Question 1

Farm price supports:

Accepted Answer

A)   reduce food prices.
B)   can lead to food shortages.
C)   can lead to an excess supply of supported farm products.
D)   can decrease food supply.E) All of the above
F) A) and B)

Question 2

Markets operate the most efficiently when external costs are maximized.

Accepted Answer

A) True 
 B)False

Question 3

An example of production that provides an external benefit is a homeowner planting a beautiful flower garden by the street.

Accepted Answer

A) True 
 B)False

Question 4

A market with external costs:

Accepted Answer

A)   tends to overproduce goods.
B)   usually collapses.
C)   produces the socially desirable output.
D)   tends to underproduce goods.E) None of the above
F) B) and C)

Question 5

(Figure: Determining Surplus and Loss)  Consider the graph. If the price is lowered from $8 to $5, producer surplus:

Accepted Answer

A)   increases by $190 and deadweight loss increases by $30.
B)   increases by $50 and deadweight loss increases by $70.
C)   decreases by $190 and deadweight loss increases by $30.
D)   decreases by $90 and deadweight loss increases by $70.E) B) and C)
F) A) and B)

Question 6

Producer surplus is shown graphically as the area:

Accepted Answer

A)   under the demand curve and above the market price.
B)   under the demand curve and below the market price.
C)   above the supply curve and above the market price.
D)   above the supply curve and below the market price.E) B) and C)
F) None of the above

Question 7

Which of the following could keep a market from ending up in equilibrium?

Accepted Answer

A)   Buyers have inadequate information about products.
B)   Sellers have adequate information about products.
C)   Buyers have realistic expectations about market prices.
D)   Sellers have accurate expectations about market behavior.E) A) and B)
F) A) and C)

Question 8

Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, producer surplus is $4.

Accepted Answer

A) True 
 B)False

Question 9

Which activity does NOT typically generate an external cost?

Accepted Answer

A)   air pollution
B)   traffic congestion
C)   public education
D)   warE) A) and C)
F) B) and C)

Question 10

A legal maximum price that can be charged for a product or service is known as a(n) :

Accepted Answer

A)   price ceiling.
B)   price floor.
C)   illegitimate price.
D)   non-agreed price.E) C) and D)
F) A) and B)

Question 11

Implementing a price floor can cause:

Accepted Answer

A)   a shortage.
B)   poverty.
C)   a surplus.
D)   scarcity.E) None of the above
F) B) and D)

Question 12

A price floor usually results in a:

Accepted Answer

A)   shortage and a misallocation of resources.
B)   surplus and a misallocation of resources.
C)   shortage and no misallocation of resources.
D)   surplus and no misallocation of resources.E) B) and C)
F) A) and D)

Question 13

(Figure: Determining Surplus)  In the graph, what is the formula for consumer surplus?

Accepted Answer

A)   (h - j)  × (k - i) 
B)   (i - j)  × (k - i) 
C)   0.5 × (h - i)  × (k-i) 
D)   0.5 × (h - j)  × (k-i) E) A) and B)
F) A) and C)

Question 14

(Figure: Determining Surplus 6)  The maximum possible total surplus is:

Accepted Answer

A)   $10,000.
B)   $20,000.
C)   $40,000.
D)   $80,000.E) C) and D)
F) B) and D)

Question 15

(Figure: Determining Surplus and Loss)  In the graph, which price would allow for an effective price floor?

Accepted Answer

A)   $0
B)   $5
C)   $8
D)   $12E) A) and D)
F) All of the above

Question 16

Consumer surplus is the difference between what the consumer is willing to pay and the market price.

Accepted Answer

A) True 
 B)False

Question 17

An effective price ceiling occurs at a price _____ the equilibrium price and causes a _____.

Accepted Answer

A)   below; shortage
B)   below; surplus
C)   above; shortage
D)   above; surplusE) A) and C)
F) All of the above

Question 18

(Figure: Determining Surplus and Loss)  In the graph, if the government sets a price of $5, there is a:

Accepted Answer

A)   shortage of 20 units.
B)   surplus of 20 units.
C)   shortage of 40 units.
D)   surplus of 40 units.E) A) and D)
F) C) and D)

Question 19

(Figure: Understanding Price Ceilings and Floors)  In the graph, if the government sets a price of $75, there is a:

Accepted Answer

A)   shortage of 600 units.
B)   surplus of 600 units.
C)   shortage of 800 units.
D)   surplus of 800 units.E) A) and B)
F) C) and D)

Question 20

(Figure: Determining Surplus and Loss) In the graph, a price of $8 would allow for an effective price floor.

Accepted Answer

A) True 
 B)False

Exam 4: Markets and Government

(Figure: Determining Surplus) In the graph, what is the formula for consumer surplus?

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Markets operate the most efficiently when external costs are maximized.

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(Figure: Determining Surplus and Loss) In the graph, a price of $8 would allow for an effective price floor.

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Producer surplus is shown graphically as the area:

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Suppose that a customer's willingness to pay for a product is $79, and the seller's willingness to sell is $64. If the negotiated price is $68, producer surplus is $4.

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An example of production that provides an external benefit is a homeowner planting a beautiful flower garden by the street.

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(Figure: Determining Surplus and Loss) In the graph, if the government sets a price of $5, there is a:

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(Figure: Determining Surplus 6) The maximum possible total surplus is:

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An effective price ceiling occurs at a price _____ the equilibrium price and causes a _____.

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Consumer surplus is the difference between what the consumer is willing to pay and the market price.

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Which of the following could keep a market from ending up in equilibrium?

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(Figure: Understanding Price Ceilings and Floors) In the graph, if the government sets a price of $75, there is a:

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A market with external costs:

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(Figure: Determining Surplus and Loss) In the graph, which price would allow for an effective price floor?

Correct AnswerverifiedShow Answer

A legal maximum price that can be charged for a product or service is known as a(n) :

Correct AnswerverifiedShow Answer

(Figure: Determining Surplus and Loss) Consider the graph. If the price is lowered from $8 to $5, producer surplus:

Correct AnswerverifiedShow Answer

Farm price supports:

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Implementing a price floor can cause:

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A price floor usually results in a:

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Which activity does NOT typically generate an external cost?

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An effective price ceiling occurs at a price _ the equilibrium price and causes a _.

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