Econ 110: Practice 1 – Flashcards
Unlock all answers in this set
Unlock answersquestion
In a competitive market free of government regulation, A. price adjusts until quantity demanded is less than quantity supplied. B. price adjusts until quantity demanded equals quantity supplied. C. price adjusts until quantity demanded is greater than quantity supplied. D. supply adjusts to meet demand at every price.
answer
a
question
Which of the following is not a function of prices in a market system? A. Prices send signals to buyers and sellers to help them make rational economic decisions. B. Prices have the crucial job of balancing supply and demand. C. Prices ensure an equal distribution of goods and services among consumers. D. Prices coordinate economic activity.
answer
c
question
Rent-control laws dictate A. a minimum rent that landlords may charge tenants. B. a maximum rent that landlords may charge tenants. C. the exact rent that landlords must charge tenants. D. both a minimum rent and a maximum rent that landlords may charge tenants.
answer
b
question
A price ceiling is A. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling. B. a legal maximum on the price at which a good can be sold. C. often imposed on markets in which "cutthroat competition" would prevail without a price ceiling. D. All of the above are correct.
answer
b
question
If a price ceiling is not binding, then A. the market will be less efficient than it would be without the price ceiling. B. there will be a surplus in the market. C. there will be no effect on the market price or quantity sold. D. there will be a shortage in the market.
answer
c
question
When a free market for a good reaches equilibrium, anyone who is willing and able to pay the market price can buy the good. a. TRUE b. FALSE
answer
a
question
Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct? A. This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume. B. The effective price received by sellers is $0.40 per bottle less than it was before the tax. C. Sixty percent of the burden of the tax falls on sellers. D. All of the above are correct.
answer
b
question
When a binding price ceiling is imposed on a market, A. all buyers benefit. B. the quantity supplied at the price ceiling exceeds the quantity that would have been supplied without the price ceiling. C. price no longer serves as a rationing device. D. All of the above are correct.
answer
c
question
If a tax is levied on the sellers of a product, then the supply curve will A. shift up. B. not shift. C. shift down. D. become flatter
answer
a
question
A price ceiling set below the equilibrium price causes quantity demanded to exceed quantity supplied. a. TRUE b. FALSE
answer
a
question
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.
answer
b
question
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 removed from a market. D. binding price ceiling is imposed on a market.
answer
d
question
All buyers benefit from a binding price ceiling. a. TRUE b. FALSE
answer
b
question
Which of the following would not interfere with market equilibria? A. a minimum wage B. a binding price ceiling C. a non-binding price floor D. a rent control
answer
c
question
Advocates of the minimum wage A. deny that the minimum wage produces any adverse effects. B. emphasize the low annual incomes of those who work for the minimum wage. C. emphasize the benefits to teenagers of increases in the minimum wage. D. All of the above are correct.
answer
b
question
Opponents of the minimum wage point out that the minimum wage A. encourages teenagers to drop out of school. B. contributes to the problem of unemployment. C. prevents some workers from getting needed on-the-job training. D. All of the above are correct.
answer
d
question
The maximum price that a buyer will pay for a good is called A. willingness to pay. B. consumer surplus. C. efficiency. D. equilibrium.
answer
a
question
Inefficiency can be caused in a market by the presence of A. market power. B. imperfectly competitive markets. C. externalities. D. All of the above are correct.
answer
d
question
Welfare economics is the study of A. taxes and subsidies. B. how the allocation of resources affects economic well-being. C. government welfare programs for needy people. D. how technology is best put to use in the production of goods and services.
answer
b
question
Total surplus A. is the value to buyers minus the cost to sellers. B. can be used to measure a market's efficiency. C. is the sum of consumer and producer surplus. D. All of the above are correct.
answer
d
question
A seller is willing to sell a product only if the seller receives a price that is at least as great as the A. average willingness to pay of buyers of the product. B. seller's cost of production. C. seller's profit. D. seller's producer surplus.
answer
b
question
Market failure is the inability of A. some unregulated markets to allocate resources efficiently. B. buyers to interact harmoniously with sellers in the market. C. a market to establish an equilibrium price. D. buyers to place a value on the good or service.
answer
a
question
When markets fail, public policy can A. always remedy the problem and increase economic efficiency. B. do nothing to improve the situation. C. potentially remedy the problem and increase economic efficiency. D. in theory, remedy the problem, but in practice, public policy has proven to be ineffective.
answer
c
question
One of the basic principles of economics is that markets are usually a good way to organize economic activity. This principle is explained by the study of A. welfare economics. B. labor economics. C. factor markets. D. energy markets.
answer
a
question
Consumer surplus A. is the amount a buyer pays for a good minus the amount the buyer is willing to pay for it. B. measures the benefit buyers receive from participating in a market. C. measures the benefit sellers receive from participating in a market. D. is represented on a supply-demand graph by the area below the price and above the demand curve.
answer
b
question
The particular price that results in quantity supplied being equal to quantity demanded is the best price because it A. maximizes the combined welfare of buyers and sellers. B. maximizes costs of the seller. C. minimizes the expenditure of buyers. D. maximizes tax revenue for the government.
answer
a
question
Consumer surplus is the A. amount a consumer pays minus the amount the consumer is willing to pay. B. amount of a good consumers get without paying anything. C. value of a good to a consumer. D. amount a consumer is willing to pay minus the amount the consumer actually pays.
answer
d
question
Tomato sauce and spaghetti noodles are complementary goods. A decrease in the price of tomatoes will A. decrease consumer surplus in the market for tomato sauce and decrease producer surplus in the market for spaghetti noodles. B. increase consumer surplus in the market for tomato sauce and decrease producer surplus in the market for spaghetti noodles. C. decrease consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles. D. increase consumer surplus in the market for tomato sauce and increase producer surplus in the market for spaghetti noodles.
answer
d
question
The Surgeon General announces that eating apples promotes healthy teeth. As a result, the equilibrium price of apples A. increases, and producer surplus increases. B. increases, and producer surplus decreases. C. decreases, and producer surplus decreases. D. decreases, and producer surplus increases.
answer
a
question
The welfare of sellers is measured by A. total surplus. B. price. C. producer surplus. D. consumer surplus.
answer
c
question
Which of the following will cause a decrease in consumer surplus? A. sellers expect the price of the good to be lower next month B. a decrease in the production cost of the good C. the imposition of a binding price floor in the market D. an increase in the number of sellers of the good
answer
c
question
Laissez-faire is a French expression which literally means A. whatever works. B. to get involved. C. allow them to do. D. to make do.
answer
c
question
The price elasticity of demand measures how much A. demand responds to a change in supply. B. quantity demanded responds to a change in income. C. quantity demanded responds to a change in price. D. price responds to a change in demand.
answer
c
question
Elasticity is A. the study of how the allocation of resources affects economic well-being. B. the value of everything a seller must give up to produce a good. C. a measure of how much buyers and sellers respond to changes in market conditions. D. the maximum amount that a buyer will pay for a good.
answer
c
question
If the quantity supplied responds only slightly to changes in price, then A. an increase in price will not shift the supply curve very much. B. supply is said to be inelastic. C. even a large decrease in demand will change the equilibrium price only slightly. D. supply is said to be elastic.
answer
b
question
Taxes are costly to market participants because they A. alter incentives. B. distort market outcomes. C. transfer resources from market participants to the government. D. All of the above are correct.
answer
d
question
When a tax is levied on a good, the buyers and sellers of the good share the burden, A. provided the tax is levied on the buyers. B. provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers. C. regardless of how the tax is levied. D. provided the tax is levied on the sellers.
answer
c
question
A tax levied on the sellers of a good shifts the A. demand curve upward (or to the right). B. demand curve downward (or to the left). C. supply curve downward (or to the right). D. supply curve upward (or to the left).
answer
d
question
It does not matter whether a tax is levied on the buyers or the sellers of a good because A. sellers always bear the full burden of the tax. B. buyers and sellers will share the burden of the tax. C. buyers always bear the full burden of the tax. D. None of the above is correct; the incidence of the tax does depend on whether the buyers or the sellers are required to pay the tax.
answer
b
question
The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as A. welfare economics. B. California economics. C. supply-side economics. D. elasticity economics.
answer
c
question
The decrease in total surplus that results from a market distortion, such as a tax, is called a A. wedge loss. B. deadweight loss. C. revenue loss. D. consumer surplus loss.
answer
b
question
Which of the following is a tax on labor? A. Social Security tax B. federal income tax C. Medicare tax D. All of the above are labor taxes.
answer
d
question
Deadweight loss is the A. decline in consumer surplus when a tax is placed on buyers. B. loss of profits to business firms when a tax is imposed. C. decline in government revenue when taxes are reduced in a market. D. decline in total surplus that results from a tax.
answer
d
question
The supply of a good will be more elastic, the A. broader is the definition of the market for the good. B. more the good is considered a luxury. C. longer the time period being considered. D. larger the number of close substitutes for the good.
answer
c
question
If a 15% change in price results in a 20% change in quantity supplied, then the price elasticity of supply is about A. 1.33, and supply is inelastic. B. 1.33, and supply is elastic. C. 0.75, and supply is elastic. D. 0.75, and supply is inelastic.
answer
b
question
If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about A. 0.5, and supply is inelastic. B. 2, and supply is inelastic. C. 0.5, and supply is elastic. D. 2, and supply is elastic.
answer
a
