Question 1

Tariffs increase equilibrium price and quantity.

Accepted Answer

Tariffs typically increase the equilibrium price but decrease the equilibrium quantity, as they make imported goods more expensive, reducing demand and supply.

Question 2

The minimum wage is an example of a price floor.

Accepted Answer

A price floor is a government-imposed limit on how low a price can be charged for a product, and the minimum wage sets the lowest legal wage that can be paid to workers.

Question 3

When the person who chooses how much to purchase doesn't have to bear the full cost, the quantity demanded tends to be higher.

Accepted Answer

When individuals do not bear the full cost of their consumption, they are more likely to consume more than they would if they were paying the full price, leading to higher quantity demanded. This is often referred to as a "moral hazard" in economics.

Question 4

A price floor causes excess demand, resulting in the need to ration by some means other than price.

Accepted Answer

A price floor, set above the equilibrium price, leads to excess supply, not excess demand, as it prevents the price from falling to the equilibrium level where supply equals demand.

Question 5

When a hurricane destroys a significant portion of an apple crop:
A) apple prices rise, and quantity sold rises.
B) apple prices decline, and quantity sold falls.
C) apple prices rise, and quantity sold falls.
D) apple prices decline, and quantity sold rises.

Accepted Answer

A hurricane destroying a significant portion of the apple crop reduces the supply of apples, leading to higher prices and a lower quantity sold.

Question 6

When gasoline prices rose in the early 2000s, the demand for SUVs fell. An economist would predict that SUV prices would decline or at least not rise as quickly.

Accepted Answer

When demand for a product decreases, prices tend to fall or rise more slowly due to reduced consumer interest, leading to excess supply.

Question 7

Suppose the price of tomatoes dramatically increases. Which of the following could cause this change?
A) Hurricanes during the late summer damage the Florida crop, shifting supply left
B) A reduction in tariffs of tomatoes from Central American, shifting supply right
C) A news report stating that a pesticide used on tomatoes might cause cancer, shifting the demand to the right
D) Advertising for ketchup increases demand for ketchup, shifting the demand curve to the left

Accepted Answer

Hurricanes damaging the crop would reduce the supply of tomatoes, leading to a leftward shift in the supply curve and an increase in price.

Question 8

Suppose a recent and widely circulated medical article reports new benefits of exercise. Simultaneously, the price of the parts needed to make bikes falls. What is the likely effect on the equilibrium price and quantity of exercise bikes sold?
A) Price of exercise bikes decreases and quantity sold remains the same.
B) Price of exercise bikes increases and quantity sold also increases.
C) Price of exercise bikes remains the same and quantity sold increases.
D) The change in price is ambiguous, but the quantity sold increases.

Accepted Answer

The demand for exercise bikes increases due to the reported benefits of exercise, while the supply increases due to the fall in production costs. This leads to an increase in quantity sold, but the effect on price is ambiguous as it depends on the relative shifts in demand and supply.

Question 9

Given a downward sloping demand curve, a tax on the supply of a good will result in an increase in equilibrium price that is less than the amount of the tax.

Accepted Answer

When a tax is imposed on the supply of a good, the supply curve shifts leftward, leading to a higher equilibrium price. However, the price increase is typically less than the full amount of the tax because the burden of the tax is shared between producers and consumers, depending on the relative elasticities of supply and demand.

Question 10

The U.S. imposes substantial taxes on cigarettes but not on loose tobacco. When the tax on cigarettes went into effect, the demand for home cigarette rolling machines most likely:
A) decreased, causing the price of cigarette rolling machines to fall and the quantity of machines purchased to fall.
B) decreased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to fall.
C) increased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to rise.
D) increased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to fall.

Accepted Answer

When the tax on cigarettes increased, consumers likely sought cheaper alternatives, such as rolling their own cigarettes using loose tobacco, which was not taxed. This would increase the demand for home cigarette rolling machines, leading to a rise in both the price and quantity of machines purchased.

Question 11

The U.S. Postal Service printed 150,000 sheets of a stamp depicting Bill Pickett, but recalled them when the USPS realized the image on the stamp was Bill's brother, Ben, instead. They were unable to recall 183 sheets that had already been sold. The effect of this recall was to:
A) drastically reduce the demand for the stamps, causing their equilibrium price to fall.
B) have no effect on either supply of or demand for the Bill Pickett stamps because there is no market for them.
C) drastically reduce the supply of the Bill Pickett stamps, causing their equilibrium price to rise.
D) drastically reduce the supply of the Bill Pickett stamps, causing their equilibrium price to fall.

Accepted Answer

The recall drastically reduced the supply of the Bill Pickett stamps, as only 183 sheets remained in circulation, making them rare and likely increasing their equilibrium price.

Question 12

Refer to the following graphs.  Floods in the U.S. Midwest reduce the U.S. corn crop. Which graph depicts the effect of the floods on the U.S. corn market?
A) I
B) II
C) III
D) IV

Accepted Answer

The answer of Refer to the following graphs.  Floods...

Question 13

Trade sanctions imposed on Iraq that limited Iraq's production of oil after the 1990 Gulf War on the oil market are best shown graphically with a price ceiling below equilibrium price.

Accepted Answer

Trade sanctions limiting production are best represented by a leftward shift in the supply curve, not a price ceiling. A price ceiling is a government-imposed limit on how high a price can be charged, which is different from production restrictions.

Question 14

The Katrina disaster in New Orleans decreased the ability of oil companies to purify crude oil into gasoline. This caused the:
A) supply curve for gasoline to shift inward.
B) supply curve for gasoline to shift outward.
C) quantity of gasoline demanded to move out along the demand curve.
D) quantity of gasoline supplied to move in along the supply curve.

Accepted Answer

The Katrina disaster reduced the capacity of oil refineries, leading to a decrease in the supply of gasoline, which is represented by an inward shift of the supply curve.

Question 15

Online music stores such as Apple's iTunes provide an alternative to buying CDs. The introduction of online music stores has shifted:
A) the supply curve of CDs to the right.
B) the supply curve of CDs to the left.
C) the demand curve of CDs to the right.
D) the demand curve of CDs to the left.

Accepted Answer

The introduction of online music stores provides a substitute for CDs, reducing the demand for CDs and shifting the demand curve to the left.

Question 16

Real-world experience shows that when weather conditions reduce crop yields, the price of agricultural products will fall.

Accepted Answer

When weather conditions reduce crop yields, the supply of agricultural products decreases, which typically leads to an increase in prices due to scarcity.

Question 17

The effect of successful compliance with recycling regulation by homeowners on the market for recycled paper along with a concurrent rise in demand for products made with recycled paper is best shown by a shift to the right in the supply of and demand for recyclable paper and a certain drop in its price.

Accepted Answer

A shift to the right in both supply and demand typically results in an increase in quantity but not necessarily a drop in price; the price effect depends on the relative magnitude of the shifts.

Question 18

The standard supply/demand framework:
A) can be modified to explain real-world events.
B) cannot be modified to explain real-world events.
C) should not be modified to explain real-world events.
D) explains real-world events with no need for modification.

Accepted Answer

The standard supply/demand framework is a basic model that can be adapted or modified to better explain the complexities of real-world events, as real-world markets often involve additional factors not accounted for in the basic model.

Question 19

European Union subsidizes its farmers. How do these subsidies make it difficult for farmers in developing economies to compete in the world farm market?
A) The subsidies set a price ceiling for EU farm goods, keeping prices below the market equilibrium, and lowering the price developing country farmers can receive for their produce.
B) The subsidies shift the supply of EU farm goods to the right, lowering world prices of farm goods and the price developing country farmers can receive for their produce.
C) The subsidies function as a tariff, causing imports from developing countries to become artificially expensive, thus denying European consumers the benefits of cheap imported food
D) The subsidies create ethical problems for Europeans who want to buy farm products from developing countries since the subsidies are raising the price of developing country produce.

Accepted Answer

The subsidies increase the supply of EU farm goods, leading to lower world prices, which makes it harder for farmers in developing economies to compete.

Question 20

Which of the following would be the most likely effect of a 75 percent tax on punitive awards by juries?
A) An increase in the number of lawsuits asking for punitive damages
B) A decrease in the number of cases settled out of court
C) An increase in the incentive for plaintiffs to pursue legal action against individuals or businesses who have caused injury due to gross negligence
D) An increase in pretrial settlements since plaintiffs are willing to accept lower settlement amounts that are not taxed

Accepted Answer

A 75 percent tax on punitive awards would likely lead plaintiffs to prefer pretrial settlements to avoid the high tax, thus increasing the likelihood of accepting lower, untaxed settlement amounts.

Quiz 5: Using Supply and Demand

Tariffs increase equilibrium price and quantity.

The minimum wage is an example of a price floor.

When the person who chooses how much to purchase doesn't have to bear the full cost, the quantity demanded tends to be higher.

A price floor causes excess demand, resulting in the need to ration by some means other than price.

When a hurricane destroys a significant portion of an apple crop:

When gasoline prices rose in the early 2000s, the demand for SUVs fell. An economist would predict that SUV prices would decline or at least not rise as quickly.

Suppose the price of tomatoes dramatically increases. Which of the following could cause this change?

Suppose a recent and widely circulated medical article reports new benefits of exercise. Simultaneously, the price of the parts needed to make bikes falls. What is the likely effect on the equilibrium price and quantity of exercise bikes sold?

Given a downward sloping demand curve, a tax on the supply of a good will result in an increase in equilibrium price that is less than the amount of the tax.

The U.S. imposes substantial taxes on cigarettes but not on loose tobacco. When the tax on cigarettes went into effect, the demand for home cigarette rolling machines most likely:

The U.S. Postal Service printed 150,000 sheets of a stamp depicting Bill Pickett, but recalled them when the USPS realized the image on the stamp was Bill's brother, Ben, instead. They were unable to recall 183 sheets that had already been sold. The effect of this recall was to:

Refer to the following graphs. Floods in the U.S. Midwest reduce the U.S. corn crop. Which graph depicts the effect of the floods on the U.S. corn market?

Trade sanctions imposed on Iraq that limited Iraq's production of oil after the 1990 Gulf War on the oil market are best shown graphically with a price ceiling below equilibrium price.

The Katrina disaster in New Orleans decreased the ability of oil companies to purify crude oil into gasoline. This caused the:

Online music stores such as Apple's iTunes provide an alternative to buying CDs. The introduction of online music stores has shifted:

Real-world experience shows that when weather conditions reduce crop yields, the price of agricultural products will fall.

The standard supply/demand framework:

European Union subsidizes its farmers. How do these subsidies make it difficult for farmers in developing economies to compete in the world farm market?

Which of the following would be the most likely effect of a 75 percent tax on punitive awards by juries?