Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) In the short run, it is necessary to ________ a good whenever excess demand exists.
A) price allocate
B) nonprice ration
C) increase production of
D) discontinue distribution of

1)

Answer: B
2) Issuing coupons, waiting in line and catering to favored customers are all methods of
A) exploiting wealth.
B) income distribution.
C) nonprice rationing.
D) unbiased favoritism.

2)

Answer: C
3) The ________ automatically distributes scarce goods.
A) command economy
B) laissez faire economy
C) barter system
D) price system

3)

Answer: D
4) Attempts to bypass price rationing in the market
A) are an effective tool for aiding low-income households.
B) are costly.
C) are efficient.
D) are easily administered.

4)

Answer: B
5) During periods of ________, favored customers receive special treatment from dealers.
A) price above equilibrium
B) equilibrium
C) excess supply
D) excess demand

5)

Answer: D
6) A situation where illegal trading at market prices takes place is known in economics as a
A) smuggler's market.
B) pirate market.
C) command market.
D) black market.

6)

Answer: D
7) When supply is ________ or the product is ________, then price is demand determined.
A) variable; unique
B) fixed; standardized
C) variable; standardized
D) fixed; unique

7)

Answer: D
8) A government-imposed maximum price will have no economic impact if
A) there is a fixed supply of the good.
B) it is below the equilibrium price.
C) it is at or below the equilibrium price.
D) it is above the equilibrium price.
Answer: D

8)

9) If Leonardo is scalping tickets for a World Cup game, he will be successful at selling the tickets for
a profit
A) any time teams in the World Cup game are popular.
B) when prices are too high.
C) when the price set by the World Cup organizers is less than the market equilibrium price.
D) only when there is excess supply.

9)

Answer: C
10) If Andrew is scalping tickets for the Stanley Cup, he will be successful at selling the tickets for a
profit
A) only when there is excess supply.
B) any time the Stanley Cup is popular.
C) when prices are too high.
D) when the price set by the National Hockey League is less than the market equilibrium price.

10)

Answer: D
Refer to the information provided in Figure 4.1 below to answer the questions that follow.

Figure 4.1

11) Refer to Figure 4.1. At the world price of 30 cents per apple the United States imports ________
million apples per day.
A) 2
B) 4
C) 6
D) 10

11)

Answer: C
12) Refer to Figure 4.1. The United States will import 2 million apples per day if a per-apple tax of
________ is levied on imported apples.
A) 10 cents
B) 20 cents
C) 30 cents
D) 40 cents

12)

Answer: A
13) Refer to Figure 4.1. The United States will import 6 million apples per day if a per-apple tax of
________ is levied on imported apples.
A) 0 cents
B) 10 cents
C) 20 cents
D) 30 cents
Answer: A

13)

14) Refer to Figure 4.1. Assume that initially there is free trade. The price of apples in the United States
will increase to 40 cents per apple if a ________ per apple tax tax is imposed.
A) 10 cents
B) 20 cents
C) 30 cents
D) 40 cents

14)

Answer: A
15) Refer to Figure 4.1. Assume that initially there is free trade. The quantity demanded of apples will
be reduced by 2 million per day if the United States imposes a tax of ________ per apple.
A) 10 cents
B) 20 cents
C) 30 cents
D) 40 cents

15)

Answer: A
Refer to the information provided in Figure 4.2 below to answer the questions that follow.

Figure 4.2

16) Refer to Figure 4.2. The market is initially in equilibrium at the intersection of S2 and D, and supply
shifts from S2 to S1. Which of the following statements is true?
A) The market cannot move to a new equilibrium until there is also a change in supply.
B) Price will still serve as a rationing device causing quantity demanded to rise from 8 to 11 soft
pretzels.
C) There is no need for price to serve as a rationing device in this case because the new
equilibrium quantity is lower than the original equilibrium quantity.
D) Price will still serve as a rationing device causing quantity supplied to fall from 8 to 4 soft
pretzels.

16)

Answer: B
17) An example of an effective price ceiling would be the government setting the price of wheat at
________ per bushel when the market price is at $4.25 per bushel.
A) $3.75
B) $5.00
C) $7.75
D) $12.00
Answer: A

17)

18) If the equilibrium price of gasoline is $3.00 per gallon and the government will not allow oil
companies to charge more than $2.00 per gallon of gasoline, which of the following will happen?
A) Demand must eventually decrease so that the market will come into equilibrium at a price of
$2.00.
B) Supply must eventually increase so that the market will come into equilibrium at a price of
$2.00.
C) The market will be in equilibrium at a price of $2.00.
D) A nonprice rationing system such as ration coupons must be used to ration the available
supply of gasoline.

18)

Answer: D
19) An example of a ________ would be the government setting the price of coffee below the
equilibrium price.
A) non-income tax
B) price ceiling
C) rational expenditure
D) black market

19)

Answer: B
20) If the market price of green tea is $20.00 per pound but the government will not allow green tea
growers to charge more than $15.00 per pound of green tea, which of the following will happen?
A) There will be a surplus of green tea.
B) There will be a shortage of green tea.
C) Supply must eventually increase so that the market will come into equilibrium at a price of
$17.50.
D) Demand must eventually decrease so that the market will come into equilibrium at a price of
$17.50.

20)

Answer: B
21) In the short run, whenever excess demand exists, it is necessary to
A) ration the good.
B) increase the supply of the good.
C) put the good on sale.
D) impose a price ceiling on the good.

21)

Answer: A
22) The rationing mechanism in market economies is the adjustment of
A) price.
B) demand.
C) quantity.

D) supply.

22)

Answer: A
23) An effective price ceiling must be set
A) below the equilibrium price.
C) either at or above the equilibrium price.

B) above the equilibrium price.

23)

Answer: A
24) An effective price floor must be set
A) at the equilibrium price.
C) below the equilibrium price.

B) above the equilibrium price.

Answer: B

24)

25) For a particular product, an effective price ceiling results in

25)

Answer: A
26) For a particular product, an effective price floor results in
A) quantity supplied greater than quantity demanded.
B) quantity demanded greater than quantity supplied.
C) demand equal to supply.
D) quantity demanded equal to quantity supplied.

26)

Answer: A
Refer to the information provided in Figure 4.3 below to answer the questions that follow.

Figure 4.3

27) Refer to Figure 4.3. The government setting the price of pencils at $0.40 would be an example of an
effective
A) price surplus.
B) market equilibrium.
C) price ceiling.
D) price floor.

27)

Answer: C
28) Refer to Figure 4.3. The government setting the price of pencils at $0.50 would be an example of an
effective
A) price shortage.
B) price floor.
C) market equilibrium.
D) price ceiling.

28)

Answer: B
29) Refer to Figure 4.3. In the market for pencils, the quantity demanded will be greater than the
quantity supplied if the government imposes an effective
A) price surplus.
B) price floor.
C) price ceiling.
D) market equilibrium price.
Answer: C

29)

30) Refer to Figure 4.3. A non-price rationing system such as queuing must be used to ration the
available supply of pencils if the government will not allow retailers to charge more than ________
for a pencil.
A) $0.40
B) $0.45
C) $0.50
D) $0.55

30)

Answer: A
31) Refer to Figure 4.3. Retailers will have an excess supply of pencils if the government will not allow
retailers to charge less than ________ for a pencil.
A) $0.50
B) $0.45
C) $0.40
D) the equilibrium price

31)

Answer: A
32) A shortage will occur if a ________ is set ________ the equilibrium price.
A) price floor; above
B) price ceiling; below
C) price ceiling; above
D) price floor; below

32)

Answer: B
33) The market will be in equilibrium if ________ is set ________ the equilibrium price.
A) actual price; below
B) a price ceiling; below
C) actual price; above
D) a price floor; below

33)

Answer: D
34) Quantity demanded will equal quantity supplied if a ________ is set ________ the equilibrium
price.
A) price ceiling, at or below
B) price ceiling; above
C) price floor; above
D) price ceiling; below

34)

Answer: B
35) A surplus will occur if a ________ is set ________ the equilibrium price.
A) price floor; above
B) price ceiling; below
C) price ceiling; above
D) price floor; below

35)

Answer: A
36) The government imposes a maximum price on apartments that is BELOW the equilibrium price.
You accurately predict that
A) the law will create a surplus of apartments.
B) renters will find that landlords start offering to furnish the apartments.
C) the law will have no economic impact.
D) landlords are less likely to do routine maintenance work in the apartments.

36)

Answer: D
37) The type of non-price rationing that most closely approaches the market outcome is
A) coupon rationing with coupons that cannot be resold.
B) first-come, first-served basis or queuing.
C) coupon rationing with coupons that can be resold.
D) favored customer rationing.
Answer: C

37)

38) The government imposes a price ceiling on heating oil that is below the market price. The rationing
scheme that will minimize the misallocation of resources would be
A) using rationing coupons that cannot be resold.
B) using rationing on a first-come, first-served basis.
C) using rationing only on weekdays.
D) using rationing coupons that can be resold.

38)

Answer: D
39) The government imposes a price floor on wheat that is below the market price. You are asked to
suggest a rationing scheme that will minimize the misallocation of resources. You suggest
A) that no rationing system will be necessary.
B) using rationing coupons that cannot be resold.
C) using a queuing system to compensate for the excess demand.
D) using rationing coupons that can be resold.

39)

Answer: A
40) Laura is scalping tickets for a Laker's game. She can sell her tickets for at least a normal profit
A) when prices are too high.
B) only when there is excess supply.
C) any time the Lakers are popular.
D) when the price set by the Lakers is less than the market equilibrium price.

40)

Answer: D
41) Related to the Economics in Practice on p. 81: If the supply of lobsters increases and the demand for
lobsters increases, the equilibrium price for lobsters ________ and the equilibrium quantity of
lobsters ________.
A) may increase, decrease, or stay the same; will increase
B) will decrease; may increase, decrease, or stay the same
C) may increase; decrease, or stay the same; may increase, decrease, or stay the same
D) will increase; will increase

41)

Answer: A
42) Related to the Economics in Practice on p. 81: If the supply of lobsters increased and the equilibrium
price of lobsters increases, the demand for lobsters ________ and total revenue from the sale of
lobsters ________.
A) may have increased, decreased, or stayed the same; will increase
B) increased; may increase, decrease, or stay the same
C) increased; will increase
D) may have increased; decreased, or stayed the same; may increase, decrease, or stay the same

42)

Answer: C
43) Related to the Economics in Practice on p. 87: The true cost of the Shakespeare in the Park tickets is
A) $0 plus the opportunity cost of the time spent in line.
B) zero.
C) the cost to put on the performance.
D) the additional cost to the city of extra security.
Answer: A

43)

44) Related to the Economics in Practice on p. 87: The initial price of $0 for the Shakespeare in the Park
tickets is akin to the city of New York ________ the tickets.
A) issuing ration coupons for
B) issuing a price floor on
C) assigning favored customer status for
D) issuing a price ceiling on

44)

Answer: D
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
45) Goods are allocated in a market system by nonprice rationing.
Answer:

True

False

46) In the short run, nonprice rationing will happen whenever there is excess demand in a market.
Answer:

True

True

47)

False

48) With nonprice rationing, those who are both able and willing to pay for a product necessarily get
the product.
Answer:

True

True

True

True

True

52)

False

53) Ration coupons are tickets or coupons that give someone a right to purchase a certain amount of a
product during a specific period of time.
Answer:

True

51)

False

52) Queuing is a system of nonprice rationing.

50)

False

51) In a "black market", goods are traded at the same prices as they would be in a normal market.
Answer:

49)

False

50) A surplus exists when there is excess demand in a market.

48)

False

49) Establishing a list of favored customers is an alternative rationing mechanism to price rationing.
Answer:

46)

False

47) When supply is fixed, price is demand determined.

45)

False

53)

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
Refer to the information provided in Figure 4.4 below to answer the questions that follow.

Figure 4.4

54) Refer to Figure 4.4. At the world price of ________ per barrel of oil, the United States imports 6
million barrels of oil per day.
A) $100
B) $125
C) $150
D) >$150

54)

Answer: B
55) Refer to Figure 4.4. The United States will import 2 million barrels of oil per day if a ________ per
barrel tax is levied on imported oil.
A) $25
B) $50
C) $100
D) $150

55)

Answer: A
56) Refer to Figure 4.4. The price of oil in the United States would be $125 per barrel, and the United
States would import 6 million barrels of oil per day if the United States levies ________ per barrel
tax on imported oil.
A) no
B) a $25
C) a $50
D) a $100

56)

Answer: A
57) Refer to Figure 4.4. Assume that initially there is free trade. The price of oil in the United States will
increase to $150 per barrel if the United States then imposes ________ tax per barrel of imported oil.
A) no
B) a $25
C) a $50
D) a $100

57)

Answer: B
58) Refer to Figure 4.4. Assume that initially there is free trade. Tax revenue of $ 50 million per day will
be generated if the United States imposes a ________ tax per barrel on imported oil.
A) $25
B) $50
C) $100
D) $150

58)

Answer: A
59) Refer to Figure 4.4. Assume that initially there is free trade. If the United States allowed drilling for
more oil in the Gulf of Mexico, it could
A) decrease the demand for domestic oil.
B) reduce the supply of domestic oil.
C) increase the domestic price of oil.
D) reduce U.S. oil imports without a tax.
Answer: D
9

59)

Refer to the information provided in Figure 4.5 below to answer the questions that follow.

Figure 4.5

60) Refer to Figure 4.5. The United States imports 9 million CD-Rom drives at a world price of
________ per CD-Rom drive.
A) $15
B) $25
C) between $15 and $25
D) >$25

60)

Answer: A
61) Refer to Figure 4.5. The United States will import 3 million CD-Rom drives if ________ tax per
CD-Rom drive is levied on imported CD-Rom drives.
A) no
B) a $10
C) a $15
D) a $25

61)

Answer: B
62) Refer to Figure 4.5. The price of CD-Rom drives in the United States would be $15 per CD-Rom
drive, and the United States would import 9 million CD-Rom drives if the United States imposed
________ tax per CD-Rom drive on imported CD-Rom drives.
A) no
B) a $10
C) a $15
D) a $25

62)

Answer: A
63) Refer to Figure 4.5. Assume that initially there is free trade. The quantity demanded of CD-Rom
drives will be reduced by 3 million CD-Rom drives if the United States imposes ________ tax per
CD-Rom drive on imported CD-Rom drives.
A) no
B) a $10
C) a $15
D) a $25

63)

Answer: B
64) Refer to Figure 4.5. Assume that initially there is free trade. The quantity of CD-Rom drives
supplied by U.S. firms will increase by 3 million CD-Rom drives if the United States then imposes
________ tax per CD-Rom drive on imported CD-Rom drives.
A) no
B) a $10
C) a $15
D) a $25

64)

Answer: B
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
65) A U.S. import fee on steel would reduce imports and lower the price of U.S. steel products.
Answer:

True

False
10

65)

66) A U.S. import fee on steel would increase the domestic quantity of steel demanded.
Answer:

True

False

67) A U.S. import fee on steel would increase the domestic quantity of steel supplied.
Answer:

True

66)

67)

False

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
68) The difference between current market price and full costs of production for the firm is known as
A) consumer surplus.
B) market surplus.
C) nonprice surplus.
D) producer surplus.

68)

Answer: D
69) The difference between the maximum a person is willing to pay and current market price is known
as
A) market surplus.
B) nonprice surplus.
C) producer surplus.
D) consumer surplus.

69)

Answer: D
70) If the most someone is willing to pay for an airline ticket to Las Vegas is $300 and the market price
of the ticket is $200, then this buyer will get consumer surplus of
A) $100.
B) $200.
C) $300.
D) $500.

70)

Answer: A
71) The market price of a bowling ball is $125 and the full cost of producing it is $35, then a bowling
ball producing firm gets producer surplus of
A) $35.
B) $90.
C) $125.
D) $160.
Answer: B

11

71)

Refer to the information provided in Figure 4.6 below to answer the questions that follow.
Equilibrium in this market occurs at the intersection of curves S and D.

Figure 4.6

72) In figure 4.6 the area of [A + B + C] represents

72)

Answer: B
73) In figure 4.6 the area of [E + F + G] represents
A) consumer surplus plus producer surplus.
B) consumer surplus minus producer surplus.
C) producer surplus.
D) consumer surplus.

73)

Answer: C
74) In figure 4.6, consumer surplus is area [A + B + E] if price is
A) P1.
B) P2.
C) P3.

D) above P3.

74)

Answer: A
75) In figure 4.6, producer surplus is area G if price is
A) below P1.
B) P1.

C) P2.

D) P3.

75)

Answer: B
76) In figure 4.6 the deadweight loss due to under production is area [C + F] if price is
A) P1.
B) P2.
C) P3.
D) > P3.

76)

Answer: A
77) In figure 4.6 producer surplus changes by the area [E + F] if price goes from equilibrium to
A) P1.
B) P3.
C) < P1.
D) > P3.
Answer: A

12

77)

78) In figure 4.6 consumer surplus changes by the area [E - C] if price goes from equilibrium to
A) P1.
B) P3.
C) < P1.
D) > P3.

78)

Answer: A
79) The total of consumer plus producer surplus is ________ at the market equilibrium.
A) negative
B) smallest
C) zero
D) greatest

79)

Answer: D
80) A deadweight loss occurs ________ in a market.
A) when there is efficient production
B) only when there is underproduction
C) when there is underproduction or overproduction
D) only when there is overproduction

80)

Answer: D
TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.
81) Producer surplus is the difference between the most a person is willing to pay and market price.
Answer:

True

False

82) Producer surplus describes a situation in which there is excess quantity demanded.
Answer:

True

True

True

True

True

85)

False

86) The total of producer and consumer surplus is maximized when there is overproduction.
Answer:

84)

False

85) The total of consumer plus producer surplus is at a minimum at the market equilibrium.
Answer:

83)

False

84) A firm that sells a motorcycle for $15,000 also gets producer surplus of $15,000.
Answer:

82)

False

83) If someone is willing to pay $800 to go to the World Cup but can buy a ticket for $500, they will get
$300 in consumer surplus.
Answer:

81)

False

13

86)