Question 1

When economists describe a market for a specific product as being economically "efficient," what do they mean?
A)Production techniques are such that resources are used in the most technologically efficient manner.
B)Consumption of the product is such that economic surplus is maximized.
C)Production of the product is such that economic surplus is maximized.
D)The quantity of the product produced and consumed is such that the economic surplus is maximized.
E)There are no price controls in place in that market.

Accepted Answer

When economists describe a market for a specific product as being economically "efficient," they mean that the quantity of the product produced and consumed is such that the economic surplus is maximized. This means that the market is operating at its allocatively efficient level, where the marginal benefits of consumption equal the marginal costs of production, resulting in an optimal allocation of resources.

Question 2

Geoff is willing to pay $13 for a sixth entrance to a mountain bike park.The market price for entrance is $10.50.The bike park is willing to accept $8.75.The total economic surplus generated from Geoff's sixth trip to the bike park is
A)$1.75.
B)$2.50.
C)$13.00.
D)$10.50.
E)$4.25.

Accepted Answer

The economic surplus is the difference between what Geoff is willing to pay ($13) and what the park is willing to accept ($8.75), which is $4.25.

Question 3

FIGURE 5-4 -Refer to Figure 5-4.The difference between supply curve S₁ and supply curve S₂ in this market for apartments is that A)S₁ is not affected by a government controlled rental price. B)S₂ is not affected by a government controlled rental price. C)S₁ is more elastic than S₂. D)S₁ is a short-run supply curve and S₂ is a long-run supply curve. E)S₁ is a long-run supply curve and S₂ is a short-run supply curve.

Accepted Answer

In economics, the short-run supply curve is typically less elastic than the long-run supply curve, reflecting the ability of producers to adjust more fully to price changes over time.

Question 4

Suppose a downward-sloping demand curve intersects the horizontal axis at a point where quantity demanded equals 1250 units.What is the "value" that consumers place on the 1250th unit of this good?
A)a negative value
B)a positive value
C)$0
D)$1250
E)it depends on the position of the supply curve

Accepted Answer

The value consumers place on the 1250th unit is $0 because the demand curve intersects the horizontal axis at this point, indicating that consumers are not willing to pay anything for the 1250th unit.

Question 5

Consider the supply curve for a product such as shipping crates,which shows how many crates producers want to sell at each possible price.Alternatively,we could view this supply curve in the following way:
A)for each quantity of shipping crates,the supply curve shows the economic surplus generated by the provision of that ticket.
B)for each possible price,the supply curve shows the economic surplus generated by the provision of those crates.
C)for each quantity of shipping crates,the supply curve shows the extent of market inefficiency and deadweight loss.
D)for each quantity of shipping crates,the supply curve shows the value that consumers place on that particular crate.
E)for each quantity of shipping crates,the price on the supply curve shows the additional cost to the producer of supplying that crate.

Accepted Answer

The supply curve shows the relationship between quantity supplied and price. Therefore, for each quantity of shipping crates, the price on the supply curve shows the additional cost to the producer of supplying that crate. This is a fundamental concept in economics known as the law of supply. The other choices are not accurate descriptions of a supply curve. Choice A describes the concept of consumer surplus, which is related to the demand curve. Choice B is also related to consumer surplus and does not apply to the supply curve. Choice C describes market inefficiency and deadweight loss, which are not directly related to the supply curve. Choice D refers to the concept of willingness to pay, which is related to the demand curve.

Question 6

Consider a competitive market for good X.A binding price floor and a binding price ceiling in this market would be similar to each other in that
A)each type of price control will lead to a reduction in deadweight loss and therefore an increase in efficiency in the market for good X.
B)the units of good X that will no longer be produced or consumed will not generate any economic surplus.
C)each type of price control results in a higher price paid by consumers,and therefore to a reduction in economic surplus.
D)each type of price control results in a lower price received by sellers,and therefore to a reduction in economic surplus.
E)additional units of good X will be produced and consumed,leading to an increase in economic surplus.

Accepted Answer

Both a binding price floor and a binding price ceiling create inefficiencies in the market, leading to a loss of economic surplus for the units that are no longer produced or consumed.

Question 7

The short-run supply for rental housing is quite ________ while the long-run supply for housing is quite ________.
A)elastic; inelastic
B)inelastic; elastic
C)flat; steep
D)inelastic; inelastic
E)elastic; elastic

Accepted Answer

In the short-run, rental housing supply is relatively fixed as it takes time and capital to build new housing units. Therefore, the short-run supply for rental housing is relatively inelastic. However, in the long-run, as firms and individuals have more time to adjust to changes in demand and supply, the supply of rental housing becomes more elastic as more housing units can be constructed or converted to rental properties. Therefore, the long-run supply for housing is relatively elastic. Choice B is the only option that correctly identifies both the short-run and long-run supply for rental housing.

Question 8

Each point on a demand curve shows the ________ price that consumers will pay to consume that quantity.The demand curve therefore shows the ________ to consumers from consuming the product.
A)maximum; cost
B)minimum; cost
C)maximum; value
D)minimum; value
E)equilibrium; equilibrium price

Accepted Answer

Each point on a demand curve shows the maximum price that consumers are willing to pay to consume a specific quantity. The demand curve reflects the value that consumers place on the product by showing the maximum they are willing to pay for each quantity. Therefore, the correct answer is C, maximum value.

Question 9

If 10 000 snow tires are produced and purchased in the month of November,we can say that economic surplus is
A)the net value that society as a whole receives by producing and consuming those 10 000 snow tires.
B)the number of snow tires that are produced in excess of the equilibrium quantity.
C)the profit earned by the producers of those 10 000 snow tires.
D)the price at which the tires are sold multiplied by 10 000.
E)the net value to those consumers who purchased the 10 000 snow tires.

Accepted Answer

Economic surplus refers to the net value that society as a whole receives by producing and consuming a certain good. In this case, the production and purchase of 10 000 snow tires in November will create economic surplus if the value that consumers place on the tires (as measured by the price they are willing to pay) is greater than the cost of production for the producers (including any external costs). This surplus can be seen as a benefit to both producers and consumers, as well as to society as a whole. It is not related to the quantity produced or sold in excess of equilibrium, the profits earned by producers, or the price at which the tires are sold, as those factors are only part of the calculation of economic surplus.

Question 10

Each point on a supply curve shows the ________ acceptable price to firms for selling that unit; this price reflects ________ to firms from producing that unit.
A)minimum; the equilibrium price
B)maximum; the additional value
C)minimum; the additional value
D)maximum; the additional cost
E)minimum; the additional cost

Accepted Answer

Each point on a supply curve shows the minimum acceptable price to firms for selling that unit, which reflects the additional cost to firms from producing that unit.

Question 11

Who are likely to be the biggest beneficiaries of rent controls?
A)landlords
B)prospective tenants
C)current tenants
D)construction companies
E)no group will benefit from the controls

Accepted Answer

Rent controls are aimed at protecting tenants from steep rises in rent prices, and therefore, current tenants are likely to be the biggest beneficiaries of rent controls. Landlords may not benefit as their potential profits may be restricted, and construction companies may also not benefit if reduced profits dampen their desire to build rental housing. There may also be no benefit for prospective tenants if rent controls lead to a shortage of available rental units.

Question 12

The long-run elasticity of supply of rental housing is greater than the short-run elasticity of supply because
A)changes in supply can occur very quickly,especially when rent controls are in place.
B)investment in new rental housing has such a short payback period.
C)changes in supply occur only after investment decisions are made regarding,for example,new construction or conversion of rental housing to other uses.
D)in the long run,landlords have no incentive to alter the supply of rental housing.
E)the demand for rental housing is changing continuously.

Accepted Answer

In the short run, landlords have limited options to increase the supply of rental housing, such as lowering maintenance or management costs. In the long run, however, they can invest in new construction or convert existing properties to rental housing. These investment decisions take time to make and implement, which is why the long-run elasticity of supply is greater than in the short run.

Question 13

Consider a market that is in equilibrium with a market-clearing price.Economic surplus is shown by
A)the intersection of the supply and demand curves.
B)the area that is both below the demand curve and above the supply curve.
C)the area that is both above the demand curve and below the supply curve.
D)the area to the right of the market-clearing price and quantity.
E)the area below the supply curve up to the equilibrium quantity and below the demand curve beyond the equilibrium quantity.

Accepted Answer

Economic surplus is the total benefit that accrues to consumers and producers in a market. It is the difference between the total value that consumers place on a good and the total cost of producing it. In graphical terms, economic surplus is the area that is both below the demand curve and above the supply curve. This represents the value that consumers place on the good, as reflected by the demand curve, minus the cost of producing it, as reflected by the supply curve. At the market-clearing price, economic surplus is maximized, and any deviation from this price will decrease total surplus. Therefore, the answer is B.

Question 14

FIGURE 5-4
-Refer to Figure 5-4.Suppose the government sets a rent ceiling at $900.In this situation,the rental price for an apartment is
A)$600.
B)$900.
C)any rent above $900.
D)the same as the free-market equilibrium rental price.
E)any rent below $600.

Accepted Answer

The answer of  FIGURE 5-4
-Refer to Figure 5-4.Suppose the...

Question 15

FIGURE 5-5
-Refer to Figure 5-5.At the market-clearing price and quantity of $30 per hour and 4000 hours of gardening services purchased,the economic surplus is
A)the sum of the areas below the demand curve,but above the market-clearing price of $30 - i.e.,areas 1,2,6.
B)the sum of the areas below the demand curve - i.e.,areas 1,2,3,4,5,6,7,8,9.
C)the sum of the areas above the supply curve,but below the market-clearing price of $30 - i.e.,areas 3,4,7.
D)the sum of the areas above the supply curve and below the demand curve - i.e.,areas 1,2,3,4,6,7.
E)the sum of the areas below the demand curve,up to 4000 hours - i.e.,areas 1,2,3,4,5,6,7,8.

Accepted Answer

Economic surplus is the sum of consumer surplus and producer surplus, which is represented by the area above the supply curve and below the demand curve at the market-clearing price and quantity.

Question 16

Consider the demand curve for a product such as movie tickets,which shows how many tickets consumers wish to purchase at each possible price.Alternatively,we could view this demand curve in the following way:
A)for each quantity of movie tickets,the price on the demand curve shows the value that consumers place on that particular movie ticket.
B)for each quantity of movie tickets,the demand curve shows the economic surplus generated by the purchase of the tickets.
C)for each possible price,the demand curve shows the economic surplus generated by the purchase of the tickets.
D)for each quantity of movie tickets,the demand curve shows the extent of market inefficiency and deadweight loss.
E)for each quantity of movie tickets,the demand curve shows the additional cost to the producer of supplying that particular movie ticket.

Accepted Answer

The demand curve for a product such as movie tickets shows the value that consumers place on that particular movie ticket at each possible price. This means that for each quantity of movie tickets, the price on the demand curve represents the maximum amount that consumers are willing to pay for that particular movie ticket. Therefore, choice A is the best answer.

Question 17

FIGURE 5-4
-Refer to Figure 5-4.Suppose the government imposes a rent-controlled price of $600 per month on apartments in this city.In the short run we can expect the shortage of apartments to be ________ units.
A)0
B)200
C)300
D)800
E)1000

Accepted Answer

At a rent-controlled price of $600, the quantity demanded is 1,000 units and the quantity supplied is 700 units. The shortage is therefore 1,000 - 700 = 300 units.

Question 18

Suppose a negatively sloped demand curve and a positively sloped supply curve intersect at a price and quantity combination of $100 and 600 units of the good.But suppose that producers actually produce and sell 610 units.What can we correctly say about market efficiency in this case?
A)The value placed on the final 10 units of the good by consumers exceeds the additional costs associated with their production - this market is not efficient.
B)The production and consumption of the additional 10 units of the good increases total economic surplus and increases market efficiency.
C)This market is efficient because economic surplus is maximized as production and consumption increase simultaneously.
D)This market is not efficient because quantity demanded for the good exceeds quantity supplied.
E)The value placed on the final 10 units of the good by consumers is less than the additional costs associated with their production - this market is not efficient.

Accepted Answer

The fact that producers are producing and selling more units than what the demand curve would dictate means that the last 10 units produced have a cost greater than the value that consumers place on them. This implies that resources are being wasted, and the market is not efficient.

Question 19

FIGURE 5-4
-Refer to Figure 5-4.Suppose the government imposes a rent-controlled price of $600 per month on apartments in this city.In the long run we can expect the shortage of apartments to be ________ units.
A)0
B)200
C)300
D)800
E)1000

Accepted Answer

At a rent-controlled price of $600 per month, the quantity of apartments supplied will decrease to 200 units, while the quantity demanded will increase to 1,000 units. This results in a shortage of 800 units (1,000 – 200 = 800). This shortage is likely to persist in the long run as suppliers of rental units will not want to build new units or maintain existing units if they cannot charge market prices that cover their costs.

Question 20

FIGURE 5-4
-Refer to Figure 5-4.What is the significance of the difference in the slopes of the short-run supply curve (  )and the long-run supply curve (  )for apartments?
A)Over time,the supply of apartments shrinks in response to the controlled prices - the elasticity of supply decreases.
B)Over time,the demand for apartments shrinks in response to the controlled prices - the elasticity of supply increases.
C)Over time,the demand for apartments increases in response to the controlled prices - the elasticity of supply increases.
D)Over time,the supply of apartments increases in response to the controlled prices - the elasticity of demand increases.
E)Over time,the supply of apartments shrinks in response to the controlled prices - the elasticity of supply increases.

Accepted Answer

The answer of  FIGURE 5-4
-Refer to Figure 5-4.What is...

Quiz 5: Price Controls and Market Efficiency

When economists describe a market for a specific product as being economically "efficient," what do they mean?

Geoff is willing to pay $13 for a sixth entrance to a mountain bike park.The market price for entrance is $10.50.The bike park is willing to accept $8.75.The total economic surplus generated from Geoff's sixth trip to the bike park is

FIGURE 5-4 -Refer to Figure 5-4.The difference between supply curve S₁ and supply curve S₂ in this market for apartments is that

Suppose a downward-sloping demand curve intersects the horizontal axis at a point where quantity demanded equals 1250 units.What is the "value" that consumers place on the 1250th unit of this good?

Consider the supply curve for a product such as shipping crates,which shows how many crates producers want to sell at each possible price.Alternatively,we could view this supply curve in the following way:

Consider a competitive market for good X.A binding price floor and a binding price ceiling in this market would be similar to each other in that

The short-run supply for rental housing is quite while the long-run supply for housing is quite .

Each point on a demand curve shows the price that consumers will pay to consume that quantity.The demand curve therefore shows the to consumers from consuming the product.

If 10 000 snow tires are produced and purchased in the month of November,we can say that economic surplus is

Each point on a supply curve shows the acceptable price to firms for selling that unit; this price reflects to firms from producing that unit.

Who are likely to be the biggest beneficiaries of rent controls?

The long-run elasticity of supply of rental housing is greater than the short-run elasticity of supply because

Consider a market that is in equilibrium with a market-clearing price.Economic surplus is shown by

FIGURE 5-4 -Refer to Figure 5-4.Suppose the government sets a rent ceiling at $900.In this situation,the rental price for an apartment is

FIGURE 5-5 -Refer to Figure 5-5.At the market-clearing price and quantity of $30 per hour and 4000 hours of gardening services purchased,the economic surplus is

Consider the demand curve for a product such as movie tickets,which shows how many tickets consumers wish to purchase at each possible price.Alternatively,we could view this demand curve in the following way:

FIGURE 5-4 -Refer to Figure 5-4.Suppose the government imposes a rent-controlled price of $600 per month on apartments in this city.In the short run we can expect the shortage of apartments to be ________ units.

Suppose a negatively sloped demand curve and a positively sloped supply curve intersect at a price and quantity combination of $100 and 600 units of the good.But suppose that producers actually produce and sell 610 units.What can we correctly say about market efficiency in this case?

FIGURE 5-4 -Refer to Figure 5-4.Suppose the government imposes a rent-controlled price of $600 per month on apartments in this city.In the long run we can expect the shortage of apartments to be ________ units.

FIGURE 5-4 -Refer to Figure 5-4.What is the significance of the difference in the slopes of the short-run supply curve ( ) and the long-run supply curve ( ) for apartments?