Question 1

Explain how a price control, such as the minimum wage, can adversely affect low-skilled workers.

Accepted Answer

A minimum legal wage hurts low-skilled w...

Question 2

Consider the market for new homes. Ceteris paribus, which event will cause consumer surplus to increase, assuming the market sells at the equilibrium prices?

Accepted Answer

A)   Burdened with student loan debt, many millennials delay marriage, children, and buying homes.
B)   Tariffs on lumber from Canada increase construction costs.
C)   A new tax law decreases the amount that homeowners can deduct on their mortgages.
D)   Low mortgage interest rates provide an incentive for potential homeowners to buy now.E) A) and B)
F) B) and C)

Question 3

The government often provides funding for the arts when markets do not do so sufficiently. This funding is to overcome which market failure?

Accepted Answer

A)   asymmetric information
B)   negative externalities (external costs) 
C)   positive externalities (external benefits) 
D)   lack of competitionE) A) and C)
F) A) and B)

Question 4

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.E) A) and C)
F) B) and C) B

Question 5

If a price ceiling is set above the equilibrium price in the market, producer surplus will be

Accepted Answer

A)   larger than it would be without the price floor.
B)   smaller than it would be without the price floor.
C)   the same as it would be without the price floor.
D)   impossible to calculate.E) All of the above
F) A) and D) C

Question 6

Suppose that a customer's willingness-to-pay for a product is $5, and the seller's willingness-to-sell is $2. If the negotiated price is $4, producer surplus is greater than consumer surplus.

Accepted Answer

A) True 
 B)False

Question 7

A good example of a government-imposed price floor is

Accepted Answer

A)   rent controls.
B)   supply and demand.
C)   the minimum wage.
D)   the equilibrium price.E) None of the above
F) B) and D)

Question 8

Laissez-faire is a French term that means "let it be."

Accepted Answer

A) True 
 B)False

Question 9

(Figure: Determining Surplus and Loss)  In the graph, producer surplus is _____ in equilibrium and _____ at a price of $12.

Accepted Answer

A)   $0; $210
B)   $160; $40
C)   $120; $170
D)   $120; $210E) C) and D)
F) None of the above

Question 10

Which statement illustrates what an effective price ceiling does to a market price?

Accepted Answer

A)   Like a helium balloon bumps against a room ceiling, unable to rise to the level to which it would go if it were outside, price ceilings hold prices down below equilibrium.
B)   Painting a ceiling white can make it appear higher than it actually is. Price ceilings make a price appear higher than it actually is.
C)   Something attached to the ceiling is higher than it would be if it were set on the floor. Setting a price ceiling makes a price higher than it would be in a free market.
D)   Just like a roof can leak in different places, price ceilings can leak; a market with price ceilings can end up with many different prices at once.E) A) and D)
F) All of the above

Question 11

Which of these would create an external benefit?

Accepted Answer

A)   livestock in your neighbor's backyard
B)   cigar smoke
C)   restoration of a run-down home
D)   a slow car on a busy streetE) A) and B)
F) A) and C)

Question 12

(Figure: Understanding Surplus and Efficiency)  In the graph, what is producer surplus when the market price is $10?

Accepted Answer

A)   $30
B)   $40
C)   $60
D)   $20E) All of the above
F) A) and C)

Question 13

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

Accepted Answer

A)   minimum price the buyer
B)   maximum price the buyer
C)   minimum price the seller
D)   maximum price the sellerE) B) and D)
F) A) and D)

Question 14

Suppose the equilibrium price for a gallon of milk is $2.50, but due to government price supports, the minimum legal price is $2.75 per gallon. This price floor

Accepted Answer

A)   causes a surplus of milk in the market.
B)   causes a shortage of milk in the market.
C)   has no impact on equilibrium in the market.
D)   results in quantity demanded exceeding quantity supplied.E) C) and D)
F) B) and C)

Question 15

Total surplus is calculated as

Accepted Answer

A)   consumer surplus plus market efficiency.
B)   producer surplus plus deadweight loss.
C)   consumer surplus plus deadweight loss.
D)   producer surplus plus consumer surplus.E) B) and D)
F) A) and C)

Question 16

(Figure: Determining Surplus 6)  According to the graph, the maximum possible total surplus is

Accepted Answer

A)   $10,000.
B)   $20,000.
C)   $40,000.
D)   $80,000.E) A) and D)
F) None of the above

Question 17

If a consumer is willing to pay $20 for a pizza, but the price of the pizza is $10, then the amount of consumer surplus resulting from the customer's purchase of that pizza would be

Accepted Answer

A)   $30.
B)   $20.
C)   $10.
D)   There would be no consumer surplus.E) A) and B)
F) B) and C)

Question 18

Use the information in the table to graph the demand curve and the supply curve for cupcakes. Label consumer surplus (CS) and producer surplus (PS). Calculate how much consumer surplus there is in this market and how much producer surplus there is in this market.

Accepted Answer

Consumer surplus = [($1.80 - $1.40) × 4]...

Question 19

It would be difficult for a private firm to make a profit if it produced and sold

Accepted Answer

A)   healthy food.
B)   river levees.
C)   package delivery.
D)   banking services.E) A) and D)
F) B) and D) B

Question 20

Producer surplus is the area

Accepted Answer

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

Exam 4: Markets and Government

Explain how a price control, such as the minimum wage, can adversely affect low-skilled workers.

Correct AnswerverifiedA minimum legal wage hurts low-skilled w...View AnswerShow Answer

Consider the market for new homes. Ceteris paribus, which event will cause consumer surplus to increase, assuming the market sells at the equilibrium prices?

Correct AnswerverifiedShow Answer

The government often provides funding for the arts when markets do not do so sufficiently. This funding is to overcome which market failure?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

If a price ceiling is set above the equilibrium price in the market, producer surplus will be

Correct AnswerverifiedC

Suppose that a customer's willingness-to-pay for a product is $5, and the seller's willingness-to-sell is $2. If the negotiated price is $4, producer surplus is greater than consumer surplus.

Correct AnswerverifiedShow Answer

A good example of a government-imposed price floor is

Correct AnswerverifiedShow Answer

Laissez-faire is a French term that means "let it be."

Correct AnswerverifiedShow Answer

(Figure: Determining Surplus and Loss) In the graph, producer surplus is _____ in equilibrium and _____ at a price of $12.

Correct AnswerverifiedShow Answer

Which statement illustrates what an effective price ceiling does to a market price?

Correct AnswerverifiedShow Answer

Which of these would create an external benefit?

Correct AnswerverifiedShow Answer

(Figure: Understanding Surplus and Efficiency) In the graph, what is producer surplus when the market price is $10?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the equilibrium price for a gallon of milk is $2.50, but due to government price supports, the minimum legal price is $2.75 per gallon. This price floor

Correct AnswerverifiedShow Answer

Total surplus is calculated as

Correct AnswerverifiedShow Answer

(Figure: Determining Surplus 6) According to the graph, the maximum possible total surplus is

Correct AnswerverifiedShow Answer

If a consumer is willing to pay $20 for a pizza, but the price of the pizza is $10, then the amount of consumer surplus resulting from the customer's purchase of that pizza would be

Correct AnswerverifiedShow Answer

Use the information in the table to graph the demand curve and the supply curve for cupcakes. Label consumer surplus (CS) and producer surplus (PS). Calculate how much consumer surplus there is in this market and how much producer surplus there is in this market.

Correct AnswerverifiedConsumer surplus = [($1.80 - $1.40) × 4]...View AnswerShow Answer

It would be difficult for a private firm to make a profit if it produced and sold

Correct AnswerverifiedB

Producer surplus is the area

Correct AnswerverifiedShow Answer

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A minimum legal wage hurts low-skilled w...
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B

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(Figure: Determining Surplus and Loss) In the graph, producer surplus is _ in equilibrium and _ at a price of $12.

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Consumer surplus = [($1.80 - $1.40) × 4]...
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B

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