Question 1

Which of the following statements is NOT true about exchanges in the market system?

Accepted Answer

A)   In voluntary exchange both parties are better off because of the exchange.
B)   Exchanges occur only in situations of barter where the market price is irrelevant.
C)   Prices indicate what is relatively abundant and what is relatively scarce.
D)   Transaction costs in exchanges include the cost of enforcing a contract as well as the costs of information.

Question 2

The City Council of Happy Village is thinking about imposing rent controls. If they put rent controls in place, which constituency are they trying to please?

Accepted Answer

A)   landlords
B)   all taxpayers
C)   existing tenants
D)   all voters

Question 3

A limit on the amount of strawberries that can be imported into the United States is an example of

Accepted Answer

A)   the rationing function of prices protecting domestic strawberry farmers.
B)   a price floor set by the government.
C)   a price ceiling set by government.
D)   an import quota.

Question 4

Government policies such as price controls, rent controls, and quantity restrictions have the effect of

Accepted Answer

A)   promoting the attainment of an unhindered market equilibrium.
B)   allowing quantity demanded to adjust to equality with aggregate supply.
C)   creating excess quantities demanded or excess quantities supplied.
D)   pushing prices to market clearing levels more rapidly than private market forces.

Question 5

What is the result of an agricultural support price established above the equilibrium price?

Accepted Answer

A)   The market gravitates toward and remains in equilibrium.
B)   There will be excess quantity supplied of the product involved.
C)   There will be excess quantity demanded the product in this market.
D)   Since the support price is set above the equilibrium price, it will have no impact on the market price.

Question 6

Suppose that consumer income increases and that ground meat is an inferior good. Which of the following will occur in the market for ground meat?

Accepted Answer

A)   Market clearing price will rise, and equilibrium quantity will rise.
B)   Market clearing price will fall, and equilibrium quantity will fall.
C)   Market clearing price will rise, and equilibrium quantity will fall.
D)   Market clearing price will fall, and equilibrium quantity will rise.

Question 7

A price floor set below the equilibrium price will cause which of the following?

Accepted Answer

A)   an increase in demand
B)   a shortage
C)   a surplus
D)   none of the above

Question 8

We cannot predict the effect on the equilibrium quantity, but know that the market clearing price will increase when

Accepted Answer

A)   supply decreases and at the same time demand increases.
B)   supply increases and demand increases simultaneously.
C)   supply and demand decreases simultaneously.
D)   supply and demand increases simultaneously.

Question 9

In a market system, what must take place for quantity demanded to continually be equated with quantity supplied?

Accepted Answer

A)   Price controls must be applied by governments.
B)   Relative prices must be able to adjust to market clearing levels.
C)   Tastes and preferences of consumers must adjust to eliminate surpluses or shortages.
D)   Businesses must engage in involuntary, unprofitable exchanges to eliminate surpluses or shortages.

Question 10

Assume that the market clearing price for portable power banks is $5, but that the maximum price that can be charged is $4. This is an example of

Accepted Answer

A)   a price control that will lead to a surplus of portable power banks on the market.
B)   a price floor that will lead to a shortage of portable power banks on the market.
C)   markets failing to ration a fixed quantity of portable power banks.
D)   a price ceiling that will likely lead to a shortage of portable power banks on the market.

Question 11

-Refer to the above figure. If the government imposes a price ceiling of $60

Accepted Answer

A)   the quantity traded will be 150, and the price will be $40.
B)   the quantity traded will be 100, and the price will be $60.
C)   the quantity traded will be 200, and the price will be $60.
D)   the quantity traded will be 150, and the price will be $60.

Question 12

People consume more fresh fruit in the summer than during the rest of the year, yet the prices of fresh fruit are lower in the summer than in other seasons. What accounts for this?

Accepted Answer

A)   Fresh fruit is not subject to the law of supply.
B)   The supply of fresh fruit increases in the summer.
C)   Fresh fruit is an inferior good.
D)   Fresh fruit is not subject to the law of demand.

Question 13

An example of a black market is

Accepted Answer

A)   a retail market.
B)   a discount market.
C)   scalping.
D)   barter.

Question 14

-Refer to the above figure. Other things being equal, when the government imposes a price floor at P2, then we would expect

Accepted Answer

A)   the quantity demanded is Q2.
B)   a surplus will occur.
C)   price to decline until an equilibrium is achieved at P0.
D)   consumers to bid against each other for goods and force the price even higher.

Question 15

-Consider the above table. Assuming the government imposes a price ceiling on strawberries of $4 per pound, what would be the likely result?

Accepted Answer

A)   a surplus of 2,000 pounds of strawberries
B)   a shortage of 2,000 pounds of strawberries
C)   No change, equilibrium would prevail.
D)   The quantity demanded of strawberries would fall to zero.

Question 16

Market clearing prices in a market system act as

Accepted Answer

A)   a signaling device.
B)   a direct measure of resource costs.
C)   a way for producers to advertise.
D)   a legally determined rationing device.

Question 17

-A reduction in the minimum wage will tend to cause which of the following?

Accepted Answer

A)   a reduction in poverty
B)   an increase in the number of workers employed
C)   an increase in the quantity supplied of labor
D)   a reduction in the quantity demanded of labor

Question 18

When the supply and/or demand curve shift, the new market clearing price is

Accepted Answer

A)   reached instantaneously.
B)   reached only after the government intervenes in the market.
C)   reached after some period of adjustment.
D)   never reached.

Question 19

All of the following reduce the transaction costs for consumers EXCEPT

Accepted Answer

A)   eBay.
B)   a shopping mall.
C)   a court decision regarding product safety.
D)   a grocery store.

Question 20

When the government sets a maximum price that can be charged for a good or service, it creates

Accepted Answer

A)   a price support.
B)   a price floor.
C)   a white market.
D)   a price ceiling.

Exam 4: Extensions of Demand and Supply Analysis

Government policies such as price controls, rent controls, and quantity restrictions have the effect of

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All of the following reduce the transaction costs for consumers EXCEPT

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What is the result of an agricultural support price established above the equilibrium price?

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-Refer to the above figure. If the government imposes a price ceiling of $60

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When the supply and/or demand curve shift, the new market clearing price is

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We cannot predict the effect on the equilibrium quantity, but know that the market clearing price will increase when

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Which of the following statements is NOT true about exchanges in the market system?

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A limit on the amount of strawberries that can be imported into the United States is an example of

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An example of a black market is

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-Refer to the above figure. Other things being equal, when the government imposes a price floor at P2, then we would expect

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Suppose that consumer income increases and that ground meat is an inferior good. Which of the following will occur in the market for ground meat?

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Market clearing prices in a market system act as

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A price floor set below the equilibrium price will cause which of the following?

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The City Council of Happy Village is thinking about imposing rent controls. If they put rent controls in place, which constituency are they trying to please?

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People consume more fresh fruit in the summer than during the rest of the year, yet the prices of fresh fruit are lower in the summer than in other seasons. What accounts for this?

Correct AnswerverifiedShow Answer

Assume that the market clearing price for portable power banks is $5, but that the maximum price that can be charged is $4. This is an example of

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-Consider the above table. Assuming the government imposes a price ceiling on strawberries of $4 per pound, what would be the likely result?

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-A reduction in the minimum wage will tend to cause which of the following?

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When the government sets a maximum price that can be charged for a good or service, it creates

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In a market system, what must take place for quantity demanded to continually be equated with quantity supplied?

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