned by buying _____________ and selling ____________________.

a.	at one price; at the same price
b.	low; high
c.	high: low
d.	none of the above

 

 

ANS:  B                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Comprehension                 MSC:  Application #5

NOT:  New

 

55. As the price of good Z falls, the quantity demanded of good Z rises, but the quantity supplied of good Z does not change.  Based upon this information we can conclude that the demand curve for good Z is ________________ and the supply curve for good Z is ________________.

a.	downward sloping; upward sloping
b.	upward sloping; downward sloping
c.	upward sloping; vertical
d.	downward sloping; vertical
e.	vertical; downward sloping

 

 

ANS:  D                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Applications #8 & #12

NOT:  New

 

56. The price of good B has a pattern such that P = $20 on Monday through Thursday of every week, and P = $25 on Fridays.  If speculators begin participating in the market for good B, their actions will likely lead to a(n) ______________ in the price of good B on Monday through Thursday and a(n) _______________ in the price of good B on Friday.

a.	increase; increase
b.	increase; decrease
c.	decrease; increase
d.	decrease; decrease

 

 

ANS:  B                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #5

NOT:  New

 

57. The price of good X has a pattern such that P = $3 on Monday through Thursday of every week, and  P = $2 on Fridays.  If speculators begin participating in the market for good X, their actions will likely lead to a(n) ______________ in the price of good X on Monday through Thursday and a(n) _______________ in the price of good X on Friday.

a.	increase; increase
b.	increase; decrease
c.	decrease; increase
d.	decrease; decrease

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Applications #5

NOT:  New

 

58. Which of the following is false?

a.	If Mexican restaurant owners provide free chips and salsa to their customers, the quantity demanded of chips and salsa will be greater than if customers had to pay for them.
b.	If the price of a good falls, then the demand for its complements will increase.
c.	If the price of a good rises, then the price of its complements will rise.
d.	If chips and salsa are offered for free to Mexican restaurant customers, then restaurants can charge a higher price for products that are complements to chips and salsa (such as beer).

 

 

ANS:  C                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Applications #13

NOT:  New

 

59. If the price of a good ____________, the demand for its complements will __________.

a.	rises; fall
b.	falls; rise
c.	falls; fall
d.	rises; rise
e.	a and b

 

 

ANS:  E                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Applications #13

NOT:  New

 

TRUE/FALSE

 

1. If new legislation allowed patients to sue their health-maintenance organization (HMO), we would expect the supply curve for HMO-provided health care to shift to the right and the price of such coverage to fall.

 

ANS:  F                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #9

 

2. If new legislation allowed patients to sue their health-maintenance organization (HMO), we would expect the supply curve for HMO-provided health care to shift to the left and the price of such coverage to rise.

 

ANS:  T                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #9

 

3. People who buy houses in good-weather locations receive this benefit absolutely for free.

 

ANS:  F                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #10

 

4. The supply curve for space on the freeway is perfectly horizontal.

 

ANS:  F                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

5. The NCAA rule governing the limits on the amount of a scholarship a college can offer an athlete is an effective price floor.

 

ANS:  F                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #11

 

6. If the quantity demanded of medical care is higher at a zero price than at some positive price, then it follows that the demand for those specific items that make up health care will be higher (than it would be if the quantity demanded of health care were lower).

 

ANS:  T                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #6

 

7. When universities charge students less than the equilibrium tuition for admission, they have to impose some nonprice-rationing device.

 

ANS:  T                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #7

 

8. The existence of a third party in the medical care market separates the buying of medical care from the paying for medical care.

 

ANS:  T                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #6

 

9. High demand for a product does not necessarily mean a high quantity demanded for that product if the price is high enough.

 

ANS:  T                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Office Hours

 

10. In a given community, if the government builds more freeways, then the supply curve for freeway space shifts rightward and the demand curve for freeway space shifts leftward.

 

ANS:  F                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #8

 

11. If the demand curve for tickets to a television show taping intersects the supply curve for tickets to that show at a negative price, then in order to put that market in equilibrium the producers would need to pay people to view the show being taped.

 

ANS:  T                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #1

 

12. The ticket price of zero for the viewing of a television show taping often results in a shortage of tickets which are frequently rationized on a first-come-first-served basis.

 

ANS:  T                    PTS:   1                    DIF:    Difficulty: Easy

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #1

 

13. If the supply of aisle seats and middle seats on an airplane is the same, but the demand for aisle seats is greater than the demand for middle seats, then the equilibrium price of aisle seats will be less than the equilibrium price of middle seats.

 

ANS:  F                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #3

 

14. When the government enacts policies that lead to lower mortgage lending standards and lower interest rates, their actions can indirectly lead to higher home prices.

 

ANS:  T                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #2

 

15. Economists perceive a college applicant’s grade point average and standardized test scores (such as SAT and ACT scores) to be rationing devices.

 

ANS:  T                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Application                       MSC:  Application #6

 

16. The objective of speculators is to buy at one price and sell at a lower price.

 

ANS:  F                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Comprehension                 MSC:  Application #5

NOT:  New

 

17. The price of a given good is likely to be less variable with speculators than it would be without speculators.

 

ANS:  T                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Comprehension                 MSC:  Application #5

NOT:  New

 

18. The actions of speculators make the speculators better off, but they necessarily make the rest of society worse off.

 

ANS:  F                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Comprehension                 MSC:  Application #5

NOT:  New

 

19. When the price of a good rises, the demand for its complements will tend to rise.

 

ANS:  F                    PTS:   1                    DIF:    Difficulty: Moderate

NAT:  BUSPROG: Analytic                       LOC:  DISC: Supply and demand

KEY:  Bloom’s: Comprehension                 MSC:  Application #13

NOT:  New

 

ESSAY

 

1. Explain in detail how the legalization of marijuana would be expected to impact the equilibrium price and quantity for marijuana.

 

ANS:

Legalization of any currently illegal drug would be expected to alter both the demand and the supply of that drug. Economists predict that the demand for the drug would increase because the number of buyers would increase. This would shift the demand curve to the right. In addition, the number of sellers would likely rise and the supply of that drug would be expected to increase, shifting the supply curve to the right. An increase in demand and supply will definitely increase the equilibrium quantity of the drug, but there will be an indeterminate effect on the price, depending on whether demand shifts more or supply shifts more.

 

PTS:   1                    DIF:    Difficulty: Moderate                        NAT:  BUSPROG: Analytic

LOC:  DISC: Supply and demand               KEY:  Bloom’s: Application

MSC:  Application #4

 

2. Discuss three possible solutions for reducing traffic congestion on freeways. Be sure to explain what effect each would have on the supply and/or demand for freeway space.

 

ANS:

1) Impose a toll to drive on the freeway. This would push up the price of driving on the freeway and the quantity demanded of freeway space would decline while the quantity supplied would remain constant (as a result of the vertical supply curve for freeway space). If the toll were placed at the point where the market is in equilibrium at the most congested times of day, the congestion problem would be eliminated. 2) Build more freeway space. This solution would shift the supply curve for freeway space (a vertical supply curve) to the right but would not shift the demand curve.  3) Promote carpools or give incentives for carpooling. If more drivers were ridesharing, the demand curve for freeway space would shift to the left while the supply curve would remain in its original position. 4) Improve public transportation. As with the use of carpools, an increase in public transportation ridership would shift the demand curve for freeway space to the left while the supply curve would remain in its original position.

 

PTS:   1                    DIF:    Difficulty: Challenging                    NAT:  BUSPROG: Analytic

LOC:  DISC: Supply and demand               KEY:  Bloom’s: Application

MSC:  Application #8

 

3. Using supply and demand analysis, explain why there is sometimes a surplus of seats to watch a television show being taped and other times there is a shortage of such seats.  Assume that tickets to view the taping of a television show are free of charge.

 

ANS:

The supply curve for seats in a television studio is vertical since there are a set number of seats in the studio at any point in time.  The placement of the demand curve for seats depends upon the relative popularity of the show being taped.  The demand curve for a relatively popular show will lie farther to the right than would the demand curve for a less popular, or new, show.  At a price of zero, the quantity demanded of seats is very likely to exceed the quantity supplied of seats for a popular show, resulting in a shortage of seats.  For a less popular show, the quantity supplied of seats could exceed the quantity demanded of seats at a price of zero, resulting in a surplus of seats.

 

PTS:   1                    DIF:    Difficulty: Challenging                    NAT:  BUSPROG: Analytic

LOC:  DISC: Supply and demand               KEY:  Bloom’s: Application

MSC:  Application #1

 

4. As discussed in the text, describe some policy changes the government could make in order to make it easier for people to buy houses.  Using supply and demand analysis, explain how these policy changes could indirectly lead to fewer people being able to afford to purchase a home.

 

ANS:

In order to encourage home ownership, the government could enact a law which require lenders to accept lower down-payments.  In addition, the central bank could reduce short-term interest rates, in an attempt to encourage lenders to lower the interest rate that they charge to their borrowers.  These changes would indirectly increase the demand for housing.  An increase in demand will shift the demand curve for housing rightward, resulting in an increase in the price of housing.  Higher home prices could ultimately lead to fewer people being able to afford to purchase a house.

 

PTS:   1                    DIF:    Difficulty: Moderate                        NAT:  BUSPROG: Analytic

LOC:  DISC: Supply and demand               KEY:  Bloom’s: Application

MSC:  Application #2

 

5. Using proper economic terminology, describe why Mexican restaurants often provide chips and salsa for free to their customers.

 

ANS:

When restaurant owners provide chips and salsa for free to their customers, the quantity demanded of chips and salsa will be higher than if they were to charge for them.  As customers eat more chips and salsa, they will tend to purchase drinks (such as beer) to go along with them.  As happens when goods are complements, the decrease in the price of chips and salsa will lead to an increase in the demand for beer.  Since an increase in the demand for a product causes that product’s price to rise, the restaurant can then charge a higher price for beer.

 

PTS:   1                    DIF:    Difficulty: Moderate                        NAT:  BUSPROG: Analytic

LOC:  DISC: Supply and demand               KEY:  Bloom’s: Application

MSC:  Application #2