Question 1

The minimum wage is an example of a government price ceiling and results in a reduction in unemployment.

Accepted Answer

The minimum wage is a government price floor, not a price ceiling. It sets a minimum wage that employers must pay to their employees. There is debate among economists about whether it leads to a reduction or an increase in unemployment, as some argue that it may lead to employers hiring fewer workers or outsourcing jobs to countries where labor is cheaper.

Question 2

Price controls date back to
A)World War II.
B)the U.S.Revolutionary War.
C)thousands of years, at least back to ancient Babylonia.
D)the 1970s.
E)the last 20 years.

Accepted Answer

Price controls have been in existence for thousands of years, dating back to ancient Babylonia where they were used to regulate the prices of food and other basic necessities.

Question 3

When used in a professional or technical sense, the law of supply and demand refers to
A)some vague influences on economic affairs.
B)the fact that prices go up when commodities are scarce.
C)the market forces that show how prices and quantities are determined.
D)the controls that regulate the amount of scarce goods that each consumer can purchase.

Accepted Answer

The law of supply and demand describes the market forces that determine the prices and quantities of goods and services in a competitive market. It explains how a balance between supply (the quantity of a good or service that producers are willing to sell) and demand (the quantity of a good or service that consumers are willing to buy) leads to an equilibrium price and quantity. It is a fundamental principle of economics that has a significant impact on pricing, production, and resource allocation decisions.

Question 4

During the Revolutionary War, the Pennsylvania legislature attempted to aid the Continental Army by setting wage floors for soldiers in the army.

Accepted Answer

The Pennsylvania legislature, or any state legislature, did not set wage floors for soldiers in the Continental Army during the Revolutionary War. Soldiers' pay was determined by the Continental Congress, not individual states.

Question 5

Black markets are frequent occurrence in markets with price ceilings.

Accepted Answer

When a price ceiling is imposed, the maximum price that sellers can legally charge is set below the market equilibrium price. This leads to a shortage of the good or service, as the quantity demanded exceeds the quantity supplied at the maximum price. In response, buyers may turn to black markets, where sellers can charge higher prices without fear of legal repercussions. Therefore, black markets are a frequent occurrence in markets with price ceilings.

Question 6

The most basic investigative tool of economics is the
A)concept of scarcity.
B)mechanism of supply and demand.
C)coordination and trade syndrome.
D)inflation-unemployment trade-off.
E)regulation of business.

Accepted Answer

The mechanism of supply and demand is the most basic investigative tool of economics because it explains how prices are determined in a market economy through the interaction of supply (how much of a good or service is available) and demand (how much of a good or service people want). This fundamental concept is central to understanding economic behavior and market operations.

Question 7

During the American Revolution, the Pennsylvania legislature enacted price controls on essential commodities.The result of this legislation was
A)a large increase in the availability of those items, ending shortages.
B)a severe shortage of those essential commodities.
C)an increase in the price of those items, thus alleviating shortages.
D)new efforts to increase production of those commodities.
E)a minor inconvenience as persons adjusted to the new law.

Accepted Answer

Price controls often lead to shortages because suppliers are unable to sell their goods at a price that covers their costs. As a result, they reduce the supply of the good. This is what occurred during the American Revolution in Pennsylvania when price controls were enacted on essential commodities.

Question 8

Any event that causes either the demand curve or the supply curve to shift will also change the equilibrium price and quantity.

Accepted Answer

Any event that shifts the demand curve or supply curve (e.g. changes in consumer preferences, technology improvements, government regulations) will cause a new equilibrium point to be established, resulting in a change in equilibrium price and quantity.

Question 9

While demand shifts have an effect on equilibrium price and quantity, supply shifts have no such effect.

Accepted Answer

Supply shifts do have an effect on equilibrium price and quantity. When there is an increase in supply, the equilibrium price will decrease and the equilibrium quantity will increase. Conversely, when there is a decrease in supply, the equilibrium price will increase and the equilibrium quantity will decrease.

Question 10

Shortages normally accompany an effective price floor.

Accepted Answer

A price floor set above the equilibrium price leads to a surplus, not a shortage, because it results in a higher quantity supplied than demanded.

Question 11

Sugar price supports primarily benefit consumers.

Accepted Answer

Sugar price supports typically benefit sugar producers rather than consumers, as they can sell their products at a higher price due to the government intervention. Consumers, on the other hand, may end up paying higher prices for sugar than they would in a free market.

Question 12

Sugar price supports ensure an abundance of sugar, and hence reasonable prices for consumers.

Accepted Answer

Sugar price supports artificially prop up the price of sugar, leading to an oversupply of sugar and higher costs for taxpayers. This can also lead to price distortions, inefficiencies, and market imbalances. Consumers are not guaranteed reasonable prices because of price supports.

Question 13

Black markets can generally be eliminated when price ceilings are enacted.

Accepted Answer

Price ceilings often create shortages as suppliers are unable or unwilling to provide goods/services at the mandated price. This creates opportunities for black markets to emerge where sellers offer goods/services at prices above the legal ceiling. Therefore, enacting price ceilings does not eliminate black markets.

Question 14

Price controls usually enhance efficiency in the allocation of resources.

Accepted Answer

Price controls, such as price ceilings or floors, often lead to distortions in the market and inefficient allocation of resources. They can create shortages or surpluses of goods or services and deter suppliers from producing or consumers from buying at the controlled price. Additionally, price controls can lead to black markets or underground economies where goods are sold at a higher, unregulated price.

Question 15

The mechanism of supply and demand is
A)a fundamental tool in both microeconomics and macroeconomics.
B)the only real "law" of economics.
C)a fundamental tool only in microeconomics.
D)a fundamental tool only in macroeconomics.

Accepted Answer

The mechanism of supply and demand is a fundamental tool in both microeconomics and macroeconomics. It is important in microeconomics because it helps to explain how individual markets function, while in macroeconomics, it helps to explain how the economy as a whole works. Thus, option A is the correct choice.

Question 16

One motive for "battling the invisible hand" is
A)unhappiness about the prices that occur in free markets.
B)envy toward those who apparently benefit from certain prices.
C)a desire to have government "correct" some problems.
D)an attempt to produce justice between buyers and sellers.
E)All of these responses are correct.

Accepted Answer

Each of the options (A through D) represents a motive for challenging the concept of the "invisible hand," which is a metaphor for the self-regulating nature of the marketplace. This includes dissatisfaction with market prices, envy towards those who benefit from these prices, a wish for government intervention to address market failures, and efforts to ensure fairness between buyers and sellers.

Question 17

During the American Revolution, Washington's army nearly starved to death after price controls were enacted to "help" buy food for the army at affordable prices.The Continental Congress later passed a law that
A)exhorted the public to obey the law and help supply food to the army.
B)passed tax increases to punish those who refused to sell the food.
C)revised the American Law of Supply and Demand.
D)overrode local ordinances and essentially repealed the price controls.
E)called for the repeal of other price control measures.

Accepted Answer

The answer of During the American Revolution, Washington's army nearly...

Question 18

Any change that shifts the supply curve outward to the right and does not affect the demand curve will lower the equilibrium price and raise the equilibrium.

Accepted Answer

When the supply curve shifts outward to the right, it means that producers are offering more goods or services at each price level. This increases the quantity supplied at each price, leading to a surplus of goods. As a result, the equilibrium price decreases, and the equilibrium quantity increases. This is because producers have to lower their prices to sell more goods, and consumers can demand more at the lower prices.

Question 19

One effect of market intervention is resource misallocation.

Accepted Answer

Market intervention can lead to the misallocation of resources because it can disrupt the natural price mechanism that helps to allocate resources efficiently. When the government intervenes in the market, it can lead to price distortions and inefficient outcomes, which can result in resources being misallocated.

Question 20

A demand schedule is a table showing how the ____ of some product during a specified period of time changes as ____ changes, holding all other determinants of quantity demanded constant.
A)demand; the price of its complement
B)demand; the quantity supplied
C)quantity demanded; the price of its substitute
D)quantity demanded; the price of that product

Accepted Answer

A demand schedule is a table showing the quantity of a product that consumers are willing and able to buy at different prices during a specified period of time, while holding constant all other determinants of quantity demanded, such as income, tastes, and preferences. Therefore, the answer is D because the demand schedule shows how the quantity demanded changes as the price of that product changes, while other factors remain constant.

Quiz 4: Supply and Demand: an Initial Look

The minimum wage is an example of a government price ceiling and results in a reduction in unemployment.

Price controls date back to

When used in a professional or technical sense, the law of supply and demand refers to

During the Revolutionary War, the Pennsylvania legislature attempted to aid the Continental Army by setting wage floors for soldiers in the army.

Black markets are frequent occurrence in markets with price ceilings.

The most basic investigative tool of economics is the

During the American Revolution, the Pennsylvania legislature enacted price controls on essential commodities.The result of this legislation was

Any event that causes either the demand curve or the supply curve to shift will also change the equilibrium price and quantity.

While demand shifts have an effect on equilibrium price and quantity, supply shifts have no such effect.

Shortages normally accompany an effective price floor.

Sugar price supports primarily benefit consumers.

Sugar price supports ensure an abundance of sugar, and hence reasonable prices for consumers.

Black markets can generally be eliminated when price ceilings are enacted.

Price controls usually enhance efficiency in the allocation of resources.

The mechanism of supply and demand is

One motive for "battling the invisible hand" is

During the American Revolution, Washington's army nearly starved to death after price controls were enacted to "help" buy food for the army at affordable prices.The Continental Congress later passed a law that

Any change that shifts the supply curve outward to the right and does not affect the demand curve will lower the equilibrium price and raise the equilibrium.

One effect of market intervention is resource misallocation.

A demand schedule is a table showing how the of some product during a specified period of time changes as changes, holding all other determinants of quantity demanded constant.