Question 1

A $30 maximum price on an automobile inspection is an example of:

Accepted Answer

A)   a price ceiling.
B)   a price floor.
C)   rent control.
D)   laissez-faire.

Question 2

Suppose that a customer's willingness to pay for a product is $1,480, and the seller's willingness to sell is $1,210. If the negotiated price is $1,300, how much is producer surplus?

Accepted Answer

A)   $90
B)   $210
C)   $220
D)   $270

Question 3

Mike really enjoys Bitter Sweet coffee and is willing to pay $10 per cup. The retail price is $3. Which of the following is correct?

Accepted Answer

A)   Mike's consumer surplus is $10 per cup.
B)   Mike has a consumer surplus of $7 per cup.
C)   The seller can raise the price to $13 and still make a sale to Mike.
D)   Mike is getting a poor deal on the coffee.

Question 4

Community fire departments put out fires in a community. Is this service a public good?

Accepted Answer

A)   Yes, it is a public good, because it is provided by the government and all citizens are served and protected from fires.
B)   Yes, it is a public good, because everyone receives the protection, and fires create externalities.
C)   No, it is not a public good, because the service could be provided only to those who pay and a fireman cannot put out more than one fire at a time.
D)   No, it is not a public good, because every community has its own fire department and each fire needs to be put out separately.

Question 5

A $20 minimum fare in a market for taxi service is an example of:

Accepted Answer

A)   a price ceiling.
B)   a price floor.
C)   rent control.
D)   laissez-faire.

Question 6

(Figure: Understanding Price Ceilings and Floors) In the graph, if the government sets a price of $25, there is a surplus of 600 units.

Accepted Answer

A) True 
 B)False

Question 7

(Figure: Understanding Price Ceilings and Floors) In the graph, a price of $10 would allow for an effective price ceiling.

Accepted Answer

A) True 
 B)False

Question 8

Implementing a price ceiling can cause:

Accepted Answer

A)   a shortage.
B)   poverty.
C)   a surplus.
D)   scarcity.

Question 9

If the price of a good is higher than the equilibrium price:

Accepted Answer

A)   consumer surplus is decreased and deadweight loss is increased.
B)   consumer surplus is increased and deadweight loss is decreased.
C)   producer surplus is decreased and deadweight loss is increased.
D)   producer surplus is decreased and deadweight loss is decreased.

Question 10

(Figure: Determining Surplus 3)  In the graph, producer surplus equals ________.

Accepted Answer

A)   $60
B)   $140
C)   $200
D)   $280

Question 11

Consumer 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.

Question 12

(Figure: Determining Total Surplus)  In the graph, total consumer surplus is shown by area:

Accepted Answer

A)   acdf.
B)   bcde.
C)   bce.
D)   abe.

Question 13

A price ceiling usually results in a surplus and a misallocation of resources.

Accepted Answer

A) True 
 B)False

Question 14

At the equilibrium price, all consumers who want to buy a good at that price are able to find a seller willing to sell at that price.

Accepted Answer

A) True 
 B)False

Question 15

The measure of society's benefits due to a market transaction is called:

Accepted Answer

A)   consumer surplus.
B)   deadweight loss.
C)   producer surplus.
D)   total surplus.

Question 16

When a good has an external cost, the market is said to:

Accepted Answer

A)   fail because it under-produces the good.
B)   fail because it over-produces the good.
C)   be in equilibrium because the external costs have no price.
D)   be useless.

Question 17

Suppose the equilibrium price of carrots is $1. The price floor instituted by the government is $1.50. Based on this information, which of the following would you expect to take place in the market?

Accepted Answer

A)   We would expect to see a surplus of carrots.
B)   There would be a shortage of carrots.
C)   Farmers would switch from growing carrots to growing potatoes.
D)   The price floor would have no impact on the market because it is higher than equilibrium price.

Question 18

(Figure: Determining Surplus and Loss)  In the graph, if the government sets a price of $12, this is an example of an:

Accepted Answer

A)   effective price ceiling.
B)   effective price floor.
C)   efficient price ceiling.
D)   efficient price floor.

Question 19

Price ceilings:

Accepted Answer

A)   are effective when the market price is below the ceiling.
B)   create a surplus.
C)   usually result in a shortage of the product in the market.
D)   are exemplified by minimum wage laws.

Question 20

(Figure: Understanding Price Ceilings and Floors)  In the graph, which price would NOT allow for an effective price ceiling?

Accepted Answer

A)   $10
B)   $20
C)   $25
D)   $75

Exam 4: Markets and Government

(Figure: Determining Total Surplus) In the graph, total consumer surplus is shown by area:

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A $30 maximum price on an automobile inspection is an example of:

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Consumer surplus is shown graphically as the area:

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A price ceiling usually results in a surplus and a misallocation of resources.

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Community fire departments put out fires in a community. Is this service a public good?

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Mike really enjoys Bitter Sweet coffee and is willing to pay $10 per cup. The retail price is $3. Which of the following is correct?

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When a good has an external cost, the market is said to:

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(Figure: Understanding Price Ceilings and Floors) In the graph, if the government sets a price of $25, there is a surplus of 600 units.

Correct AnswerverifiedShow Answer

(Figure: Understanding Price Ceilings and Floors) In the graph, which price would NOT allow for an effective price ceiling?

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(Figure: Understanding Price Ceilings and Floors) In the graph, a price of $10 would allow for an effective price ceiling.

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The measure of society's benefits due to a market transaction is called:

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A $20 minimum fare in a market for taxi service is an example of:

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Suppose the equilibrium price of carrots is $1. The price floor instituted by the government is $1.50. Based on this information, which of the following would you expect to take place in the market?

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Implementing a price ceiling can cause:

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At the equilibrium price, all consumers who want to buy a good at that price are able to find a seller willing to sell at that price.

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(Figure: Determining Surplus 3) In the graph, producer surplus equals ________.

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Price ceilings:

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If the price of a good is higher than the equilibrium price:

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(Figure: Determining Surplus and Loss) In the graph, if the government sets a price of $12, this is an example of an:

Correct AnswerverifiedShow Answer

Suppose that a customer's willingness to pay for a product is $1,480, and the seller's willingness to sell is $1,210. If the negotiated price is $1,300, how much is producer surplus?

Correct AnswerverifiedShow Answer

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