Microeconomics 14Th Canadian Edition by Ragan - Test Bank

Microeconomics 14Th Canadian Edition by Ragan – Test Bank

Instant Download – Complete Test Bank With Answers

Sample Questions Are Posted Below

ExamName___________________________________MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.1)Partial-equilibrium analysis is a legitimate method of analysis if the market being studied1)A)is large relative to the entire economy such that the feedback effects are obvious to the analyst.B)is in the manufacturing sector of the economy.C)is in the financial sector of the economy.D)is small relative to the entire economy, such that feedback effects on the market being studiedare significant.E)is small relative to the entire economy, such that feedback effects on the market being studiedare small.Answer:EExplanation:A)B)C)D)E)2)In free and competitive markets, surpluses are eliminated by2)A)government price controls.B)government purchases.C)price increases.D)price decreases.E)black markets.Answer:DExplanation:A)B)C)D)E)1
FIGURE 5-13)Refer to Figure 5-1. If the diagram applies to the labour market, andP3represents a legislatedminimum wage,3)A)the free-market equilibrium wage isP0and the labour market is unaffected by the minimumwage.B)the amount of labour employed will rise from quantity F to quantity C.C)there will be unemployment of AC in the labour market.D)the labour market is in disequilibrium.E)there will be excess demand of AC in the labour market.Answer:AExplanation:A)B)C)D)E)4)Suppose the government establishes a binding price floor for some product. At the price floor,4)A)both sellers and buyers are exchanging the free-market equilibrium quantity.B)although consumers are purchasing all of the product that they desire at this price, the sellersare not selling all that they desire.C)a new free-market equilibrium price and quantity will be established.D)both sellers and buyers are satisfied with the quantity that is being exchanged.E)although sellers are selling all of the product that they desire, consumers are not able to buyall that they desire.Answer:BExplanation:A)B)C)D)E)2
5)In Canada we have government intervention in the dairy market in the form of quotas on milkproduction. What are two predicted economic effects of this policy?5)A)an equitable distribution of income between dairy farmers and consumers of dairy products;and a reduction in the total amount of economic surplus in the dairy market.B)a redistribution of income from dairy farmers to consumers of dairy products; a reduction inthe total amount of economic surplus in the dairy market.C)a redistribution of income from consumers of dairy products to dairy farmers; and areduction in the total amount of economic surplus in the dairy market.D)a redistribution of income from dairy farmers to consumers of dairy products; and an increasein the total amount of economic surplus in the dairy market.E)a redistribution of income from consumers of dairy products to dairy farmers; and areduction in deadweight loss in the dairy market.Answer:CExplanation:A)B)C)D)E)6)The shortages associated with a binding price ceiling will be the smallest when6)A)supply is highly elastic and demand is highly inelastic.B)supply is highly inelastic and demand is highly elastic.C)both supply and demand are highly elastic.D)both supply and demand are highly inelastic.E)none of the aboveNthe size of the shortage has nothing to do with demand and supplyelasticities.Answer:DExplanation:A)B)C)D)E)7)In competitive markets, binding price floors and binding price ceilings lead to7)A)fairer prices for consumers and producers, and therefore are better for society as a whole.B)a reduction in deadweight loss.C)an overall reduction in economic surplus, and therefore to market inefficiency.D)an overall increase in economic surplus, and therefore to market efficiency.E)a maximization of economic surplus.Answer:CExplanation:A)B)C)D)E)3
8)If the government imposes a price ceiling for some product, and a black market subsequentlydevelops that gains control of all of the reduced output of the product, then8)A)excess profits will flow back to consumers.B)the black market price will be lower than the ceiling price.C)the quantity demanded will exceed quantity supplied at the black market price.D)the black market price will be higher than the free-market equilibrium price.E)consumers will be better off than they would be in the absence of the black market.Answer:DExplanation:A)B)C)D)E)9)A binding price floor is a9)A)minimum price, below equilibrium, below which price is not allowed to fall.B)maximum price, below equilibrium, which price is not allowed to exceed.C)minimum price, above equilibrium, below which price is not allowed to fall.D)maximum price, above equilibrium, which price is not allowed to exceed.E)any minimum price below which price is not allowed to fall.Answer:CExplanation:A)B)C)D)E)10)Which of the following statements about government price controls is most accurate. They10)A)ensure that the actual price is at its free-market equilibrium.B)inform consumers what is the maximum price they should pay.C)usually set upper or lower limits on prices.D)act as a guideline to producers as to what is a fair price.E)ensure that transactions take place at a fair price.Answer:CExplanation:A)B)C)D)E)11)An excess demand for some product is the same thing as11)A)a surplus.B)an excess supply.C)black market.D)a shortage.E)price ceiling.Answer:DExplanation:A)B)C)D)E)4
FIGURE 5-112)Refer to Figure 5-1. In this market, suppose the government announces that the price must be P3orlower. This price (P3) is referred to as12)A)a binding price floor.B)a price floor.C)a non-binding price ceiling.D)an equilibrium price.E)a price ceiling.Answer:EExplanation:A)B)C)D)E)13)Each point on a demand curve shows the ________ price that consumers will pay to consume thatquantity. The demand curve therefore shows the ________ to consumers from consuming theproduct.13)A)maximum; valueB)equilibrium; equilibrium priceC)maximum; costD)minimum; costE)minimum; valueAnswer:AExplanation:A)B)C)D)E)5
FIGURE 5-114)Refer to Figure 5-1. If the government imposes an administered price atP2, the result will be a14)A)surplus of 0D.B)surplus of BD.C)surplus of AF.D)shortage of AC.E)shortage of FD.Answer:BExplanation:A)B)C)D)E)15)A legal price floor is a15)A)maximum price above which sales cannot legally be made.B)price above which there would be no demand.C)price below which there would be no supply.D)minimum price below which sales cannot legally be made.E)price set by the government at which all goods or services must be legally sold.Answer:DExplanation:A)B)C)D)E)6
16)The use of legislated rent controls typically16)A)has no effect on the distribution of income between tenants and landlords or on theavailability of rental accommodations.B)affects the distribution of income between tenants and landlords and also affects theavailability of rental accommodations.C)affects the distribution of income between tenants and landlords but does not affect thesupply of rental accommodations.D)has much worse effects in the short run than in the long run.E)has no effect on the distribution of income between tenants and landlords but does affect thesupply of rental accommodations.Answer:BExplanation:A)B)C)D)E)17)Consider a competitive labour market. The likely consequence of a binding minimum wage in thislabour market is17)A)a higher wage for all individuals.B)a lower wage for all individuals.C)excess demand for workers.D)a labour shortage.E)unemployment.Answer:EExplanation:A)B)C)D)E)7
Consider the following demand and supply schedules for some agricultural commodity.PriceQuantity SuppliedQuantity Demanded$103001100$30500900$50700700$70900500$901100300$1101300100TABLE 5-218)Refer to Table 5-2. Consider the market-clearing equilibrium. If the government then imposes aproduction quota of 500 units, the price of this commodity will ________ relative to the free-marketequilibrium price.18)A)fall by $40B)fall by $20C)rise by $40D)remain unchangedE)rise by $20Answer:EExplanation:A)B)C)D)E)8
FIGURE 5-519)Refer to Figure 5-5. Suppose this market for gardening services is in a free-market equilibrium. Ifthe government then imposes a price floor of $50 per hour for gardening services, the result wouldbe19)A)a loss of economic surplus of the areas 6 and 7.B)a loss of economic surplus of the areas 2, 3, 4, 6, and 7.C)a loss of economic surplus of the areas 1, 2, 3, and 4.D)a loss of economic surplus of the areas 2 and 6.E)a loss of economic surplus of the area 1.Answer:AExplanation:A)B)C)D)E)9
Consider the following demand and supply schedules for some agricultural commodity.PriceQuantity SuppliedQuantity Demanded$103001100$30500900$50700700$70900500$901100300$1101300100TABLE 5-220)Refer to Table 5-2. Total farmers’ revenue under the free-market equilibrium is20)A)$35 000.B)$75 000.C)$15 000.D)$3000.E)$63 000.Answer:AExplanation:A)B)C)D)E)21)Suppose the government establishes a ceiling on the price of rental accommodation that is lowerthan the free-market equilibrium price. In this case,21)A)a surplus of current rental units will develop.B)the rental housing market will be unaffected.C)the current stock of rental housing will be better maintained as there is a shortage of housing.D)those people who obtain rental units at the ceiling price will benefit.E)construction of new rental units will be encouraged.Answer:DExplanation:A)B)C)D)E)10
22)Suppose a negatively sloped demand curve and a positively sloped supply curve intersect at aprice and quantity combination of $100 and 600 units of the good. But suppose that producersactually produce and sell 610 units. What can we correctly say about market efficiency in this case?22)A)This market is not efficient because quantity demanded for the good exceeds quantitysupplied.B)This market is efficient because economic surplus is maximized as production andconsumption increase simultaneously.C)The value placed on the final 10 units of the good by consumers exceeds the additional costsassociated with their production-this market is not efficient.D)The value placed on the final 10 units of the good by consumers is less than the additionalcosts associated with their production-this market is not efficient.E)The production and consumption of the additional 10 units of the good increases totaleconomic surplus and increases market efficiency.Answer:DExplanation:A)B)C)D)E)23)If the equilibrium price for some product is $1000, a price ceiling of $1200 will result in23)A)the same general effects as a price ceiling of $600.B)the same general effects as an administered price of $1200.C)the same general effects as a price floor of $1200.D)massive surpluses of the good.E)no effects because the price ceiling is not binding at that price.Answer:EExplanation:A)B)C)D)E)11
FIGURE 5-324)Refer to Figure 5-3. Suppose P3represents a price imposed by the government. The result wouldbe24)A)excess supply of Q3Q0.B)excess demand of Q1Q2.C)excess demand of Q3Q4.D)excess supply of Q3Q4.E)excess demand of Q0Q2.Answer:CExplanation:A)B)C)D)E)12
FIGURE 5-225)Refer to Figure 5-2. A price ceiling set at a price of $2.50 per unit will result in25)A)a surplus of 10 units.B)a surplus of 5 unitsC)a shortage of 10 units.D)a shortage of 5 units.E)no change in the market outcomes.Answer:EExplanation:A)B)C)D)E)26)Which of the following is an example of a black-market transaction?26)A)A person buys a hotdog on a street corner.B)A person buys a product at a price below the government-imposed ceiling price.C)A person buys a product at a price greater than the government-imposed ceiling price.D)A person buys a product at a price greater than the government-imposed price floor.E)A person places a bet at a racetrack.Answer:CExplanation:A)B)C)D)E)13
27)Consider partial and general equilibrium analysis. If a specific market is quite small relative to theentire economy27)A)partial-equilibrium analysis is the only tool available to understand this market.B)general-equilibrium analysis will be necessary in order to understand this market.C)changes in this market will have considerable effects on other markets.D)the feedback effects on this market from induced changes in other markets will be very small.E)government intervention is necessary to link it to other markets.Answer:DExplanation:A)B)C)D)E)28)In which type of market would a government be most likely to establish a “legal” price floor?28)A)electricity marketB)natural gas marketC)housing marketD)diamond marketE)labour marketAnswer:EExplanation:A)B)C)D)E)14
FIGURE 5-329)Refer to Figure 5-3. P2represents a price imposed by the government. What is the quantity of thisgood that would be exchanged in the market?29)A)Q0B)Q1C)Q2D)Q3E)Q4Answer:BExplanation:A)B)C)D)E)15
Demand and Supply Schedules for Chocolate BarsPrice($)Quantity Demanded(thousands per week)Quantity Supplied(thousands per week)2.00150021001.80160020501.60170020001.40180019501.20190019001.00200018500.80210018000.60220017500.4023001700TABLE 5-130)Refer to Table 5-1. Suppose the government established a price floor of $1.00 per chocolate bar.How many thousands of chocolate bars would be exchanged per week?30)A)1850B)2000C)1900D)1800E)2100Answer:CExplanation:A)B)C)D)E)31)Refer to Table 5-1. Suppose the governmentimposeda price of $0.60 per chocolate bar. The resultwould be31)A)stockpiling of unsold chocolate bars.B)excess supply of 450 chocolate bars per week.C)excess demand of 450 chocolate bars per week.D)excess supply of 1750 chocolate bars per week.E)excess demand of 2200 chocolate bars per week.Answer:CExplanation:A)B)C)D)E)16
FIGURE 5-432)Refer to Figure 5-4. The difference between supply curve S1and supply curve S2in this market forapartments is that32)A)S2is not affected by a government controlled rental price.B)S1is not affected by a government controlled rental price.C)S1is a long-run supply curve and S2is a short-run supply curve.D)S1is a short-run supply curve and S2is a long-run supply curve.E)S1is more elastic than S2.Answer:DExplanation:A)B)C)D)E)33)Suppose a downward-sloping demand curve intersects the horizontal axis at a point wherequantity demanded equals 1250 units. What is the “value” that consumers place on the 1250th unitof this good?33)A)a negative valueB)$0C)a positive valueD)$1250E)it depends on the position of the supply curveAnswer:BExplanation:A)B)C)D)E)17
34)An excess supply of some product is the same thing as34)A)an excess demand.B)a shortage.C)price floor.D)a surplus.E)scarcity.Answer:DExplanation:A)B)C)D)E)The diagram below shows the market for litres of milk.FIGURE 5-835)Refer to Figure 5-8. Suppose that a binding output quota is imposed on this market at quantity Q1.The loss in economic surplus due to the quota is equal to35)A)areas 5, 6 and 7.B)areas 5 and 6.C)areas 2 and 5.D)areas 1, 2 and 3.E)area 1.Answer:BExplanation:A)B)C)D)E)18
FIGURE 5-436)Refer to Figure 5-4. Suppose the government imposes a rent-controlled price of $600 per month onapartments in this city. In the long run we can expect the shortage of apartments to be ________units.36)A)200B)300C)0D)800E)1000Answer:DExplanation:A)B)C)D)E)37)A minimum permissible price established by the government is called37)A)the fair price.B)a price floor.C)the margin price.D)the equilibrium price.E)a price ceiling.Answer:BExplanation:A)B)C)D)E)19
FIGURE 5-438)Refer to Figure 5-4. Suppose the government sets a rent ceiling at Price B, $900. In this situation,the rental price for an apartment is38)A)any rent above $900.B)$600.C)any rent below $600.D)$900.E)the same as the free-market equilibrium rental price.Answer:EExplanation:A)B)C)D)E)39)Consider the market for pulp and paper. Suppose, in an attempt to help this industry, thegovernment sets a price floor above the free-market equilibrium price. The result will be39)A)the quantity supplied will exceed quantity demanded and there will be a surplus in themarket.B)a continuation of the market-determined equilibrium price and quantity.C)increased government revenue.D)the quantity demanded will exceed quantity supplied and there will be a shortage in themarket.E)a new free-market equilibrium at a higher price and lower output level.Answer:AExplanation:A)B)C)D)E)20
40)Consider the market for rental accommodation. In the short run, the supply of this product tends tobe40)A)very or completely price inelastic.B)unit price elastic.C)infinitely price elastic.D)irrelevant to the housing market price.E)very price elastic.Answer:AExplanation:A)B)C)D)E)Consider the following demand and supply schedules for some agricultural commodity.PriceQuantity SuppliedQuantity Demanded$103001100$30500900$50700700$70900500$901100300$1101300100TABLE 5-241)Refer to Table 5-2. Suppose we begin in a free-market equilibrium. If the government thenimposes a production quota of 500 units, total farmers’ income41)A)increases by $800.B)decreases by $500.C)increases by $500.D)decreases by $700.E)remains unchanged.Answer:EExplanation:A)B)C)D)E)21
FIGURE 5-342)Refer to Figure 5-3. If the government imposes a price floor at P3, the result would be a price andquantity combination of42)A)P3and Q3.B)P3and Q0.C)P3and Q4.D)P2and Q1.E)P1and Q0.Answer:EExplanation:A)B)C)D)E)43)In general (and in the absence of market failures), economic surplus will be maximized andeconomic efficiency will be achieved43)A)when consumers and producers can agree on the most advantageous division of economicsurplus.B)when the government successfully determines what is best for society as a whole.C)when the government is able to impose an equilibrium price.D)in a competitive market where price is free to achieve its market-clearing equilibrium level.E)when resources are allocated such that production of the good is maximized.Answer:DExplanation:A)B)C)D)E)22
44)If a binding price floor is in place and if the demand curve for the product shifts rightward, oneconsequence would be44)A)a decrease in the quantity exchanged.B)an increase in the amount of excess demand.C)a decrease in the amount of excess supply.D)an increase in the amount of excess supply.E)a decrease in the amount of excess demand.Answer:CExplanation:A)B)C)D)E)Demand and Supply Schedules for Chocolate BarsPrice($)Quantity Demanded(thousands per week)Quantity Supplied(thousands per week)2.00150021001.80160020501.60170020001.40180019501.20190019001.00200018500.80210018000.60220017500.4023001700TABLE 5-145)Refer to Table 5-1. Suppose that as a public-health measure the government wants to reduce thenumber of chocolate bars that children consume. To achieve this outcome the government couldimplement which of the following policies?45)A)Impose an equilibrium price of $1.20.B)Impose an equilibrium price of $1.80.C)Impose a price floor of $1.80.D)Impose a price ceiling of $2.00.E)Impose a price ceiling of $1.80.Answer:CExplanation:A)B)C)D)E)23
FIGURE 5-246)Refer to Figure 5-2. A price floor set at $2.50 will result in46)A)a shortage of 5 units.B)a surplus of 10 unitsC)a surplus of 5 units.D)a shortage of 10 units.E)no change to the market outcomes.Answer:BExplanation:A)B)C)D)E)24
47)Consider the demand curve for a product such as movie tickets, which shows how many ticketsconsumers wish to purchase at each possible price. Alternatively, we could view this demandcurve in the following way:47)A)for each possible price, the demand curve shows the economic surplus generated by thepurchase of the tickets.B)for each quantity of movie tickets, the demand curve shows the additional cost to theproducer of supplying that particular movie ticket.C)for each quantity of movie tickets, the demand curve shows the economic surplus generatedby the purchase of the tickets.D)for each quantity of movie tickets, the demand curve shows the extent of market inefficiencyand deadweight loss.E)for each quantity of movie tickets, the price on the demand curve shows the value thatconsumers place on that particular movie ticket.Answer:EExplanation:A)B)C)D)E)48)If a binding price ceiling is in effect and if the demand for the product increases, one consequencewould be48)A)an increase in the amount of excess demand.B)a decrease in the amount of excess supply.C)an increase in the amount of excess supply.D)a decrease in the amount of excess demand.E)no change in the excess supply or demand for the product.Answer:AExplanation:A)B)C)D)E)49)For a price floor to be binding, it must be set49)A)at the free-market equilibrium price.B)below the free-market equilibrium price.C)at a level such that there exists some unsatisfied demand.D)above the free-market equilibrium price.E)very low.Answer:DExplanation:A)B)C)D)E)25
50)If the government fixes the price of good X above its free-market equilibrium level, we shouldexpect50)A)a shortage of good X to occur.B)a black market to arise for good X.C)a surplus of good X to occur.D)a new free-market equilibrium price to be established.E)an excess demand for good X.Answer:CExplanation:A)B)C)D)E)51)Suppose the government imposes an administered price in the market for gold, which results in anexcess supply. In this situation,51)A)the market is in disequilibrium.B)no gold will be exchanged.C)there are unsuccessful buyers.D)the market is in equilibrium.E)the gold market has not reached the point of saturation.Answer:AExplanation:A)B)C)D)E)52)If the equilibrium price for some product is $1000, a price ceiling of $800 will result in52)A)the same general effects as a price ceiling of $1200.B)the same general effects as a price ceiling of $600.C)the same general effects as a price floor of $1200.D)massive surpluses of the good.E)no effects because the price ceiling is not binding at that price.Answer:BExplanation:A)B)C)D)E)26
53)With respect to some commodity, X, if government objectives are to (1) restrict production and (2)keep prices down to protect consumers, then legislated price ceilings will53)A)only have an effect on commodities at the international level.B)satisfy both goals but only if a black market develops.C)satisfy both goals as long as a black market does not develop.D)satisfy only the second goal if a black market develops.E)be a dismal failure as neither goal can ever be achieved with price ceilings.Answer:CExplanation:A)B)C)D)E)54)If the free-market equilibrium price for some product is $25, then a legal price ceiling set at $15 willbring about54)A)the same general effects as an equilibrium price of $15.B)no change in the market outcomes.C)the same general effects as a price ceiling of $25.D)a surplus of the good.E)a shortage of the good.Answer:EExplanation:A)B)C)D)E)55)Output quotas are commonly used in markets for55)A)agricultural products.B)financial products.C)textiles.D)exported goods.E)imported goods.Answer:AExplanation:A)B)C)D)E)27
56)A predictable result of the imposition of binding price floors or price ceilings is56)A)a reduction in quantities exchanged.B)surpluses.C)a more equitable distribution of commodities.D)shortages.E)production control by the government.Answer:AExplanation:A)B)C)D)E)Consider the following demand and supply schedules for some agricultural commodity.PriceQuantity SuppliedQuantity Demanded$103001100$30500900$50700700$70900500$901100300$1101300100TABLE 5-257)Refer to Table 5-2. Consider the market-clearing equilibrium. If the government then required thatproduction increase to 900 units, the deadweight loss that is created is equal to57)A)$1000.B)$3000.C)$4000.D)$2000.E)$5000.Answer:CExplanation:A)B)C)D)E)58)A binding minimum wage established by the government58)A)is a price floor that will create a surplus of workers if the labour market is competitive.B)is essentially a price ceiling that creates a shortage of workers.C)will affect adversely only those workers whose value of productivity is greater than thisminimum wage.D)will be effective only if the minimum wage is set below the free-market equilibrium wage.E)will have no effect on the quantity of labour employed.Answer:AExplanation:A)B)C)D)E)28
FIGURE 5-159)Refer to Figure 5-1. If the diagram applies to the market for rental housing andP3represents themaximum rent that can be charged, then59)A)units supplied will be reduced relative to the competitive equilibrium by AF rental units.B)there will be an excess supply of rental units equal to BD.C)windfall profits will be earned by landlords.D)there will be excess demand for rental units equal to AF.E)there will be excess demand for rental units equal to FC.Answer:AExplanation:A)B)C)D)E)29
FIGURE 5-560)Refer to Figure 5-5. At the market-clearing price and quantity of $30 per hour and 4000 hours ofgardening services purchased, the economic surplus is60)A)the sum of the areas above the supply curve, but below the market-clearing price of $30Ni.e., areas 3, 4, 7.B)the sum of the areas below the demand curve, but above the market-clearing price of $30Ni.e., areas 1, 2, 6.C)the sum of the areas above the supply curve and below the demand curveNi.e., areas 1, 2, 3,4, 6, 7.D)the sum of the areas below the demand curve, up to 4000 hoursNi.e., areas 1, 2, 3, 4, 5, 6, 7, 8.E)the sum of the areas below the demand curveNi.e., areas 1, 2, 3, 4, 5, 6, 7, 8, 9.Answer:CExplanation:A)B)C)D)E)30
FIGURE 5-161)Refer to Figure 5-1. In this market, suppose the government announces that the price must be P2or higher. This price (P2) is referred to as61)A)a price floor.B)a price ceiling.C)an equilibrium price.D)a binding price ceiling.E)a non-binding price floor.Answer:AExplanation:A)B)C)D)E)62)A price ceiling set below the free-market equilibrium price will result in62)A)surpluses.B)a clearing of the market.C)excess supply.D)excess demand.E)greater quantity exchanged.Answer:DExplanation:A)B)C)D)E)31
63)The price of a good or a service can be determined by free interaction of demand and supply or bya government price regulation. One important difference between these two price-determiningmethods is63)A)one is capitalist and the other is communist.B)there are no shortages or surpluses at the free-market equilibrium price.C)the government is in the best position to know the needs of the people.D)that a regulated price above the equilibrium price will always result in shortages.E)regulated prices are fairer since more people can then afford the goods or services.Answer:BExplanation:A)B)C)D)E)64)Each point on a supply curve shows the ________ acceptable price to firms for selling that unit; thisprice reflects ________ to firms from producing that unit.64)A)minimum; the additional valueB)minimum; the equilibrium priceC)minimum; the additional costD)maximum; the additional valueE)maximum; the additional costAnswer:CExplanation:A)B)C)D)E)65)Consider a market in which there is an administered price. If there is excess demand,65)A)there are unsuccessful sellers.B)none of the product will be exchanged.C)the market is in its free-market equilibrium.D)the product has not reached the point of saturation.E)the market is in disequilibrium.Answer:EExplanation:A)B)C)D)E)32
66)Who are likely to be the biggest beneficiaries of rent controls?66)A)prospective tenantsB)landlordsC)current tenantsD)construction companiesE)no group will benefit from the controlsAnswer:CExplanation:A)B)C)D)E)67)Government price controls are policies that attempt to maintain the67)A)price requested by the seller.B)the price at some disequilibrium value.C)quantity sold at less than the quantity bought.D)quantity bought at less than the quantity sold.E)market price at equilibrium.Answer:BExplanation:A)B)C)D)E)68)Consider Canada’s east coast lobster fishery. Suppose the government sets a production quotawhich is below the equilibrium quantity. Relative to the free-market equilibrium, we can expectthe result to be68)A)a decreased price.B)an increase in price and a decrease in deadweight loss.C)the free-market equilibrium price and quantity because the quota is not binding.D)an increase in price and the introduction of a deadweight loss.E)a decrease in price and a decrease in deadweight loss.Answer:DExplanation:A)B)C)D)E)33
69)Consider the supply curve for a product such as shipping crates, which shows how many cratesproducers want to sell at each possible price. Alternatively, we could view this supply curve in thefollowing way:69)A)for each quantity of shipping crates, the supply curve shows the economic surplus generatedby the provision of that ticket.B)for each possible price, the supply curve shows the economic surplus generated by theprovision of those crates.C)for each quantity of shipping crates, the price on the supply curve shows the additional costto the producer of supplying that crate.D)for each quantity of shipping crates, the supply curve shows the value that consumers placeon that particular crate.E)for each quantity of shipping crates, the supply curve shows the extent of market inefficiencyand deadweight loss.Answer:CExplanation:A)B)C)D)E)34
FIGURE 5-670)Refer to Figure 5-6. The market for good X is in equilibrium at P0and Q0. Now suppose thegovernment imposes a ________ at P1. One result would be ________.70)A)price floor; a deadweight loss represented by areas 2, 6 and 7.B)price floor; a deadweight loss represented by areas 5, 6, 7 and 8.C)price ceiling; a deadweight loss represented by areas 5, 6, 7 and 8.D)price ceiling; an increase in economic surplus represented by areas 5 and 6.E)price ceiling; a deadweight loss represented by areas 5 and 6.Answer:EExplanation:A)B)C)D)E)35
FIGURE 5-371)Refer to Figure 5-3. To be effective, a price floor must lie71)A)within the boundaries of P2and P3.B)anywhere below P1.C)above P1but below P2.D)anywhere above P1.E)below P1but above P3.Answer:DExplanation:A)B)C)D)E)72)Consider the market for any agricultural commodity for which there exists a binding output quotaand demand is inelastic. Any individual producer has a clear financial incentive to72)A)leave the market.B)give away their quota.C)limit production of the commodity.D)stop producing.E)produce a small amount beyond their individual quota amount.Answer:EExplanation:A)B)C)D)E)36
73)Consider the market for iron ore, an important industrial input. Suppose the government sets aprice floor below the free-market equilibrium price. The result will be73)A)the quantity supplied will exceed quantity demanded and there will be a surplus in themarket.B)the quantity demanded will exceed quantity supplied and there will be a shortage in themarket.C)increased government revenue.D)a continuation of the free-market equilibrium price and quantity.E)a new free-market equilibrium at a lower price and higher output level.Answer:DExplanation:A)B)C)D)E)Demand and Supply Schedules for Chocolate BarsPrice($)Quantity Demanded(thousands per week)Quantity Supplied(thousands per week)2.00150021001.80160020501.60170020001.40180019501.20190019001.00200018500.80210018000.60220017500.4023001700TABLE 5-174)Refer to Table 5-1. Suppose that as a public health measure the government wants to reduce thenumber of chocolate bars consumed by children. If the government imposes a price of $1.60 perchocolate bar, how many fewer chocolate bars will be consumed each week, relative to thecompetitive equilibrium?74)A)2000B)300C)1800D)200E)1700Answer:DExplanation:A)B)C)D)E)37
75)A legal price ceiling, if it is binding, is a75)A)any maximum price which price is not allowed to exceed.B)minimum price, above equilibrium, which price is not allowed to fall below.C)maximum price, above equilibrium, which price is not allowed to exceed.D)minimum price, below equilibrium, which price is not allowed to fall below.E)maximum price, below equilibrium, which a price is not allowed to exceed.Answer:EExplanation:A)B)C)D)E)76)One measure of the extent of market inefficiency is76)A)how far market price deviates from equilibrium.B)the difference between total economic surplus and deadweight loss.C)how far quantity exchanged deviates from equilibrium.D)the size of the economic surplus.E)the size of the deadweight loss.Answer:EExplanation:A)B)C)D)E)38
FIGURE 5-777)Refer to Figure 5-7. The market for good X is in equilibrium at P0and Q0. Now suppose thegovernment imposes a ________ at P2. One result would be ________.77)A)price floor; an increase in economic surplus represented by area 1B)price ceiling; a deadweight loss represented by areas 5 and 6C)price floor; a deadweight loss represented by areas 5 and 6D)price ceiling; an increase in economic surplus represented by areas 2 and 5E)price floor; a deadweight loss represented by area 8Answer:CExplanation:A)B)C)D)E)78)Suppose the demand for eggs is inelastic and that the market-clearing price is $1.50 per dozen.Now suppose the government imposes a minimum price of $2.00 per dozen. Why might thegovernment implement such a policy?78)A)to reduce excess supply in the egg marketB)to make consumers better offC)to increase the incomes of egg farmersD)to decrease tax revenues from egg farmersE)to increase excess demand in the egg marketAnswer:CExplanation:A)B)C)D)E)39
FIGURE 5-279)Refer to Figure 5-2. A price floor set at a price of $1.00 will result in79)A)a shortage of 20 units.B)a surplus of 10 unitsC)a surplus of 20 units.D)a shortage of 10 units.E)no change in the market outcomes.Answer:EExplanation:A)B)C)D)E)80)The long-run elasticity of supply of rental housing is greater than the short-run elasticity of supplybecause80)A)investment in new rental housing has such a short payback period.B)changes in supply can occur very quickly, especially when rent controls are in place.C)in the long run, landlords have no incentive to alter the supply of rental housing.D)changes in supply occur only after investment decisions are made regarding, for example,new construction or conversion of rental housing to other uses.E)the demand for rental housing is changing continuously.Answer:DExplanation:A)B)C)D)E)40
Consider the following demand and supply schedules for some agricultural commodity.PriceQuantity SuppliedQuantity Demanded$103001100$30500900$50700700$70900500$901100300$1101300100TABLE 5-281)Refer to Table 5-2. Consider the market-clearing equilibrium. If the government then imposes aproduction quota of 500 units, the deadweight loss that is created is equal to81)A)$2000.B)$3000.C)$4000.D)$5000.E)$1000.Answer:CExplanation:A)B)C)D)E)82)In free and competitive markets, shortages are eliminated by82)A)rationing.B)price increases.C)black markets.D)price decreases.E)government price controls.Answer:BExplanation:A)B)C)D)E)83)In a competitive market, a legal price ceiling set above the free-market equilibrium price will resultin83)A)the quantity supplied exceeding quantity demanded and thus a surplus in the market.B)increased profits to the firms in the industry.C)a continuation of the free-market equilibrium price and quantity.D)a new free-market equilibrium at a higher price and lower output level.E)the quantity demanded exceeding quantity supplied and thus a shortage in the market.Answer:CExplanation:A)B)C)D)E)41
FIGURE 5-184)Refer to Figure 5-1. With a price ceiling ofP3, how large will the resulting shortage be?84)A)BCB)ACC)AFD)FCE)FDAnswer:BExplanation:A)B)C)D)E)85)Which of the following is true of price ceilings?85)A)With a non-binding ceiling price an excess demand for the product will develop.B)With a binding ceiling price a surplus of the commodity will develop.C)Firms must charge the price established as a price ceiling.D)If the ceiling price is set above the free-market equilibrium price it will have no effect on themarket.E)A ceiling price below the free-market equilibrium price is not binding.Answer:DExplanation:A)B)C)D)E)42
86)Consider a competitive market for good X. A binding price floor and a binding price ceiling in thismarket would be similar to each other in that86)A)each type of price control results in a higher price paid by consumers, and therefore to areduction in economic surplus.B)the units of good X that will no longer be produced or consumed will not generate anyeconomic surplus.C)each type of price control will lead to a reduction in deadweight loss and therefore anincrease in efficiency in the market for good X.D)additional units of good X will be produced and consumed, leading to an increase ineconomic surplus.E)each type of price control results in a lower price received by sellers, and therefore to areduction in economic surplus.Answer:BExplanation:A)B)C)D)E)87)General-equilibrium analysis considers87)A)the existence of a general market equilibrium, as if no specific markets existed.B)a specific market while ignoring any feedback effects that may come from induced changes inother markets.C)all markets simultaneously, recognizing the interactions among the various markets.D)the linkages between markets specifically.E)how government planning can improve upon the results of the free-market system.Answer:CExplanation:A)B)C)D)E)88)Assuming that the long-run supply of housing is more ________ than the short-run supply, theimposition of binding rent controls will generally ________.88)A)inelastic; lead to no significant change in the housing shortageB)elastic; lead to only a temporary housing shortageC)inelastic; lead to a reduction in the housing shortage over timeD)elastic; lead to a worsening of the housing shortage over timeE)elastic; lead the price of rental housing to revert back to its equilibrium levelAnswer:DExplanation:A)B)C)D)E)43
FIGURE 5-189)Refer to Figure 5-1. To be binding, a legal price ceiling must lie89)A)aboveP0but belowP2.B)anywhere belowP0.C)anywhere above0.D)belowP0but aboveP3.E)anywhere aboveP0.Answer:BExplanation:A)B)C)D)E)90)For a legislated minimum wage to be binding in a competitive labour market, it must be set90)A)at or below the free-market wage.B)such that no worker can earn more than the established minimum wage.C)equal to the free-market wage.D)below the free-market wage.E)above the free-market wage.Answer:EExplanation:A)B)C)D)E)44
91)Supposethe government imposes a price ceiling on rental housing that is below themarket-clearing price. The resulting shortage will be91)A)smaller the longer the controlled price has been in effect.B)diminished over time.C)greater the more elastic the demand for rental housing.D)smaller the more elastic the demand for rental housing.E)greater the more recently the controlled price went into effect.Answer:CExplanation:A)B)C)D)E)92)In a competitive market, a price ceiling set below the free-market equilibrium price will result in92)A)a new free-market equilibrium at a lower price and higher output level.B)the quantity demanded exceeding quantity supplied and thus a shortage in the market.C)the quantity supplied exceeding quantity demanded and thus a surplus in the market.D)excess supply.E)a continuation of the free-market equilibrium price and quantity.Answer:BExplanation:A)B)C)D)E)45
FIGURE 5-593)Refer to Figure 5-5. At the market-clearing price and quantity of $30 per hour and 4000 hours ofgardening services, we can say that93)A)the market is inefficient because there are some consumers who are not purchasing at thisprice.B)economic surplus is maximized and the market is efficient.C)economic surplus could be increased at a higher price because firms would generate morerevenue.D)the market is efficient because the government has imposed a market-clearing price andquantity.E)economic surplus could be increased at a lower price because there would be more value toconsumers.Answer:BExplanation:A)B)C)D)E)94)If 10 000 snow tires are produced and purchased in the month of November, we can say thateconomic surplus is94)A)the profit earned by the producers of those 10 000 snow tires.B)the net value to those consumers who purchased the 10 000 snow tires.C)the price at which the tires are sold multiplied by 10 000.D)the net value that society as a whole receives by producing and consuming those 10 000 snowtires.E)the number of snow tires that are produced in excess of the equilibrium quantity.Answer:DExplanation:A)B)C)D)E)46
95)Which of the following statements most accurately describes the concept of deadweight loss?95)A)the overall loss of economic surplus that occurs when a market is inefficientB)the total market value of the goods no longer produced when quantity exchanged is belowthe equilibrium quantityC)the loss of economic surplus to consumersD)the loss of production that occurs when a binding price floor or ceiling is imposedE)the loss of consumption that occurs when a binding price floor or ceiling is imposedAnswer:AExplanation:A)B)C)D)E)96)In the presence of binding rent controls, the shortage of housing is smaller96)A)the lower is the elasticity of supply of housing.B)the more elastic is the long-run supply of housing.C)the greater is the difference between the equilibrium price and the rent-controlled price.D)the higher is the elasticity of demand for housing.E)the longer is the length of time the rent controls are in place.Answer:AExplanation:A)B)C)D)E)97)Assume that the long-run supply of housing is highly elastic. The imposition of binding rentcontrols will lead to97)A)only a temporary housing shortage.B)no significant change in the housing shortage over time.C)a worsening of the housing shortage over time.D)the price of rental housing to revert back to its free-market equilibrium level.E)a reduction in the housing shortage over time.Answer:CExplanation:A)B)C)D)E)98)Geoff is willing to pay $13 for a sixth entrance to a mountain bike park. The market price forentrance is $10.50. The bike park is willing to accept $8.75. The total economic surplus generatedfrom Geoff’s sixth trip to the bike park is98)A)$10.50.B)$4.25.C)$1.75.D)$13.00.E)$2.50.Answer:BExplanation:A)B)C)D)E)47
FIGURE 5-699)Refer to Figure 5-6. The market for good X is in equilibrium at P0and Q0. Economic surplus isrepresented by99)A)areas 1, 2, 3, 5, 6.B)areas 1, 2, 3, 4, 5, 6, 7, 8.C)areas 1 and 5.D)areas 2, 3, 4, 6, 7, 8.E)areas 2, 3, 4, 6, 7, 8, 9.Answer:AExplanation:A)B)C)D)E)100)Which of the following statements best differentiates price ceilings and price floors?100)A)Price ceilings are always effective, whereas price floors are rarely effective.B)Price ceilings represent minimum prices, while price floors represent maximum prices.C)Price floors cause shortages to appear, whereas price ceilings have the opposite effect.D)Binding price ceilings are always set below the equilibrium price, whereas binding pricefloors are always set above the equilibrium price.E)Price ceilings and price floors have the same effects.Answer:DExplanation:A)B)C)D)E)48
101)If the equilibrium wage in a competitive labour market is $9 per hour, and the government raisesthe minimum wage from $7 to $8 per hour, what will be the effect in this market?101)A)the level of employment will decreaseB)unemployment will decreaseC)the average wage paid to workers will increaseD)there will be no effect on employmentE)unemployment will increaseAnswer:DExplanation:A)B)C)D)E)FIGURE 5-5102)Refer to Figure 5-5. If production and consumption of gardening services were 5000 hours permonth102)A)the provision of the last 1000 hours would decrease the amount of economic surplus in thismarket.B)the value placed by consumers on the last 1000 hours is less than the additional costsassociated with their provision.C)the resources going into the last 1000 hours of gardening service would be more highlyvalued elsewhere.D)this market is not achieving efficiency.E)all of the above.Answer:EExplanation:A)B)C)D)E)49
103)If an economist is conducting a partial-equilibrium analysis of the market for commuter jets, thenhe or she is103)A)conducting an irresponsible analysis.B)making an equivalent analysis to a general-equilibrium analysis, but for one market only.C)accounting for the effects of changes in jet fuel prices in the market for commuter jets.D)assuming that the prices of all other goods are constant.E)assuming that changes in the prices of substitute goods will not affect the market forcommuter jets.Answer:DExplanation:A)B)C)D)E)104)Suppose that the free-market equilibrium price of natural gas would be $2.00 per unit, but in aneffort to protect consumers the government has fixed the price at $1.50. At this ceiling price thequantity ________ will be greater than the quantity ________, resulting in a ________ of natural gas.104)A)supplied; demanded; shortageB)demanded; supplied; shortageC)demanded; supplied; surplusD)demanded; supplied; reduction in equilibrium priceE)supplied; demanded; surplusAnswer:BExplanation:A)B)C)D)E)105)The short-run supply for rental housing is quite ________ while the long-run supply for housing isquite ________.105)A)inelastic; elasticB)elastic; elasticC)elastic; inelasticD)inelastic; inelasticE)flat; steepAnswer:AExplanation:A)B)C)D)E)50
106)If a binding price ceiling is in place and if the demand curve for the product shifts rightward, oneconsequence would be106)A)a decrease in the amount of excess demand.B)the quantity exchanged would decrease.C)an increase in the amount of excess supply.D)the quantity exchanged would increase.E)the quantity exchanged would remain constant.Answer:EExplanation:A)B)C)D)E)107)Suppose the government decides to eliminate a binding price floor that it had previously imposedon a particular good. It can be expected that107)A)the price would decrease, the quantity demanded would decrease and the quantity suppliedwould increase.B)the price would decrease, the quantity demanded would increase and the quantity suppliedwould decrease.C)the price would increase, the quantity demanded would decrease and the quantity suppliedwould increase.D)the price would increase, the quantity demanded would increase and the quantity suppliedwould decrease.E)no changes would take place.Answer:BExplanation:A)B)C)D)E)51
Demand and Supply Schedules for Chocolate BarsPrice($)Quantity Demanded(thousands per week)Quantity Supplied(thousands per week)2.00150021001.80160020501.60170020001.40180019501.20190019001.00200018500.80210018000.60220017500.4023001700TABLE 5-1108)Refer to Table 5-1. Suppose the governmentimposeda price of $1.80 per chocolate bar. A likelyresult from this policy is108)A)the allocation of chocolate bars by sellers preference.B)the development of a black market in chocolate bars.C)the rationing of chocolate bars.D)the allocation of chocolate bars on a first-come, first-serve basis.E)the stockpiling of unsold inventories of chocolate bars.Answer:EExplanation:A)B)C)D)E)109)A legally imposed upper limit on a price is called109)A)a government price.B)a price ceiling.C)an excise price.D)a price support.E)a price floor.Answer:BExplanation:A)B)C)D)E)52
110)The surpluses associated with a binding price floor will be the smallest when110)A)both supply and demand are unit elastic.B)supply is highly inelastic and demand is highly elastic.C)both supply and demand are highly inelastic.D)supply is highly elastic and demand is highly inelastic.E)both supply and demand are highly elastic.Answer:CExplanation:A)B)C)D)E)111)In a market where we observe a disequilibrium, quantity exchanged is determined111)A)by the lesser of quantity demanded and quantity supplied.B)by the quantity supplied.C)by neither quantity demanded nor quantity supplied.D)by the quantity demanded.E)by the greater of quantity demanded and quantity supplied.Answer:AExplanation:A)B)C)D)E)112)When economists describe a market for a specific product as being economically “efficient,” whatdo they mean?112)A)There are no price controls in place in that market.B)Production techniques are such that resources are used in the most technologically efficientmanner.C)Consumption of the product is such that economic surplus is maximized.D)The quantity of the product produced and consumed is such that the economic surplus ismaximized.E)Production of the product is such that economic surplus is maximized.Answer:DExplanation:A)B)C)D)E)53
FIGURE 5-2113)Refer to Figure 5-2. A price ceiling set at a price of $1.00 per unit will result in113)A)a surplus of 10 unitsB)a surplus of 20 units.C)a shortage of 20 units.D)a shortage of 10 units.E)no change to the market outcomes.Answer:CExplanation:A)B)C)D)E)114)Suppose a binding output quota is imposed in a previously competitive market with free-marketequilibrium price and quantity. The result is114)A)lower price and lower quantity exchanged.B)higher price and lower quantity exchanged.C)higher price and higher quantity exchanged.D)no change in price or quantity exchanged.E)lower price and higher quantity exchanged.Answer:BExplanation:A)B)C)D)E)54
FIGURE 5-4115)Refer to Figure 5-4. Suppose the government imposes a rent-controlled price of $600 per month onapartments in this city. In the short run we can expect the shortage of apartments to be ________units.115)A)200B)1000C)300D)800E)0Answer:CExplanation:A)B)C)D)E)116)Which of the explanations below best describes why a government might choose to impose bindingrent controls?116)A)To stimulate employment in the construction industry through the increased demand for newhouses.B)To prevent landlords from making excess profits and to reduce the long-term quantity ofrental housing.C)To stabilize volatile rents, and thus to make the investment climate less uncertain forprospective investors in this sector.D)To prevent landlords from making excess profits and to protect low-income tenants fromincreases in the cost of housing.E)To increase the demand for rental housing and to discourage private ownership of low-costrental housing developments.Answer:DExplanation:A)B)C)D)E)55
117)In competitive markets, price floors and price ceilings usually lead to117)A)surpluses.B)more equitable distributions of commodities.C)a reduction in quantities exchanged.D)production control by the government.E)shortages.Answer:CExplanation:A)B)C)D)E)118)Consider the Canadian market for barley. Suppose a marketing board sets a production quotawhich is below the equilibrium quantity. The quota will cause the price of barley to ________ andthe total revenue earned by Canadian barley farmers to ________.118)A)fall; fall if demand is inelasticB)remain unchanged; remain unchangedC)rise; rise if demand is elasticD)rise; rise if demand is inelasticE)fall; fall if demand is elasticAnswer:DExplanation:A)B)C)D)E)56
The diagram below shows the market for litres of milk.FIGURE 5-8119)Refer to Figure 5-8. After the imposition of a milk quota at quantity Q1, economic surplus isrepresented by119)A)areas 1, 2 and 5.B)areas 1, 2, 3, 4, 5, 6 and 7.C)areas 3 and 4.D)areas 1, 2 and 3.E)areas 2, 3, 5 and 6.Answer:DExplanation:A)B)C)D)E)57
120)Concert promoters often set ticket pricesbelowwhat they expect the market-clearing price to be.They are effectively imposing a ________ and the result is often ________ at a considerably higherprice.120)A)price floor; a shortageB)price ceiling; ticket scalpingC)price floor; ticket scalpingD)price ceiling; a surplusE)fair price; excess ticketsAnswer:BExplanation:A)B)C)D)E)121)Consider the market for any agricultural commodity for which there exists a binding output quotaand demand is inelastic. One outcome of this situation is that121)A)producers who were in this industry before the introduction of the quota are harmed.B)producers leave this industry because total revenues fall as a result of the the quota.C)the price and quantity adjust back to the free-market equilibrium levels.D)it is difficult for new producers to enter this industry because the quotas are very expensive.E)producers who enter this industry after the introduction of the quota benefit.Answer:DExplanation:A)B)C)D)E)122)Suppose the free-market equilibrium price for ice time at privately operated hockey arenas is $250per hour. If the municipal government imposes a price ceiling of $130 per hour, we can expect tosee122)A)an excess demand for ice time.B)that neither excess supply nor excess demand is created.C)a black market price below the free-market equilibrium price.D)an excess supply of ice time.E)an adjustment of the free-market equilibrium price to $100.Answer:AExplanation:A)B)C)D)E)58
123)Partial-equilibrium analysis considers123)A)a specific market while ignoring any feedback effects that may come from induced changes inother markets.B)how government planning can improve upon the results of a free market.C)all markets simultaneously, recognizing the interactions among the various markets.D)only the existence of a market equilibrium, as if no other markets exist.E)the induced changes in other markets that result from a partial change in the primary market.Answer:AExplanation:A)B)C)D)E)124)Consider a market that is in equilibrium with a market-clearing price.Economic surplusis shown by124)A)the area below the supply curve up to the equilibrium quantity and below the demand curvebeyond the equilibrium quantity.B)the area to the right of the market-clearing price and quantity.C)the area that is both above the demand curve and below the supply curve.D)the intersection of the supply and demand curves.E)the area that is both below the demand curve and above the supply curve.Answer:EExplanation:A)B)C)D)E)125)At any disequilibrium price, whether government controlled or not, the quantityactuallyexchanged is determined by125)A)government decree.B)the greater of quantity demanded and quantity supplied.C)the elasticity of demand.D)the elasticity of supply.E)the lesser of quantity demanded and quantity supplied.Answer:EExplanation:A)B)C)D)E)59
Answer KeyTestname: C51)E2)D3)A4)B5)C6)D7)C8)D9)C10)C11)D12)E13)A14)B15)D16)B17)E18)E19)A20)A21)D22)D23)E24)C25)E26)C27)D28)E29)B30)C31)C32)D33)B34)D35)B36)D37)B38)E39)A40)A41)E42)E43)D44)C45)C46)B47)E48)A49)D50)C60
Answer KeyTestname: C551)A52)B53)C54)E55)A56)A57)C58)A59)A60)C61)A62)D63)B64)C65)E66)C67)B68)D69)C70)E71)D72)E73)D74)D75)E76)E77)C78)C79)E80)D81)C82)B83)C84)B85)D86)B87)C88)D89)B90)E91)C92)B93)B94)D95)A96)A97)C98)B99)A100)D61
Answer KeyTestname: C5101)D102)E103)D104)B105)A106)E107)B108)E109)B110)C111)A112)D113)C114)B115)C116)D117)C118)D119)D120)B121)D122)A123)A124)E125)E62