Name:    Quiz #3 PRACTICE: micro Markets

Multiple Choice
Identify the choice that best completes the statement or answers the question.

Exhibit 3-1

1.

Refer to Exhibit 3-1. Equilibrium price and quantity are
 a. \$2 and 250 units. b. \$4 and 150 units. c. \$2 and 150 units. d. \$6 and 250 units. e. none of the above

2.

Refer to Exhibit 3-1. If the market price were \$2, the shortage would equal
 a. 350 units. b. 200 units. c. 150 units. d. There is no shortage at \$2.

3.

Refer to Exhibit 3-1. In the past, the government decided that the number of producers in this market was growing too fast and that the producers were engaging in “wasteful overproduction”.  So, the government created a quota-and-licensing system that licensed the existing producers and limited them to a total market production of 150 units.  The graph represents supply and demand today.  The price and quantity sold, given today’s supply, demand, and the government’s quota, is
 a. \$2 and 250 units. b. \$4 and 150 units. c. \$2 and 150 units. d. \$6 and 150 units. e. none of the above

4.

Refer to Exhibit 3-1. In the past, the government decided that the number of producers in this market was growing too fast and that the producers were engaging in “wasteful overproduction”.  So, the government created a quota-and-licensing system that licensed the existing producers and limited them to a total market production of 150 units.  The graph represents supply and demand today.  The effect of the quota on producers is that today they sell each unit for
 a. \$6, which is the minimum they are willing to accept for this quantity. b. \$4, which is the minimum they are willing to accept for this quantity. c. \$2, which is the minimum they are willing to accept for this quantity. d. \$6, which is \$4 above the minimum they are willing to accept and results in extra profits. e. \$4, which is \$2 above the minimum they are willing to accept and results in extra profits.

Figure 03-01

5.

Refer to Exhibit 3-1. A shift from demand curve D to D' illustrates a(n)
 a. decrease in demand b. decrease in quantity demanded c. increase in quantity demanded d. increase in demand e. increase in supply

6.

Refer to Exhibit 3-1. The shift in the market  demand curve from  D to D' could have been the result of
 a. an increase in the price of a complement good b. a decrease in income(s) c. an improvement in the techonology for producing this good d. an increase in the number of consumers in this market e. the good no longer being perceived as useful or fashionable by consumers

7.

A price ceiling set below the equilibrium price will result in a shortage.
 a. True b. False

8.

Which of the following is correct when a price floor is set above the equilibrium price?
 a. quantity supplied is less than quantity demanded at the set price b. quantity supplied is equal to quantity demanded at the set price c. at the set price there will be a shortage d. The market price is greater than the price floor e. quantity supplied exceeds quantity demanded at the set price

9.

If the minimum wage law sets a wage floor above the equilibrium wage in the unskilled labor market,
 a. the minimum wage will create a surplus of labor. b. the minimum wage will create a shortage of labor. c. the minimum wage will not affect the labor market. d. the labor market will change, but we cannot be certain how.

10.

Suppose the current equilibrium price of pizza is \$5. If the government decides the price of pizza cannot rise above \$4, the result of this policy would be
 a. a shortage b. a surplus c. that the market would remain in equilibrium but with a larger quantity bought and sold than at \$5 d. at the \$4 price, the quantity sold would be greater than the quantity bought e. a shift of demand to the right

11.

If the government imposes a ceiling price on apartment rents, we would expect to observe all of the following except one. Which is the exception?
 a. an increase in the number of new apartment complexes being built b. long waiting lists for apartment seekers c. lower maintenance of existing apartments d. conversion of some apartment complexes to condos e. a shortage

12.

Exhibit 0026 depicts the milk market. The horizontal line, P, represents a price ceiling imposed by the government. Which of the following is true?
 a. At equilibrium, the quantity demanded is 800 gallons. b. At the price ceiling, there is a surplus. c. The quantity demanded at the price ceiling will equal the quantity supplied. d. The equilibrium price would be \$1 without the price ceiling. e. The quantity supplied at the price ceiling will be the quantity sold.

13.

Exhibit 0026 depicts the milk market. The horizontal line, P, represents a price ceiling imposed by the government. Which of the following is true?
 a. At equilibrium (ignoring the ceiling) the quantity demanded is 700 gallons. b. At the price ceiling, there is a surplus. c. The quantity demanded at the price ceiling will equal the quantity supplied. d. The equilibrium price would be \$1 without the price ceiling. e. The quantity supplied at the price ceiling will equal the quantity demanded.

14.

In Exhibit 0026, which of the following is true at the price ceiling, P?
 a. The excess quantity supplied equals 300 gallons. b. The excess quantity demanded equals 300 gallons. c. The excess quantity supplied equals 500 gallons. d. The excess quantity demanded equals 800 gallons. e. Sales will be equal to 800 gallons.

15.

Suppose a market is in equilibrium and then a price ceiling is established below the equilibrium price. Which of the following will happen?
 a. quantity demanded will decrease b. a surplus will develop c. a shortage will develop d. the quantity sold will rise e. the market will remain in equilibrium

16.

If a quota is established in a market and has an effect, then compared to the equilibrium,
 a. price will be higher and quantity lower b. the license or right-to-produce will itself be valuable c. the producers will earn extra profits d. consumers will have to get by with a  lesser amount produced e. all of the above

17.

If an increase in income results in an increase in the demand for eggs, then
eggs are
 a. a discretionary good. b. a luxury good. c. a normal good. d. an essential good.

18.

Which of the following is the best example of complements?
 a. milk and water b. coffee and tea c. rice and potatoes d. hiking boots and athletic shoes e. tortilla chips and salsa

19.

Which of the following is most likely to be an inferior good?
 a. airline travel b. restaurant meals c. a subscription to the Wall Street Journal d. soft drinks e. used clothing

20.

A demand curve shows how quantity demanded changes with price. This implies that
 a. only price shifts a demand curve b. everything else that affects demand is held constant c. quantity demanded is unrelated to price d. economists are concerned only with money e. it is impossible to show how anything but price affects demand

21.

Movements along a demand curve are called changes in
 a. demand b. opportunity costs c. quantity demanded d. the substitution effect e. preferences

22.

Figure 2.1 shows the market for MP3 players.  According to this diagram, what is the quantity demanded for MP3 players if the price of MP3 players is \$300?
 a. 1 thousand b. 2 thousand c. 3 thousand d. 4 thousand

23.

If the price of a good rises, producers are likely to
 a. devote more resources to producing the product since it will be more profitable to do so. b. be willing to sell less of the good. c. be unaffected. d. All of the above

24.

Figure 2.5 shows the market for beef.  According to the diagram, how many pounds of beef will be sold at equilibrium?
 a. 4 thousand b. 3 thousand c. 2 thousand d. 1 thousand

25.

Figure 2.5 shows the market for beef.  If the price of beef is \$3.00,
 a. This will lead to a shortage of beef. b. The quantity of beef demanded will exceed the quantity supplied. c. An increase in the demand for beef. d. The price will eventually fall because the sellers want to sell more beef than the  buyers are willing to buy at this price.

26.

The equilibrium point represents the only price-quantity combination in a market that
 a. causes both buyers and sellers to agree to a price increase b. causes both buyers and sellers to agree to a price decrease c. exactly matches the independent plans of buyers and sellers d. allows buyers to purchase what they want e. allows sellers to earn a profit

27.

When a market is in equilibrium,
 a. producers earn profits b. the minimum possible price is achieved c. there is no incentive for consumers or producers to change their current behavior d. excess demand is less than excess supply e. the maximum possible price is achieved

28.

If the price of the good described in Exhibit 0023 is \$1.20, then there is a
 a. shortage of 30 units b. surplus of 30 units c. shortage of 60 units d. surplus of 60 units e. surplus of 20 units

29.

If the price of the good described in Exhibit 0023 is \$1.60, then there is a
 a. shortage of 30 units b. surplus of 30 units c. shortage of 20 units d. surplus of 20 units e. surplus of 10 units

30.

If the price of a good is lower than the equilibrium price, this leads to:
 a. A shortage b. A surplus. c. Excess supply d. Both b) and c)

31.

The ability of markets to move toward a new equilibrium following a disturbance is an example of economic coordination through
 a. Central planning b. Government policy c. Spontaneous order created by market forces. d. Price floor.

32.

Which of the following would cause both the equilibrium price and equilibrium quantity of cookies to decrease? (hint: first determine whether a shift in demand or a shift in supply would lower price AND quantity)
 a. a rise in the price of milk (a complement) b. a rise in consumer incomes c. a rise in the price of cookie dough d. a drop in the price of cookie dough e. a rise in the price of crackers (a substitute)

33.

Attempts are being made to develop a biodegradable plastic using agricultural produce such as potatoes. If these attempts are successful, what will happen to the equilibrium price and quantity of potatoes?
 a. Price will increase and quantity decrease. b. Price will increase and quantity increase. c. Price will decrease and quantity increase. d. Price will decrease and quantity decrease. e. No change in equilibrium price and quantity will occur.

Exhibit 3-7

34.

Refer to Exhibit 3-7. A decrease in the price of a resource that is necessary for the production of good X causes
 a. the supply of good X to shift from S1 to S2. b. the supply of good X to shift from S1 to S3. c. a movement along S1 from point A to point B. d. a movement along S1 from point A to point C. e. no change in the supply of good X.