The Exploration of Economics International Edition 6th Edition by Robert L. Sexton - Test Bank

The Exploration of Economics International Edition 6th Edition by Robert L. Sexton – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Chapter 5—Markets in Motion and Price Controls

 

TRUE/FALSE

 

1. If the demand for apples increases at the same time the supply of apples falls, the price of apples will tend to fall.

 

ANS:  F                    PTS:   1                    REF:   p. 135-139

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

2. An increase in the equilibrium price and the equilibrium quantity would be caused by an increase in supply.

 

ANS:  F                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

3. When both supply and demand shift in the same direction, the change in the equilibrium quantity traded will be in the same direction as the shifting curves.

 

ANS:  T                    PTS:   1                    REF:   p. 135-139

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

4. The main purpose of government price controls is to keep prices from rising above their equilibrium levels.

 

ANS:  F                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Controls

 

5. Price floors get their name from the fact that they represent a minimum price below which the legal price cannot fall.

 

ANS:  T                    PTS:   1                    REF:   p. 147

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

6. Price ceilings cause surpluses.

 

ANS:  F                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

7. Either a price floor or a price ceiling will result in a smaller quantity exchanged than if the price was at its equilibrium level.

 

ANS:  T                    PTS:   1                    REF:   p. 145-148

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

8. An increase in the expected future price of a good may act to increase the present price of the good.

 

ANS:  T                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

9. If there is a ceiling price below the equilibrium level, a decrease in demand will worsen the shortage.

 

ANS:  F                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

10. One common example of a price ceiling is rent control.

 

ANS:  T                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

11. When a demand curve shifts, both the equilibrium price and quantity traded will change in the same direction as a result.

 

ANS:  T                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

12. When a supply curve shifts, the equilibrium price will change in the opposite direction from the shift in supply and the quantity traded will change in the same direction as the shift in supply.

 

ANS:  T                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

13. An increase in both the equilibrium price and the equilibrium quantity of a good could not have been caused by a shift in supply alone.

 

ANS:  T                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

14. Either a price floor or a price ceiling above the equilibrium price would cause a surplus.

 

ANS:  F                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

15. If a price ceiling is set above the equilibrium price it is not binding.

 

ANS:  T                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

16. If a price ceiling is not binding, then it will have no effect on the market.

 

ANS:  T                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

17. To be binding, a price ceiling must be set above the equilibrium price.

 

ANS:  F                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

18. A price ceiling set below the equilibrium price is binding.

 

ANS:  T                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

19. A price ceiling set below the equilibrium price is nonbinding.

 

ANS:  F                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

20. A binding price ceiling causes quantity demanded to be less than quantity supplied.

 

ANS:  F                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

21. A price ceiling set below the equilibrium price causes a shortage in the market.

 

ANS:  T                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

22. A price ceiling set above the equilibrium price causes a surplus in the market.

 

ANS:  F                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

23. A binding price ceiling causes a shortage in the market.

 

ANS:  T                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

24. If a price ceiling of $5 per gallon is imposed on gasoline, and the market equilibrium price is $4.50, then the price ceiling is a binding constraint on the market.

 

ANS:  F                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

25. A binding price ceiling causes a shortage in the market.

 

ANS:  T                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

26. If a price ceiling of $4.00 per gallon is imposed on gasoline, and the market equilibrium price is $4.50, then the price ceiling is a binding constraint on the market.

 

ANS:  T                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

27. A price floor set above the equilibrium price is not binding.

 

ANS:  F                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

 

28. A price floor set above the equilibrium price is binding.

 

ANS:  T                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

29. If a price floor is not binding, then it will have no effect on the market.

 

ANS:  T                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

30. To be binding, a price floor must be set above the equilibrium price.

 

ANS:  T                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

31. For the price in a market to remain the same, while the quantity traded fell, both supply and demand would have to shift to the left.

 

ANS:  T                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

32. When supply shifts to the left, it would make the surplus from a price floor smaller, other things equal.

 

ANS:  T                    PTS:   1                    REF:   p. 147-148

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

33. A price floor is a legal minimum on the price at which a good or service can be sold.

 

ANS:  T                    PTS:   1                    REF:   p. 147-148

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

34. For a normal good, if incomes rise, we would expect that the equilibrium price will increase and that the equilibrium quantity will increase.

 

ANS:  T                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

35. If both buyers and sellers of a good expect its price to fall in the near future, we would expect that to cause the current price and the quantity traded to increase as a result.

 

ANS:  F                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

MULTIPLE CHOICE

 

1. Suppose the United States steps up efforts to combat drug trafficking and, with the aid of the Colombian military, destroys a significant percentage of cocaine crops. Predict the impact of increased drug interdiction on the market for cocaine in Los Angeles.

a.	The supply of cocaine will increase causing the price of cocaine to increase.
b.	The demand for cocaine will increase causing the price of cocaine to increase.
c.	The supply of cocaine will decrease causing the price of cocaine to increase.
d.	There will be a movement up along the supply curve of cocaine.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

2. Ceteris paribus, if negotiations lead to lower wages for airline employees, what will be the result in the market for air travel?

a.	an increase in equilibrium price and an increase in equilibrium quantity
b.	an increase in equilibrium price and a decrease in equilibrium quantity
c.	a decrease in equilibrium price and an increase in equilibrium quantity
d.	a decrease in equilibrium price and a decrease in equilibrium quantity

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

3. A more efficient means of processing tree bark to produce an anticancer drug is discovered. As a result, the supply curve for the drug will:

a.	shift to the right, increasing the price of the drug.
b.	shift to the left, increasing the price of the drug.
c.	shift to the right, decreasing the price of the drug.
d.	shift to the left, decreasing the price of the drug.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

4. Assume that coffee and tea are substitutes for each other. If weather conditions cause a substantial portion of the available coffee crop to be destroyed, then most probably:

a.	the price of tea will decrease.
b.	the price of coffee will decrease.
c.	the price of tea will increase
d.	none of the above

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

5. You notice that the price of orange juice at your local grocery store has increased. Which of the following statements is not a possible explanation for the rise in the price of orange juice?

a.	Frosty weather destroys oranges causing the price of oranges to increase.
b.	As a result of an increase in income, consumers wish to purchase more orange juice at every price level.
c.	A recent scientific study is reported in the press that suggests that apple juice may be contaminated with pesticides.
d.	Due to the bioengineering of orange trees, the domestic supply of oranges increases.

 

 

ANS:  D                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

6. Coca-Cola bottlers increased their prices as the price of sugar (an important ingredient in producing Coke) rose sharply in the late 1980s. Under these circumstances, the increase in the price of Coke occurs as a result of a(n):

a.	decrease in supply.
b.	decrease in demand.
c.	increase in supply.
d.	increase in demand.

 

 

ANS:  A                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

7. In 1975 a pocket calculator cost more than $50; in 1990 a calculator of the same quality cost less than $10. Which of the following explanations is most consistent with these facts?

a.	Intense competition in the calculator industry caused the supply curve for calculators to shift to the left, depressing the price.
b.	An increase in the demand for calculators led to the price drop.
c.	An improvement in technology caused the supply of calculators to increase, depressing their price.
d.	As the population grew, fewer expensive calculators were needed, causing prices to fall.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

8. Which of the following would most likely increase the price of chicken, a normal good?

a.	a reduction in the price of grains used to produce chicken feed
b.	a reduction in the price of beef, a substitute for chicken
c.	unusually hot weather that kills millions of chickens before they are ready for market
d.	a decrease in consumer income

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

9. In an effort to reduce the surplus of dairy products, agricultural legislation paid dairy farmers to slaughter their herds and sell them to packinghouses (meat producers) in 1996-1997. How did this influence the market for beef?

a.	demand increased, leading to higher beef prices
b.	demand decreased, leading to lower beef prices
c.	supply increased, leading to lower beef prices
d.	supply decreased, leading to higher beef prices

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

 

Exhibit 5-1

 

The diagram below represents the market for butter.

 

 

10. Refer to Exhibit 5-1. If a price floor of $4 is imposed, ____ units of butter will be sold.

a.	7,000
b.	5,000
c.	4,000
d.	3,000

 

 

ANS:  D                    PTS:   1                    REF:   p. 147-148

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

11. Refer to Exhibit 5-1. If a price ceiling of $2 is imposed, ____ units of butter will be sold.

a.	8,000
b.	5,000
c.	4,000
d.	3,000

 

 

ANS:  D                    PTS:   1                    REF:   p. 145-147

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

12. Refer to Exhibit 5-1. If a price ceiling of $4 is imposed, we would expect that ____ units of butter will be sold.

a.	7,000
b.	5,000
c.	4,000
d.	3,000

 

 

ANS:  B                    PTS:   1                    REF:   p. 145-147

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

 

Exhibit 5-2

 

 

13. Refer to Exhibit 5-2. The movement from ____ is consistent with a decrease in demand.

a.	Point B to Point D
b.	Point D to Point B
c.	Point D to Point C
d.	Point C to Point D

 

 

ANS:  C                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

14. Refer to Exhibit 5-2. The movement from ____ is consistent with an increase in supply.

a.	Point B to Point D
b.	Point D to Point B
c.	Point D to Point C
d.	Point C to Point D

 

 

ANS:  A                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

15. Refer to Exhibit 5-2. A movement from S₁ to S₂ could occur if:

a.	there is an increase in the price of submarine sandwiches.
b.	there is an increase in the price of potato chips, a complement to submarine sandwiches.
c.	there is a reduction in the price of sliced beef used to make submarine sandwiches.
d.	there is an increase in the price of wheat bread used to make submarine sandwiches.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

16. Refer to Exhibit 5-2. A movement from D₁ to D₂ could occur if:

a.	there is a decrease in the income of consumers and submarine sandwiches are inferior goods.
b.	there is an increase in the income of consumers and submarine sandwiches are inferior goods.
c.	the wages of submarine sandwich makers decrease.
d.	the price of bread, used to make submarine sandwiches, increases.

 

 

ANS:  B                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

17. Refer to Exhibit 5-2. A movement from S₁ to S₃ could occur if:

a.	there is a decrease in the price of submarine sandwiches.
b.	there is an increase in price of ingredients such tomatoes and pickles
c.	there is a decrease in price of hamburgers, a substitute to submarine sandwiches
d.	the price of bread used to make submarine sandwiches decreases

 

 

ANS:  B                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

18. A safety report is released that contends that sport utility vehicles are prone to roll over during crashes. At the same time, the price of steel (used to produce motor vehicles) increases. The net effect of these two incidents on the market for sport utility vehicles is a(n):

a.	decrease in price and an increase in equilibrium quantity.
b.	decrease in price and a decrease in equilibrium quantity.
c.	increase in price and a decrease in equilibrium quantity.
d.	indeterminate change in price and a decrease in equilibrium quantity.

 

 

ANS:  D                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

19. A simultaneous increase in demand and decrease in supply would lead to:

a.	increase in the equilibrium price and a decrease in the quantity sold.
b.	increase in both the equilibrium price and the quantity sold.
c.	decrease in both the equilibrium price and the quantity sold.
d.	uncertain effect on the equilibrium quantity but an increase in the equilibrium price.

 

 

ANS:  D                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

20. If the price of ice cream increases substantially (ceteris paribus), the equilibrium quantity of hot fudge sauce, a complement, is likely to:

a.	increase, and the equilibrium price is likely to decrease.
b.	increase, and the equilibrium price is likely to increase.
c.	decrease, and the equilibrium price is likely to decrease.
d.	decrease, and the equilibrium price is likely to increase.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

21. A major grocery store chain switches from bagging groceries in paper sacks to bagging them in plastic bags. The grocery chain demands more plastic bags than are available at the current market price. As a result:

a.	the market price for paper sacks is likely to increase.
b.	the market price for plastic bags is likely to increase.
c.	the quantity of paper sacks is likely to increase.
d.	none of the above

 

 

ANS:  B                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | Changes in Demand

 

22. Cold weather in the Midwestern and eastern United States increases the popularity of vacations in sunny California. At the same time, the hotel employees’ union in California negotiates a significant pay increase for its members. The likely impact on the hotel market in California is:

a.	an increase in the price of hotel rooms and an increase in hotel room rentals.
b.	an increase in the price of hotel rooms and a decrease in hotel room rentals.
c.	an uncertain effect on the price of hotel rooms, but an increase in the quantity of hotel rooms rented.
d.	an increase in the price of hotel rooms, but an uncertain effect on the quantity of hotel rooms rented.

 

 

ANS:  D                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

23. Ceteris paribus, the fear among travelers created by the 9-11 attacks would have what impact on the market for air travel?

a.	an increase in equilibrium price and an increase in equilibrium quantity.
b.	an increase in equilibrium price and a decrease in equilibrium quantity.
c.	a decrease in equilibrium price and an increase in equilibrium quantity.
d.	a decrease in equilibrium price and a decrease in equilibrium quantity.

 

 

ANS:  D                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

24. A more efficient process for refining oil into gasoline is developed. As a result, the market price of gasoline:

a.	and the quantity of gasoline purchased both increase.
b.	increases and the quantity of gasoline purchased falls.
c.	decreases and the quantity of gasoline purchased rises.
d.	decreases and the demand curve for gasoline shifts to the right.

 

 

ANS:  C                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

Exhibit 5-3

 

Use the following information about demand and supply schedules to answer the question.

 

Price	D1	D2	S1	S2
$12	5	9	19	14
$10	8	12	17	12
$  8	11	15	15	10
$  6	13	18	13	8
$  4	16	21	11	6
$  2	18	24	9	4

 

 

25. Refer to Exhibit 5-3. If D₁ and S₁ represent the demand and supply schedules in a particular market, the equilibrium price and quantity are ____ and ____, respectively.

a.	$8; 15
b.	$6; 13
c.	$4; 16
d.	$4; 11

 

 

ANS:  B                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | Changes in Market Equilibrium

 

26. Refer to Exhibit 5-3. If D₂ and S₂ represent the demand and supply schedules in a particular market, the equilibrium price and quantity are ____ and ____, respectively.

a.	$12; 12
b.	$10; 12
c.	$8; 15
d.	$6; 18

 

 

ANS:  B                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | Changes in Market Equilibrium

 

27. Refer to Exhibit 5-3. If D₂ and S₁ represent the demand and supply schedules in a particular market, the equilibrium price and quantity are ____ and ____, respectively.

a.	$12; 10
b.	$12; 9
c.	$10; 17
d.	$8; 15

 

 

ANS:  D                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | Changes in Market Equilibrium

 

28. Refer to Exhibit 5-3. Suppose that D₁ and S₁ are the prevailing demand and supply curves for a product. If the demand schedule changes from D₁ to D₂, then:

a.	equilibrium price decreases from $6 to $4.
b.	equilibrium quantity decreases from 15 to 13.
c.	equilibrium quantity increases from 13 to 18.
d.	equilibrium price increases from $6 to $8.

 

 

ANS:  D                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | Changes in Market Equilibrium

 

29. Refer to Exhibit 5-3. Suppose that D₂ and S₁ are the prevailing demand and supply curves for a product. If the demand schedule changes from D₂ to D₁, then:

a.	equilibrium price decreases from $6 to $4.
b.	equilibrium quantity decreases from 15 to 13.
c.	equilibrium quantity increases from 13 to 18.
d.	equilibrium price increases from $6 to $8.

 

 

ANS:  B                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

30. Refer to Exhibit 5-3. Suppose that D₂ and S₁ are the prevailing demand and supply curves for a product. If the supply schedule changes from S₁ to S₂, then:

a.	equilibrium price decreases from $10 to $8.
b.	equilibrium quantity decreases from 15 to 12.
c.	equilibrium quantity increases from 10 to 12.
d.	equilibrium price increases from $10 to $12.

 

 

ANS:  B                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

31. ARefer to Exhibit 5-3. Suppose that D₁ and S₂ are the demand and supply schedules for Product A. If the government imposes a price ceiling of $4:

a.	a 5 unit shortage will result.
b.	a 5 unit surplus will result.
c.	a 10 unit surplus will result.
d.	a 10 unit shortage will result.

 

 

ANS:  D                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

32. Refer to Exhibit 5-3. Suppose that D₁ and S₂ are the demand and supply schedules for Product A. If the government imposes a price ceiling of $6:

a.	producers will be unable to sell all the units that they desire to at that price.
b.	consumers will be able to purchase as many units as desired at that price.
c.	equilibrium will be achieved.
d.	only 8 units of output will be traded.

 

 

ANS:  D                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

33. Refer to Exhibit 5-3. Suppose that D₁ and S₂ are the demand and supply schedules for Product A. If the government imposes a price ceiling of $10:

a.	a shortage of 4 units will result.
b.	a surplus of 4 units will result.
c.	a surplus of 10 units will result.
d.	the ceiling will have no impact on the quantity of Product A traded.

 

 

ANS:  D                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

34. Refer to Exhibit 5-3. Suppose that D₁ and S₂ are the demand and supply schedules for Product A. If the government imposes a price floor of $6:

a.	a shortage of 5 units results.
b.	a surplus of 5 units results.
c.	a shortage of 10 units results.
d.	the floor will have no impact on the quantity of Product A traded.

 

 

ANS:  D                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

35. Which of the following is an example of an unintended consequence?

a.	first time tax credits that cause more home sales
b.	a price ceiling on gasoline that causes a gas shortage
c.	increased parking fines that lead to fewer violators
d.	all of the above

 

 

ANS:  B                    PTS:   1                    REF:   p. 149

TOP:   5.2 Price Controls | Unintended Consequences

 

 

36. Which of the following is an example of an unintended consequence?

a.	government sponsored ad campaigns that lead to an increase in vaccinations
b.	rent controls that lead to a decline in the quality of rental properties
c.	higher property taxes that allow for better public schools
d.	increased airport security measures that result in safer travel

 

 

ANS:  B                    PTS:   1                    REF:   p. 149

TOP:   5.2 Price Controls | Unintended Consequences

 

37. Medical authorities announced in the late 1980s that an acne medicine named Retin-A also had previously unknown wrinkle-reducing properties. An economist would expect to find that, after this announcement, the price of Retin-A ____ and the quantity sold ____.

a.	rose; fell
b.	rose; rose
c.	fell; fell
d.	fell; rose

 

 

ANS:  B                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

38. The graph below most likely depicts a(n):

 

 

a.	supply increase.
b.	supply decrease.
c.	decrease in demand.
d.	increase in demand.

 

 

ANS:  B                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

39. A shift in the supply curve of bicycles resulting from higher steel prices will lead to:

a.	higher prices of bicycles.
b.	lower prices of bicycles.
c.	a shift in the demand curve for bicycles.
d.	a larger output of bicycles.

 

 

ANS:  A                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

40. The invention of machinery that can double the amount of gold extracted from raw ore will likely:

a.	raise the world price of gold to pay for the new machinery.
b.	lower the world price of gold because any given amount can now be produced more cheaply.
c.	raise the world price of gold because miners’ wages must double as their productivity doubles.
d.	lower the world price of gold only if new mining companies are not allowed to enter the industry.

 

 

ANS:  B                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

41. Pork from pigs can be used to produce bacon or sausage, but not both. If the price of bacon rises for some reason, then, everything else equal:

a.	the price of sausage will rise.
b.	the price of sausage will fall.
c.	the resources used to raise pigs will become less expensive.
d.	the demand for bacon will decrease.

 

 

ANS:  A                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

42. In January, 2,500 quarts of ice cream are sold in Boston at $2 per quart. In February, 3,000 quarts are sold at $2.50 a quart. This change in the price and quantity sold of ice cream may have been caused by:

a.	a reduction in wages in the Boston area.
b.	the introduction of labor-saving, automated ice cream packing machinery.
c.	the release of a medical study showing that ice cream consumption improves mental health.
d.	the decision by Boston ice cream sellers to eliminate discount coupons.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

43. Which of the following could be responsible for an increase in the price of wheat?

a.	an increase in the supply of wheat
b.	an increase in the demand for wheat
c.	a decrease in the demand for wheat
d.	a simultaneous increase in supply and decrease in demand for wheat

 

 

ANS:  B                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

44. Nick is delighted to see that the price of his favorite food, black olives, has fallen. Which of the following could be responsible?

a.	an increase in the demand for black olives
b.	a decrease in the supply of black olives
c.	a simultaneous increase in demand and decrease in supply of black olives
d.	a simultaneous decrease in demand and increase in supply of black olives

 

 

ANS:  D                    PTS:   1                    REF:   p. 135-139

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

45. When the demand and supply of grapes both increase at the same time, we can safely predict that the:

a.	price of grapes will fall.
b.	price of grapes will rise.
c.	quantity of grapes bought and sold will fall.
d.	quantity of grapes bought and sold will rise.

 

 

ANS:  D                    PTS:   1                    REF:   p. 135-139

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

46. In general, an increase in price could be caused by either:

a.	an increase in demand or a decrease in supply.
b.	an increase in demand or an increase in supply.
c.	a decrease in demand or an increase in supply.
d.	an increase in demand or an increase in supply.

 

 

ANS:  A                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

47. If both the supply and demand curves shift to the left, then we can conclude that there will be a(n):

a.	increase in the equilibrium quantity sold.
b.	decrease in the equilibrium quantity sold.
c.	increase in the equilibrium price.
d.	decrease in the equilibrium price.
e.	a change in quantity that is indeterminate.

 

 

ANS:  B                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

48. If American consumers decided to boycott grapes to protest working conditions of farm workers, everything else being equal, the:

a.	price of grapes will rise.
b.	supply of grapes will fall.
c.	quantity of grapes supplied will fall.
d.	demand curve for grapes shifts to the right.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

49. American consumers decide to boycott soccer balls made by Nike in support of a ban on child labor. Everything else being equal, the:

a.	price of Nike soccer balls will rise.
b.	supply of Nike soccer balls will fall.
c.	quantity of Nike soccer balls supplied will fall.
d.	demand curve for Nike soccer balls shifts to the right.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

50. There is an increase in demand for personal computers at the same time their input costs fall. We would expect that:

a.	price will fall, but the effect on quantity sold is uncertain.
b.	the quantity sold will decline, but the effect on price is uncertain.
c.	the quantity sold will increase, but the effect on price is uncertain.
d.	price will rise, but the effect on quantity sold is uncertain.

 

 

ANS:  C                    PTS:   1                    REF:   p. 135-139

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

51. Technological progress increases the efficiency of mass producing HDTV-capable television sets. At the same time, more cable and television networks begin broadcasting in HDTV format, increasing the appeal of HDTV-capable television sets. On the basis of this information, what can be said about conditions in the HDTV market?

a.	The equilibrium quantity and price of HDTV-capable sets will increase.
b.	The equilibrium quantity of HDTV-capable sets will increase and price will decrease.
c.	The equilibrium quantity of HDTV-capable sets will increase and what happens to price is indeterminate.
d.	The equilibrium quantity of HDTV-capable sets will decrease and price will increase.

 

 

ANS:  C                    PTS:   1                    REF:   p. 135-139

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

52. If we observe both an increase in the price of flour and in the number of units sold, this could be explained by:

a.	an increase in the demand for flour.
b.	a decrease in the demand for flour.
c.	a decrease in the supply of flour.
d.	an increase in the supply of flour.

 

 

ANS:  A                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

53. A flood damages many homes and farms in the Midwest. Shortly thereafter, the price of plywood rises significantly. The events suggest that:

a.	a decrease in the supply of plywood caused the price of plywood to rise.
b.	an increase in the supply of plywood caused the price of plywood to rise.
c.	a decrease in the demand for plywood caused the price of plywood to rise.
d.	an increase in the demand for plywood caused the price of plywood to rise.

 

 

ANS:  D                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

54. There is an increase in both consumer income and in the price of jet fuel, an important resource used to produce air travel. If air travel is a normal good, how will these changes influence the price and quantity purchased of air travel? The price of air travel will (be) ____ and quantity purchased will (be) ____.

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

 

 

ANS:  B                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

55. Suppose there is a reduction in consumer income and an increase in the price of jet fuel, an important resource used to produce air travel. If air travel is a normal good, how will these changes influence the price and quantity of air travel? The price of air travel will (be) ____ and quantity purchased will (be) ____.

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

 

 

ANS:  D                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

56. If both the supply and demand for computer games increase, then the equilibrium price of the games:

a.	is indeterminate and the equilibrium quantity rises.
b.	is indeterminate and the equilibrium quantity falls.
c.	falls and the equilibrium quantity also falls.
d.	falls and the change in equilibrium quantity is indeterminate.

 

 

ANS:  A                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

57. Ceteris paribus, if the market supply of a product increases, then equilibrium quantity will (be) ____ and equilibrium price will (be) ____.

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

 

 

ANS:  A                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

58. Ceteris paribus, if the market supply of a product decreases, then equilibrium quantity will (be) ____ and equilibrium price will (be) ____.

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

 

 

ANS:  B                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

59. Ceteris paribus, if the market demand for a product increases, then equilibrium quantity will (be) ____ and equilibrium price will (be) ____.

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

 

 

ANS:  D                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

60. If both market demand and supply increase simultaneously, then equilibrium quantity will (be) ____ and equilibrium price will (be) ____.

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

 

 

ANS:  C                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

61. If market demand increases and market supply decreases, then equilibrium quantity will (be) ____ and equilibrium price will (be) ____.

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

 

 

ANS:  B                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

62. Ceteris paribus, if the market demand for a product decreases, then equilibrium quantity will (be) ____ and equilibrium price will (be) ____.

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

 

 

ANS:  D                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

63. If both market demand and supply decrease simultaneously, then equilibrium quantity will (be) ____ and equilibrium price will (be) ____.

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

 

 

ANS:  C                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

64. If market demand decreases and market supply increases, then equilibrium quantity will (be) ____ and equilibrium price will (be) ____.

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

 

 

ANS:  A                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

 

Exhibit 5-4

 

 

65. Refer to Exhibit 5-4. Starting with initial demand curves D₀ and S₀, a movement from ____ is consistent with an increase in both demand and supply.

a.	Point A to Point I
b.	Point A to Point C
c.	Point A to Point F
d.	Point A to Point E

 

 

ANS:  A                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

66. Refer to Exhibit 5-4. Starting with initial demand curves D₀ and S₀, a movement from ____ is consistent with a decrease in both demand and supply.

a.	Point A to Point I
b.	Point A to Point C
c.	Point A to Point F
d.	Point A to Point E

 

 

ANS:  D                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

 

Exhibit 5-5

 

 

67. Refer to Exhibit 5-5. The movement from ____ to ____ is consistent with a decrease in the price of cotton (a substitute).

a.	Point A; Point B
b.	Point A; Point F
c.	Point A; Point D
d.	Point A; Point H

 

 

ANS:  D                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

68. Refer to Exhibit 5-5. The movement from ____ to ____ is consistent with a successful advertising campaign that claims wool keeps you warm.

a.	Point A; Point B
b.	Point A; Point F
c.	Point A; Point D
d.	Point A; Point H

 

 

ANS:  B                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

69. Refer to Exhibit 5-5. The movement from ____ to ____ is consistent with a strike by the Basque Shepherds Guild.

a.	Point A; Point I
b.	Point A; Point F
c.	Point A; Point D
d.	Point A; Point H

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

70. Refer to Exhibit 5-5. The movement from ____ to ____ is consistent with technological improvements in wool mills.

a.	Point A; Point B
b.	Point A; Point F
c.	Point A; Point D
d.	Point A; Point I

 

 

ANS:  D                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

71. An increase in costs associated with additional security measures taken by the airlines is most likely to lead to:

a.	a decrease in equilibrium price and a decrease in equilibrium quantity.
b.	a decrease in equilibrium price and an increase in equilibrium quantity.
c.	an increase in equilibrium price and a decrease in equilibrium quantity.
d.	an increase in equilibrium price and no change equilibrium quantity.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

72. Whenever there is a shortage at a particular price, the quantity sold at that price will equal:

a.	the quantity demanded at that price.
b.	the quantity supplied minus the quantity demanded.
c.	the quantity supplied at that price.
d.	(quantity demanded plus quantity supplied)/2.

 

 

ANS:  C                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Unintended Consequences

 

73. Whenever there is a surplus at a particular price, the quantity sold at that price will equal:

a.	the quantity demanded at that price.
b.	the quantity supplied minus the quantity demanded.
c.	the quantity supplied at that price.
d.	(quantity demanded plus quantity supplied)/2.

 

 

ANS:  A                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Unintended Consequences

 

Exhibit 5-6

 

Price per gallon	Quantity Demanded (thousands of gallons)	Quantity Supplied of gasoline (thousands of gallons)
$4.50	600	2,000
$4.25	700	1,900
$4.00	800	1,800
$3.75	950	1,700
$3.50	1,200	1,600
$3.25	1,500	1,500
$3.00	1,800	1,400
$2.75	2,100	1,300
$2.50	2,400	1,200

 

 

74. Refer to Exhibit 5-6. According to the data in the above table, the equilibrium price of gasoline is:

a.	$3.00
b.	$3.25
c.	$3.50
d.	$3.75
e.	$4.00

 

 

ANS:  B                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | Changes in Market Equilibrium

 

75. Refer to Exhibit 5-6. Assuming the market for gasoline is initially in equilibrium, what is likely to happen when there is a significant decrease in the price of sport utility vehicles? (Assume that sport utility vehicles get very low gas mileage.)

a.	The market price and quantity of gasoline will both decrease.
b.	The market price for gasoline will increase and the quantity demanded will decrease.
c.	The market price of gasoline will decrease and the quantity demanded will increase.
d.	Both the market price and quantity of gasoline demanded will increase.

 

 

ANS:  D                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

76. Refer to Exhibit 5-6. If the government imposes a $2.50 price ceiling:

a.	a 1,200,000 gallon surplus will result.
b.	a 2,400,00 gallon surplus will result.
c.	a 1,200,000 gallon shortage will result.
d.	a 2,400,000 gallon shortage will result.

 

 

ANS:  C                    PTS:   1                    REF:   p. 145-147

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

77. Refer to Exhibit 5-6. The government imposes a $3.25 price ceiling at the same time there is a substantial decrease in the price of sport utility vehicles. (Assume that sport utility vehicles get very low mileage per gallon.) As a result, the:

a.	price of gasoline equals $3.25 per gallon and the quantity demanded equals the quantity supplied.
b.	price of gasoline rises above $3.25 per gallon and a surplus of gasoline is created.
c.	price of gasoline will fall below $3.25 per gallon and a shortage of gasoline is created.
d.	legal price of gasoline will equal $3.25 per gallon and a shortage of gasoline is created.

 

 

ANS:  D                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

78. A surplus will result whenever the:

a.	government imposes a price floor below the equilibrium price.
b.	government imposes a price ceiling below the equilibrium price.
c.	government imposes a price floor above the equilibrium price.
d.	government imposes a price ceiling above the equilibrium price.

 

 

ANS:  C                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

79. A shortage will result whenever:

a.	the government imposes a price floor below equilibrium price.
b.	the government imposes a price ceiling above equilibrium price.
c.	the government imposes a price floor above equilibrium price.
d.	the government imposes a price ceiling below equilibrium price.

 

 

ANS:  D                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

80. A surplus exists in the market for Barbie dolls at the prevailing price. The surplus will be eliminated by a price:

a.	increase, decreasing the supply and increasing the demand.
b.	decrease, decreasing the supply and increasing the demand.
c.	decrease, increasing the quantity supplied and increasing the quantity demanded.
d.	decrease, decreasing the quantity supplied and increasing the quantity demanded.

 

 

ANS:  D                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

81. A shortage exists in the market for corn at the prevailing price. The shortage will be eliminated by a price:

a.	increase, increasing the supply and decreasing the demand.
b.	decrease, increasing the supply and decreasing the demand.
c.	decrease, increasing the quantity supplied and decreasing the quantity demanded.
d.	increase, increasing the quantity supplied and decreasing the quantity demanded.

 

 

ANS:  D                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

82. Assume a price ceiling is imposed at the current equilibrium price in the market for wheat. If the supply of wheat then decreases as a result of bad weather, then:

a.	a surplus of wheat will be created.
b.	a shortage of wheat will be created.
c.	the quantity of wheat traded remains the same.
d.	the quantity of wheat supplied will increase.

 

 

ANS:  B                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

83. Assume a price floor is imposed at the current equilibrium price in the market for lettuce. If the demand for lettuce then increases:

a.	a surplus of lettuce will be created.
b.	a shortage of lettuce will be created.
c.	the quantity of lettuce traded remains the same.
d.	the quantity of lettuce supplied will increase.

 

 

ANS:  D                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

84. In the market for natural gas, a particularly mild winter will lead to:

a.	a decrease in the demand and an increase in both equilibrium price and quantity.
b.	an increase in the supply and an increase in both equilibrium price and quantity.
c.	an increase in the supply, a decrease in equilibrium price, and an increase in equilibrium quantity.
d.	a decrease in the demand and a decrease in both equilibrium price and quantity.

 

 

ANS:  D                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

85. The general consensus on minimum wage laws is that they:

a.	do create some unemployment.
b.	affect workers at all skill levels.
c.	lead to extremely low rates of unemployment.
d.	increase employment possibilities for teenagers.

 

 

ANS:  A                    PTS:   1                    REF:   p. 149

TOP:   5.2 Price Controls | Unintended Consequences

 

86. Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price. An increase in supply in both the wheat and gasoline markets will create:

a.	surpluses in both the wheat and gasoline markets.
b.	shortages in both the wheat and gasoline markets.
c.	a surplus in the wheat market and an increase the quantity of gasoline traded.
d.	a surplus in the wheat market and a shortage in the gasoline market.

 

 

ANS:  C                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

87. Minimum wage laws have little or no effect in this segment.

a.	Low-skilled Labor
b.	Teenagers
c.	Skilled workers
d.	Unemployed workers

 

 

ANS:  C                    PTS:   1                    REF:   p. 147-148

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

Exhibit 5-7

 

Price Per	Gallons Demanded	Gallons Supplied
Gallon	Per Month	Per Month
$4.00	400	1,400
$3.50	600	1,100
$3.00	800	800
$2.50	1,000	500
$2.00	1,200	200
$1.50	1,400	50
$1.00	1,600	0

 

 

88. Refer to Exhibit 5-7. If the government intervenes in the market for milk and sets a price floor of $3.50, the result is:

a.	a shortage of 500 gallons of milk.
b.	a surplus of 500 gallons of milk.
c.	that some consumers will not be able to buy milk who wish to purchase it at that price.
d.	both a. and c. are correct.

 

 

ANS:  B                    PTS:   1                    REF:   p. 147-148

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

89. Refer to Exhibit 5-7. If the government were to remove a $3.50 price floor in the milk market, the result would be:

a.	a decrease in price and increase in the quantity of milk supplied.
b.	a decrease in price and increase in the quantity of milk demanded.
c.	an increase in both price and the quantity of milk supplied.
d.	an increase in both price and the quantity of milk demanded.

 

 

ANS:  B                    PTS:   1                    REF:   p. 147-148

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

90. Refer to Exhibit 5-7. If the government intervenes in the market for milk and sets a price ceiling of $2.00 per gallon, the result is:

a.	a shortage of exactly 1,200 gallons of milk.
b.	a surplus of exactly 1,000 gallons of milk.
c.	that some consumers will not be able to buy milk at that price.
d.	that some sellers will not be able to sell available milk at that price.

 

 

ANS:  C                    PTS:   1                    REF:   p. 145-147

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

91. Refer to Exhibit 5-7. If the government were to remove a price ceiling of $2.00 per gallon in the milk market, the result would be:

a.	a decrease in price and increase in the quantity of milk supplied.
b.	a decrease in price and increase in the quantity of milk demanded.
c.	an increase in both price and the quantity of milk supplied.
d.	an increase in both price and the quantity of milk demanded.

 

 

ANS:  C                    PTS:   1                    REF:   p. 145-147

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

92. Whenever a price ceiling is imposed in a market,

a.	quantity demanded exceeds quantity supplied and a surplus results.
b.	quantity demanded exceeds quantity supplied and a shortage results.
c.	quantity supplied exceeds quantity demanded and a surplus results.
d.	it is necessary to know whether the ceiling is imposed above or below the equilibrium price in order to determine whether the quantity traded will be affected.

 

 

ANS:  D                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

93. Whenever a price floor is imposed above equilibrium price, it is true that:

a.	supply will increase due to a higher price and a surplus will result.
b.	supply will increase due to a higher price until it just equals the quantity demanded.
c.	demand will increase due to a higher price and a shortage will result.
d.	quantity supplied will exceed the quantity demanded.

 

 

ANS:  D                    PTS:   1                    REF:   p. 147-148

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

94. Suppose the equilibrium price of bread is $2.00 per loaf. If the government sets a price ceiling of $1.50 per loaf:

a.	the equilibrium price of wheat will fall and a shortage of wheat will be created.
b.	the quantity of wheat supplied will increase.
c.	the quantity of wheat demanded will decrease.
d.	there will be a shortage of bread.

 

 

ANS:  D                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

95. Suppose the equilibrium price of bread is $2.00 per loaf. If the government sets a price ceiling of $2.50 per loaf:

a.	the price of wheat will rise and a shortage is created.
b.	the quantity supplied of wheat will increase.
c.	there will be no change in the quantity of bread demanded or supplied.
d.	there will be a shortage of bread.

 

 

ANS:  C                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

96. Which of the following is not a result of rent controls?

a.	reduced incentives to build new rental housing
b.	reduced incentives for landlords to keep rental units in good repair
c.	increased discrimination against people deemed undesirable on the part of landlords
d.	increased turnover as tenants move more frequently from one rental unit to another

 

 

ANS:  D                    PTS:   1                    REF:   p. 145-148

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

97. Which of the following is not likely to result from an increase in the federal minimum wage?

a.	an increase in the quantity of low-skilled labor supplied
b.	a decrease in the quantity of low-skilled labor demanded
c.	a decrease in teenage unemployment
d.	an increase in teenage unemployment

 

 

ANS:  C                    PTS:   1                    REF:   p. 147-148

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

98. The imposition of a price ceiling on a market often results in:

a.	an increase in investment in the industry.
b.	a surplus.
c.	a shortage.
d.	a decrease in discrimination on the part of sellers.

 

 

ANS:  C                    PTS:   1                    REF:   p. 148-149

TOP:   5.2 Price Controls | Price Ceilings: Price Controls on Gasoline

 

99. To the extent that a governmental price control succeeds in affecting price, it can be expected to lead to a corresponding:

a.	reduction in the volume of sales only if the price is forced down.
b.	reduction in the volume of sales if the price is forced down and an increase in the volume of sales if the price is forced up.
c.	decrease in the volume of sales whether the price is forced up or down.
d.	increase in the volume of sales whether the price is forced up or down.

 

 

ANS:  C                    PTS:   1                    REF:   p. 149

TOP:   5.2 Price Controls | Unintended Consequences

 

100. The major drawback of a price ceiling is:

a.	it causes a surplus.
b.	government regulations of this kind are difficult to enforce.
c.	it causes a shortage.
d.	none of the above; there is no drawback.

 

 

ANS:  C                    PTS:   1                    REF:   p. 148-149

TOP:   5.2 Price Controls | Price Ceilings: Price Controls on Gasoline

 

101. If the supply curve for housing has the normal positive slope, rent controls are likely to:

a.	increase the quantity of available housing.
b.	improve the quality of available housing.
c.	create a larger shortage than if the supply curve were vertical.
d.	help low-income families find suitable housing.

 

 

ANS:  C                    PTS:   1                    REF:   p. 145-147

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

Exhibit 5-8

 

 

102. Refer to Exhibit 5-8. The graph portrays the market for gasoline for which a ____ has been imposed, and, as a result, a ____ of gasoline occurs.

a.	price floor; surplus
b.	price ceiling; shortage
c.	price ceiling; surplus
d.	price floor; shortage

 

 

ANS:  B                    PTS:   1                    REF:   p. 148-149

TOP:   5.2 Price Controls | Price Ceilings: Price Controls on Gasoline

 

103. Refer to Exhibit 5-8. At price P_R, what quantity of gasoline will be sold?

a.	QS
b.	QD
c.	0
d.	the equilibrium quantity

 

 

ANS:  A                    PTS:   1                    REF:   p. 148-149

TOP:   5.2 Price Controls | Price Ceilings: Price Controls on Gasoline

 

104. Both price and quantity will increase when there is a(n)

a.	increase in demand.
b.	decrease in demand.
c.	increase in supply
d.	decrease in supply.

 

 

ANS:  A                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

105. For quantity exchanged to decrease, but the price to rise, there must have been a(n)

a.	increase in demand.
b.	decrease in demand.
c.	increase in supply
d.	decrease in supply.

 

 

ANS:  D                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

106. An increase in the price of a good could be caused by

a.	An increase in supply.
b.	An increase in demand.
c.	A decrease in supply and an increase in demand.
d.	Either b. or c.

 

 

ANS:  D                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

107. If incomes are rising, in the market for a normal good,

a.	its price will rise and the quantity exchanged will rise.
b.	its price will rise and the quantity exchanged will fall.
c.	its price will fall and the quantity exchanged will rise.
d.	its price will fall and the quantity exchanged will fall.

 

 

ANS:  A                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

108. If you observed that the market price of a good rose, while the quantity exchanged fell, which of the following could have caused the change?

a.	An increase in supply.
b.	A decrease in supply.
c.	An increase in demand.
d.	A decrease in demand.

 

 

ANS:  B                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

109. As a result of the decline in the real estate markets, many sellers and builders were very eager to sell their homes. As a result of this greater willingness to sell, we would expect to see:

a.	an increase in equilibrium price and an increase in equilibrium quantity.
b.	an increase in equilibrium price and a decrease in equilibrium quantity.
c.	a decrease in equilibrium price and an increase in equilibrium quantity.
d.	a decrease in equilibrium price and a decrease in equilibrium quantity.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

110. Assuming that the demand and supply of a good have moved in the same direction, and by the same amount, the new equilibrium would represent:

a.	an increase in price and an increase in quantity exchanged.
b.	no change in price and an increase in quantity exchanged.
c.	a decrease in price and a decrease in quantity exchanged.
d.	no change in price, and an indeterminate change in quantity exchanged.

 

 

ANS:  D                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

111. “Rent Control”, a form of price control in which the government sets a limit to what apartment owners can charge a tenant, is a mechanism of:

a.	cost cutting.
b.	price ceiling.
c.	price floor.
d.	non-equilibrium pricing.

 

 

ANS:  B                    PTS:   1                    REF:   p. 145-147

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

112. If nuts and bolts are complements, an increase in the price of nuts caused by a change in the supply of nuts will:

a.	increase the number of bolts sold.
b.	decrease the demand for nuts
c.	increase the price of bolts.
d.	decrease the number of bolts sold

 

 

ANS:  D                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

113. Which of the following combinations of changes would tend to both decrease the quantity of a good traded and increase the price?

a.	An increase in demand.
b.	A decrease in demand.
c.	An increase in supply.
d.	A decrease in supply.

 

 

ANS:  D                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

114. Which of the following is false?

a.	If demand decreases and supply increases, the equilibrium price will rise.
b.	If supply decreases and demand remains the same, the equilibrium price will rise.
c.	if supply increases and demand decreases, the equilibrium price will fall.
d.	if demand increases and supply decreases, the equilibrium price will rise.

 

 

ANS:  A                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

115. A leftward shift of the demand curve results in:

a.	increase in equilibrium price.
b.	increase in quantity.
c.	decrease in both equilibrium price and quantity.
d.	decrease in quantity and an indeterminate equilibrium price.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

116. If the supply of a product decreases by more than the demand increases:

a.	the price will rise and the quantity traded will fall.
b.	the price will rise, but the quantity traded could either rise or fall.
c.	the price will fall, but the quantity traded could either rise or fall.
d.	the quantity traded will rise, but the price could either rise or fall.

 

 

ANS:  A                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

117. An increase in the price of a close substitute for good A will:

a.	increase demand, increase price and increase the quantity exchanged.
b.	increase demand, increase price and decrease the quantity exchanged.
c.	increase supply, increase price and increase the quantity exchanged.
d.	decrease demand, decrease price and decrease the quantity exchanged.

 

 

ANS:  A                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

118. An increase in the price of inputs used to produce good A will:

a.	increase supply, increase price and increase the quantity exchanged.
b.	increase demand, increase price and increase the quantity exchanged.
c.	decrease supply, increase price and decrease the quantity exchanged.
d.	decrease supply, decrease price and decrease the quantity exchanged.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

119. We can be sure that the equilibrium price will fall when:

a.	supply and demand both increase.
b.	supply and demand both decrease.
c.	supply increases and demand decreases.
d.	supply decreases and demand increases.

 

 

ANS:  C                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

120. If the price of apples falls and apples and oranges are substitutes, we would expect:

a.	The quantity of apples demanded to increase and the demand for oranges to increase.
b.	The quantity of oranges demanded to decrease and the demand for apples to increase.
c.	The quantity of apples demanded to increase and the demand for oranges to decrease.
d.	The quantity of oranges demanded to decrease and the demand for apples to decrease.

 

 

ANS:  C                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

121. Which of the following could not cause an increase in both the equilibrium price and quantity of a good exchanged?

a.	Increased input prices.
b.	Decreased incomes for an inferior good.
c.	An increase in the price of a substitute good.
d.	Increased tastes for the good.

 

 

ANS:  A                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

122. A ban on the use of the technology used by most producers in an industry is likely to result in:

a.	higher prices and a higher quantity exchanged in the industry.
b.	higher prices and a lower quantity exchanged in the industry.
c.	higher prices and a higher quantity exchanged in the industry.
d.	lower prices and a lower quantity exchanged in the industry.

 

 

ANS:  B                    PTS:   1                    REF:   p. 134-135

TOP:   5.1 Changes in Market Equilibrium | A Change in Supply

 

123. Which of the following would cause a decrease in both the price and quantity of a good exchanged?

a.	A strike by production workers in the industry.
b.	A subsidy to the industry from the government.
c.	A decrease in advertising expenditures by the industry.
d.	A decrease in the price of a complement good.

 

 

ANS:  C                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

124. If tastes for a good increased and the price of a substitute good decreased at the same time, as a result:

a.	prices would rise.
b.	prices would fall.
c.	larger quantities to be exchanged.
d.	we would not know which direction either prices or quantities exchanged would be altered without more information.

 

 

ANS:  D                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

125. If consumers expected the price of a good to increase in the near future and the price of a complement good decreased at the same time, as a result:

a.	prices would rise.
b.	prices would fall.
c.	larger quantities to be exchanged.
d.	both prices and quantities exchanged would increase.

 

 

ANS:  D                    PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

126. If input prices rose and production technology improved at the same time, as a result:

a.	prices would rise.
b.	prices would fall.
c.	larger quantities to be exchanged.
d.	we would not know which direction either prices or quantities exchanged would be altered without more information.

 

 

ANS:  D                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

127. If the prices of productive substitute goods decreased and productive technology improved at the same time, as a result:

a.	prices would rise.
b.	prices would fall.
c.	larger quantities to be exchanged.
d.	prices to fall and larger quantities to be exchanged.

 

 

ANS:  D                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

128. Which of the following is likely to result in a higher equilibrium price?

a.	An increase in both demand and supply.
b.	A decrease in both demand and supply.
c.	An increase in demand and a decrease in supply.
d.	A decrease in demand and an increase in supply.

 

 

ANS:  C                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

129. Which of the following is likely to result in a lower equilibrium price?

a.	An increase in both demand and supply.
b.	A decrease in both demand and supply.
c.	An increase in demand and a decrease in supply.
d.	A decrease in demand and an increase in supply.

 

 

ANS:  D                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

130. Which of the following is likely to result in a larger equilibrium quantity exchanged?

a.	An increase in both demand and supply.
b.	A decrease in both demand and supply.
c.	An increase in demand and a decrease in supply.
d.	A decrease in demand and an increase in supply.

 

 

ANS:  A                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

131. Which of the following is likely to result in a smaller equilibrium quantity exchanged?

a.	An increase in both demand and supply.
b.	A decrease in both demand and supply.
c.	An increase in demand and a decrease in supply.
d.	A decrease in demand and an increase in supply.

 

 

ANS:  B                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

132. An increase in demand for a product and a reduction in the costs of production would:

a.	increase the equilibrium quantity and increase the equilibrium price.
b.	increase the equilibrium quantity and decrease the equilibrium price.
c.	increase the equilibrium quantity and cause an indeterminate change in the equilibrium price.
d.	decrease the equilibrium quantity and cause an indeterminate change in the equilibrium price.

 

 

ANS:  C                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | The Combinations of Supply and Demand Shifts

 

133. Assuming that the demand and supply of a good have moved in opposite directions, but by the same amount, the new equilibrium would represent:

a.	an increase in price and an increase in quantity exchanged.
b.	no change in price and an increase in quantity exchanged.
c.	a decrease in price and a decrease in quantity exchanged.
d.	an indeterminate change in price, but no change in quantity exchanged.

 

 

ANS:  D                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

134. Assuming that the demand and supply of a good have moved in the same direction, and by the same amount, the new equilibrium would represent:

a.	an increase in price and an increase in quantity exchanged.
b.	no change in price and an increase in quantity exchanged.
c.	a decrease in price and a decrease in quantity exchanged.
d.	no change in price, and an indeterminate change in quantity exchanged.

 

 

ANS:  D                    PTS:   1                    REF:   p. 139

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

135. Starting from an equilibrium position,

a.	the imposition of a price floor below the equilibrium price will increase the quantity demanded.
b.	the imposition of a price floor below the equilibrium price will decrease the quantity exchanged.
c.	the imposition of a price floor above the equilibrium price will decrease the quantity demanded.
d.	the imposition of a price floor above the equilibrium price will increase the quantity exchanged.

 

 

ANS:  C                    PTS:   1                    REF:   p. 147-148

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

136. If the equilibrium price of widgets is $22, and then a price ceiling of $24 is imposed by the government, as a result,

a.	there will be no effect on the widget market.
b.	there will be a shortage of widgets.
c.	there will be a surplus of widgets.
d.	the price of widgets will increase.

 

 

ANS:  A                    PTS:   1                    REF:   p. 147-148

TOP:   5.2 Price Controls | Price Ceilings: Price Controls on Gasoline

 

137. Which of the below is true?

a.	A price ceiling reduces the quantity exchanged on the market, but a price floor increases the quantity exchanged on the market.
b.	A price ceiling increases the quantity exchanged on the market, but a price floor decreases the quantity exchanged on the market.
c.	Both price floors and price ceilings reduce the quantity exchanged in the market.
d.	Both price floors and price ceilings increase the quantity exchanged in the market.

 

 

ANS:  C                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

138. Say that the equilibrium price of natural gas would be $5 per thousand cubic feet, but there is a price ceiling imposed at $3 per thousand cubic feet. That price ceiling is then lowered to $2 per thousand cubic feet. As a result,

a.	the shortage of natural gas will get worse.
b.	the shortage of natural gas will get less severe.
c.	the surplus of natural gas will get worse.
d.	the surplus of natural gas will get less severe.

 

 

ANS:  A                    PTS:   1                    REF:   p. 148-149

TOP:   5.2 Price Controls | Price Ceilings: Price Controls on Gasoline

 

139. Say that the equilibrium price of natural gas would be $5 per thousand cubic feet, but there is a price floor imposed at $7 per thousand cubic feet. That price floor is then lowered to $5 per thousand cubic feet. As a result,

a.	the shortage of natural gas will get worse.
b.	the shortage of natural gas will get less severe.
c.	the surplus of natural gas will get worse.
d.	the surplus of natural gas will be eliminated.

 

 

ANS:  D                    PTS:   1                    REF:   p. 147-149

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

140. Which of the following is true?

a.	It is possible to eliminate a surplus by raising a price floor sufficiently.
b.	It is possible to create a surplus by raising a price ceiling sufficiently.
c.	It is possible to eliminate a shortage by raising a price ceiling sufficiently.
d.	It is possible to create a shortage by lowering a price floor sufficiently.

 

 

ANS:  C                    PTS:   1                    REF:   p. 145-147

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

141. Assume there is a price ceiling imposed on a good which is below the equilibrium price. Which of the following changes would reduce the size of the surplus?

a.	An increase in demand.
b.	A decrease in demand.
c.	An increase in supply.
d.	None of the above; there is no surplus.

 

 

ANS:  D                    PTS:   1                    REF:   p. 145-147

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

142. A government mandated price increase for doodads will:

a.	decrease the quantity of doodads supplied but increase the quantity of doodads demanded.
b.	increase the quantity of doodads supplied but decrease the quantity of doodads demanded.
c.	increase the demand for doodads and decrease the supply of doodads.
d.	decrease the demand for doodads and increase the supply of doodads.

 

 

ANS:  B                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

143. If the government wanted to reduce the quantity of a good traded, it could do so by:

a.	setting a price ceiling for the good below the equilibrium price.
b.	setting a price floor for the good above the equilibrium price.
c.	tax the good more heavily.
d.	doing any of the above.

 

 

ANS:  D                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

144. A decrease in the current minimum wage would:

a.	decrease employment for low skill workers.
b.	increase firm’s demand curves for low skill workers.
c.	increase the supply of low skill workers.
d.	decrease the incomes of some low skill workers.

 

 

ANS:  D                    PTS:   1                    REF:   p. 147-148

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

145. Assume there is a price ceiling imposed on a good which is below the equilibrium price. Which of the following changes would reduce the size of the shortage?

a.	an increase in demand
b.	a decrease in demand
c.	a decrease in supply
d.	a lower price ceiling

 

 

ANS:  B                    PTS:   1                    REF:   p. 145-147

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

146. Assume there is a price floor imposed on a good which is above the equilibrium price. Which of the following changes would reduce the size of the surplus?

a.	An increase in demand.
b.	A decrease in demand.
c.	An increase in supply.
d.	Any of the above.

 

 

ANS:  A                    PTS:   1                    REF:   p. 147-148

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

147. Assume there is a price ceiling imposed on a good which is below the equilibrium price. Which of the following changes would reduce the size of the surplus?

a.	An increase in demand.
b.	A decrease in demand.
c.	An increase in supply.
d.	None of the above; there is no surplus.

 

 

ANS:  D                    PTS:   1                    REF:   p. 145-147

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

148. An increase in both equilibrium price and quantity is a consequence of:

a.	increase in supply.
b.	increase in demand.
c.	decrease in demand
d.	decrease in supply

 

 

ANS:  C                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

149. If the price of apples rises and the quantity of apples exchanged decreases, then we know that there cannot have been a:

a.	decrease in supply with no change in demand
b.	large decrease in supply and a small decrease in demand
c.	large decrease in supply and a small increase in demand
d.	large increase in demand and a small increase in supply

 

 

ANS:  D                    PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

150. A legal maximum on the price at which a good can be sold is called a price

a.	floor.
b.	subsidy.
c.	support.
d.	ceiling.

 

 

ANS:  D                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Controls

 

151. Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,

a.	a smaller quantity of the good is bought and sold.
b.	a smaller quantity of the good is demanded.
c.	a larger quantity of the good is supplied.
d.	the price rises above the previous equilibrium.

 

 

ANS:  B                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

152. If the government removes a binding price ceiling from a market, then the price paid by buyers will

a.	increase, and the quantity sold in the market will increase.
b.	increase, and the quantity sold in the market will decrease.
c.	decrease, and the quantity sold in the market will increase.
d.	decrease, and the quantity sold in the market will decrease.

 

 

ANS:  A                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

 

153. If the government removes a binding price ceiling from a market, then the price received by sellers will

a.	decrease, and the quantity sold in the market will decrease.
b.	decrease, and the quantity sold in the market will increase.
c.	decrease, and the quantity sold in the market will increase.
d.	increase, and the quantity sold in the market will increase.

 

 

ANS:  D                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

154. When a binding price ceiling is imposed on a market,

a.	price no longer serves as a rationing device.
b.	the quantity supplied at the price ceiling exceeds the quantity that would have been supplied without the price ceiling.
c.	all buyers benefit.
d.	All of the above are correct.

 

 

ANS:  A                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

155. When a binding price ceiling is imposed on a market to benefit buyers,

a.	no buyers actually benefit.
b.	some buyers benefit, but no buyers are harmed.
c.	all buyers benefit.some buyers benefit, and some buyers are harmed.
d.	all buyers benefit.

 

 

ANS:  C                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

156. A price ceiling is binding when it is set

a.	above the equilibrium price, causing a shortage.
b.	above the equilibrium price, causing a surplus.
c.	below the equilibrium price, causing a shortage.
d.	below the equilibrium price, causing a surplus.

 

 

ANS:  C                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

157. To say that a price ceiling is binding is to say that the price ceiling

a.	results in a surplus.
b.	is set above the equilibrium price.
c.	causes quantity demanded to exceed quantity supplied.
d.	All of the above are correct.

 

 

ANS:  C                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

158. To say that a price ceiling is nonbinding is to say that the price ceiling

a.	results in a surplus.
b.	is set above the equilibrium price.
c.	causes quantity demanded to exceed quantity supplied.
d.	All of the above are correct.

 

 

ANS:  B                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

159. A shortage results when a

a.	nonbinding price ceiling is imposed on a market.
b.	nonbinding price ceiling is removed from a market.
c.	binding price ceiling is imposed on a market.
d.	binding price ceiling is removed from a market.

 

 

ANS:  C                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

160. The imposition of a binding price ceiling on a market causes quantity demanded to be

a.	greater than quantity supplied.
b.	less than quantity supplied.
c.	equal to quantity supplied.
d.	Both (a) and (b) are possible.

 

 

ANS:  A                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

161. If a price ceiling is a binding constraint on a market, then

a.	the equilibrium price must be below the price ceiling.
b.	the quantity supplied must exceed the quantity demanded.
c.	sellers cannot sell all they want to sell at the price ceiling.
d.	buyers cannot buy all they want to buy at the price ceiling.

 

 

ANS:  D                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

162. A binding price ceiling

i.	causes a surplus.
ii.	causes a shortage.
iii.	is set at a price above the equilibrium price.
iv.	is set at a price below the equilibrium price.

 

a.	(ii) only
b.	(iv) only
c.	(i) and (iii) only
d.	(ii) and (iv) only

 

 

ANS:  D                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

163. A non-binding price ceiling

i.	causes a surplus.
ii.	causes a shortage.
iii.	is set at a price above the equilibrium price.
iv.	is set at a price below the equilibrium price.

 

a.	(i) only
b.	(iii) only
c.	(i) and (iii) only
d.	(ii) and (iv) only

 

 

ANS:  B                    PTS:   1                    REF:   p. 145

TOP:   5.2 Price Controls | Price Ceilings: Rent Controls

 

164. If the government removes a binding price floor from a market, then the price paid by buyers will

a.	increase, and the quantity sold in the market will increase.
b.	increase, and the quantity sold in the market will decrease.
c.	decrease, and the quantity sold in the market will increase.
d.	decrease, and the quantity sold in the market will decrease.

 

 

ANS:  C                    PTS:   1                    REF:   p. 147

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

165. If the government removes a binding price floor from a market, then the price received by sellers will

a.	decrease, and the quantity sold in the market will decrease.
b.	decrease, and the quantity sold in the market will increase.
c.	increase, and the quantity sold in the market will decrease.
d.	increase, and the quantity sold in the market will increase.

 

 

ANS:  B                    PTS:   1                    REF:   p. 147

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

166. When a binding price floor is imposed on a market,

a.	price no longer serves as a rationing device.
b.	the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor.
c.	only some sellers benefit.
d.	All of the above are correct.

 

 

ANS:  D                    PTS:   1                    REF:   p. 147

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

167. When a binding price floor is imposed on a market,

a.	price no longer serves as a rationing device.
b.	the quantity demanded at the price floor exceeds the quantity that would have been demanded without the price floor.
c.	all sellers benefit.
d.	All of the above are correct.

 

 

ANS:  A                    PTS:   1                    REF:   p. 147

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

168. When a binding price floor is imposed on a market to benefit sellers,

a.	no sellers actually benefit.
b.	some sellers benefit, but no sellers are harmed.
c.	some sellers benefit, and some sellers are harmed.
d.	all sellers benefit.

 

 

ANS:  C                    PTS:   1                    REF:   p. 147

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

169. A price floor is binding when it is set

a.	above the equilibrium price, causing a shortage.
b.	above the equilibrium price, causing a surplus.
c.	below the equilibrium price, causing a shortage.
d.	below the equilibrium price, causing a surplus.

 

 

ANS:  B                    PTS:   1                    REF:   p. 147

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

170. To say that a price floor is binding is to say that the price floor

a.	results in a shortage.
b.	is set below the equilibrium price.
c.	causes quantity supplied to exceed quantity demanded.
d.	All of the above are correct.

 

 

ANS:  C                    PTS:   1                    REF:   p. 147

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

171. The imposition of a binding price floor on a market causes quantity demanded to be

a.	greater than quantity supplied.
b.	less than quantity supplied.
c.	equal to quantity supplied.
d.	Both (a) and (b) are possible.

 

 

ANS:  B                    PTS:   1                    REF:   p. 147

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

172. If a price floor is a binding constraint on a market, then

a.	the equilibrium price must be above the price floor.
b.	the quantity demanded must exceed the quantity supplied.
c.	sellers cannot sell all they want to sell at the price floor.
d.	buyers cannot buy all they want to buy at the price floor.

 

 

ANS:  C                    PTS:   1                    REF:   p. 147

TOP:   5.2 Price Controls | Price Floors: The Minimum Wage

 

173. If a price ceiling is not binding, then

a.	the equilibrium price is above the price ceiling.
b.	the equilibrium price is below the price ceiling.
c.	it has no legal enforcement mechanism.
d.	None of the above is correct because all price ceilings must be binding.

 

 

ANS:  B                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

174. If a price ceiling is not binding, then

a.	there will be a surplus in the market.
b.	there will be a shortage in the market.
c.	the market will be less efficient than it would be without the price ceiling.
d.	there will be no effect on the market price or quantity sold.

 

 

ANS:  D                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

175. If a nonbinding price ceiling is imposed on a market, then the

a.	quantity sold in the market will decrease.
b.	quantity sold in the market will stay the same.
c.	price in the market will increase.
d.	price in the market will decrease.

 

 

ANS:  B                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

176. A price ceiling will be binding only if it is set

a.	equal to the equilibrium price.
b.	above the equilibrium price.
c.	below the equilibrium price.
d.	either above or below the equilibrium price.

 

 

ANS:  C                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

Exhibit 5-9

 

Panel (a)	Panel (b)

 

 

177. Refer to Exhibit 5-9. A binding price ceiling is shown in

a.	panel (a) only.
b.	panel (b) only.
c.	both panel (a) and panel (b).
d.	neither panel (a) nor panel (b).

 

 

ANS:  B                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

 

178. Refer to Exhibit 5-9. In which panel(s) of the figure would there be a shortage of the good at the price ceiling?

a.	panel (a) only.
b.	panel (b) only.
c.	both panel (a) and panel (b).
d.	neither panel (a) nor panel (b).

 

 

ANS:  B                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

179. Refer to Exhibit 5-9. The price ceiling shown in panel (a)

a.	is not binding.
b.	creates a surplus.
c.	creates a shortage.
d.	Both (a) and (b) are correct.

 

 

ANS:  A                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

180. Refer to Exhibit 5-9. The price ceiling shown in panel (b)

a.	is not binding.
b.	creates a surplus.
c.	creates a shortage.
d.	Both (a) and (b) are correct.

 

 

ANS:  C                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

181. If a price floor is not binding, then

a.	the equilibrium price is above the price floor.
b.	the equilibrium price is below the price floor.
c.	there will be a surplus in the market.
d.	Both (a) and (c) are correct.

 

 

ANS:  A                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

182. If a price floor is not binding, then

a.	there will be a surplus in the market.
b.	there will be a shortage in the market.
c.	there will be no effect on the market price or quantity sold.
d.	the market will be less efficient than it would be without the price floor.

 

 

ANS:  C                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

183. If a nonbinding price floor is imposed on a market, then the

a.	quantity sold in the market will decrease.
b.	quantity sold in the market will stay the same.
c.	price in the market will increase.
d.	price in the market will decrease.

 

 

ANS:  B                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

184. A binding price floor

i.	causes a surplus.
ii.	causes a shortage.
iii.	is set at a price above the equilibrium price.
iv.	is set at a price below the equilibrium price.

 

a.	(i) only
b.	(iii) only
c.	(i) and (iii) only
d.	(ii) and (iv) only

 

 

ANS:  C                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

185. A nonbinding price floor

i.	causes a surplus.
ii.	causes a shortage.
iii.	is set at a price above the equilibrium price.
iv.	is set at a price below the equilibrium price.

 

a.	(iii) only
b.	(iv) only
c.	(i) and (iii) only
d.	(ii) and (iv) only

 

 

ANS:  C                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

186. A price floor will be binding only if it is set

a.	equal to the equilibrium price.
b.	above the equilibrium price.
c.	below the equilibrium price.
d.	either above or below the equilibrium price.

 

 

ANS:  B                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

187. After a binding price floor becomes effective, a

a.	smaller quantity of the good is bought and sold.
b.	a larger quantity of the good is demanded.
c.	a smaller quantity of the good is supplied.
d.	All of the above are correct.

 

 

ANS:  A                    PTS:   1                    REF:   p. 150

TOP:   5.2 Price Controls | Use What You’ve Learned: Binding Price Controls

 

 

SHORT ANSWER

 

1. Serious natural disasters like hurricanes and tornadoes cause widespread and extensive damage to buildings. As a result of a natural disaster, what would you expect to happen in the market for building supplies?

 

ANS:

As homes and buildings are being reconstructed, the demand for building supplies will increase significantly. The increase in demand causes a movement along the supply curve, resulting in an increased quantity of building supplies traded. Prices will rise precipitously if supply is highly inelastic.

 

PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

2. Beach resorts raise their prices during the summer months and yet more people book rooms at those times. Is this a violation of the law of demand?

 

ANS:

No. During summer months, the demand for beach resort accommodations tends to increase, pushing up both prices and occupancy for the duration. An increase in demand (a shift of the curve. occurs. This does not violate the law of demand, which states that there is an inverse relationship between price and quantity demanded, all other things being equal.

 

PTS:   1                    REF:   p. 134

TOP:   5.1 Changes in Market Equilibrium | A Change in Demand

 

3. How does the equilibrium quantity change when there is an increase in supply and a decrease in demand?

 

ANS:

The impact on equilibrium quantity is indeterminate because the increase in supply increases the equilibrium quantity and the decrease in demand decreases it. The change in the equilibrium quantity will vary depending on the relative changes in supply and demand. If the decrease in demand is greater than the increase in supply, the equilibrium quantity will decrease. If the increase in supply is greater than the decrease in demand, the equilibrium quantity will increase.

 

PTS:   1                    REF:   p. 135

TOP:   5.1 Changes in Market Equilibrium | Changes in Both Supply and Demand

 

 

4. Prices have soared for parking facilities in downtown Dallas in recent months. Pressure from voters has convinced the Dallas City Council to impose a price ceiling of $5 on all parking garages and lots per day. What effect will this likely have on the market for parking spaces in Dallas? Who will gain? Who will lose?

 

ANS:

The $5 price ceiling will likely result in a shortage of parking spaces. At the new lower prices, quantity demanded will increase. More people will wish to park downtown, and both the parking lots/garage owners and the consumers who can’t find spaces to park in will lose. Owners will lose revenue and in some cases shut down lots and garages. Consumers who can find a space without much added time spent searching may initially be better off, but will most likely spend more time searching for a space. Some will find no space at all.

 

PTS:   1                    REF:   p. 148-149

TOP:   5.2 Price Controls | Price Ceilings: Price Controls on Gasoline

 

5. In an attempt to reduce poaching of elephant ivory tusks, officials in Kenya burned illegally gathered ivory. Using your understanding of shifts in supply and demand, will this turn out to be a helpful or hurtful move on the Kenyan government’s part?

 

ANS:

The burning of the ivory causes the supply curve of ivory to shift to the left, thereby increasing the price of ivory in the marketplace. This policy may have the opposite effect from the one intended. Higher ivory prices will likely induce more poaching to occur by making it more profitable.

 

PTS:   1                    REF:   p. 149            TOP:   5.2 Price Controls | Unintended Consequences

 

6. Explain the impact of:

1.	A rent ceiling set below the equilibrium price.
2.	A price floor set above the equilibrium price.

 

 

ANS:

A rent ceiling set below the equilibrium price results in a persistent shortage. A price floor set above the equilibrium price will result in a surplus.

 

PTS:   1                    REF:   p. 145            TOP:   5.2 Price Controls | Price Ceilings: Rent Controls