Deck 4: Applications of Supply and Demand

Question 1

As discussed in the Case in Point on Arab spring and oil markets, the regime changes in Tunisia, Egypt, and Libya through 2011 resulted in:

A) an increase in the demand for oil and an increase in price.
B) a decrease in the demand for oil and a decrease in price.
C) an increase in the supply of oil and a decrease in price.
D) a decrease in the supply of oil and an increase in price.

Answer 1

a decrease in the supply of oil and an increase in price.

Question 2

In the personal computer industry, the reason for the fall in prices and the increase in quantity after 1980 was:

A) mainly a function of resource prices.
B) primarily due to technological change and an increase in the number of sellers.
C) a result of a dramatic decrease in U.S.wages.
D) a result of a dramatic decrease in foreign wages.

Answer 2

primarily due to technological change and an increase in the number of sellers.

Question 3

Price controls:

A) always increase economic efficiency.
B) always lead to more equitable results.
C) can result in inequitable outcomes.
D) all of the above statements are true.

Answer 3

can result in inequitable outcomes.

Question 4

During the Great Depression:

A) agriculture was hit particularly hard.
B) prices received by farmers rose by nearly 2/3 between 1930 and 1933.
C) farm legislation in the 1930s sought to reduce the number of farms and farm income.
D) all of the above are true.

Question 5

As discussed in the Case in Point on Arab spring and oil markets, after the official start of the recession in the U.S.in 2007, oil prices:

A) began to fall because of decreased demand in China and India.
B) began to fall because of decreased demand in the U.S.and Europe.
C) began to rise because of increased demand in China and India.
D) began to rise because of increased demand in the U.S.and Europe.

Question 6

The bulk of the nation's output is produced by:

A) partnerships.
B) proprietorships.
C) corporations.
D) none of the above.

Question 7

The equilibrium price is often considered to be "just right" because:

A) it equates the amount supplied with the amount demanded.
B) it does not result in a shortage.
C) it does not result in a surplus.
D) of all of the above.

Question 8

The relationship between the value and price of a stock suggests that:

A) the equilibrium price of a stock strikes a balance between those who think the stock is worth more and those who think it's worth less at the current price.
B) it is the market's best guess regarding the expected value of the company's future profits.
C) stocks are overvalued.
D) both A and B are true.

Question 9

Most firms in the United States today are:

A) sole proprietorships and partnerships.
B) owned by government.
C) corporations.
D) owned by shareholders.

Question 10

A minimum price set above the equilibrium price is a:

A) demand price.
B) supply price.
C) price floor.
D) price ceiling.

Question 11

Those who make economic policy concerning price controls often do so in order to:

A) establish a more equitable result based on normative judgments.
B) raise revenues to support the activities of government.
C) change the facts on which economic theory is built.
D) do all of the above.

Question 12

The demand curve for stocks shows that:

A) at lower prices, less stock will be purchased.
B) at lower prices, more people calculate that the expected value of the firm's future earnings justify the stock's purchase.
C) at lower prices, more stock will be offered on the market.
D) A and B are true.

Question 13

The equilibrium price in a market is established subject to the all other things unchanged condition and, therefore, very well may change due to:

A) a change in the price of the good.
B) a change in the quantity of the good.
C) a change in the price of resource inputs used to produce the good.
D) any of the above.

Question 14

The equilibrium price established by demand and supply could be called a "just right" price because:

A) any price above it would be "too high" and cause a shortage.
B) any price below it would be "too low" and cause a surplus.
C) it is the only price where the quantity demanded and the quantity supplied are equal.
D) of all of the above.

Question 15

Those things held unchanged when an equilibrium price is established:

A) are called demand and supply shifters if a change in one (or more) of them would change demand or supply.
B) include only supply shifters.
C) seldom change, and therefore prices and quantity in most markets are remarkably stable.
D) never change, by definition.

Question 16

In the 1960s the dominant maker of mainframe computers was:

A) IBM.
B) Apple Computer.
C) Compaq.
D) GM.

Question 17

A firm owned by one individual is called a:

A) corporation.
B) partnership.
C) sole proprietorship.
D) none of the above.

Question 18

An important reason for the rapid increase in output in the computer industry after 1980 was:

A) the invention of the microchip.
B) a reduction in the size and cost of computers.
C) a great increase in the number of computer producers.
D) all of the above.

Question 19

In the stock market:

A) changes in expectations will affect suppliers but not demanders.
B) expectations that cause the demand curve to shift in one direction are usually associated with a supply shift in the same direction.
C) the demand for stocks in recent years can be affected by demographic and income changes.
D) all of the above are true.

Question 20

In the market for personal computers and in the stock market:

A) supply and demand shifts change prices and quantities.
B) persistent shortages and surpluses rarely exist.
C) in response to shifts in demand and supply, equilibrium is restored quickly.
D) all of the above are true.

Question 21

A market price support policy establishes price ________ the market equilibrium.

A) floors below
B) floors above
C) ceilings below
D) ceilings above

Question 22

Use the following to answer question(s): Rent Controls

(Exhibit: Rent Controls) Without rent controls, the equilibrium rent is _______ and the equilibrium quantity is _______ .

A) Rent₂; Q₁
B) Rent₁; Q₁
C) Rent₂; Q₂
D) Rent₃; Q₃

Question 23

Economists in general agree that rent controls are:

A) an efficient and equitable way to help low-income families.
B) an inefficient and ineffective way to help low-income families.
C) an efficient method of dealing with the supply of rental units but don't provide relief for low-income families.
D) not very efficient but still a good way to solve the problem of low income.

Question 24

The downside to helping farmers through price supports and output restrictions has been that:

A) consumers pay higher prices for food.
B) citizens pay higher taxes to support the costs of the program.
C) most federal subsidies have historically helped the rich farmers, not the poor.
D) all of the above.

Question 25

Use the following to answer question(s): Supply and Demand in Agriculture

(Exhibit: Supply and Demand in Agriculture) If a price floor at P₄ is set to help farmers in terms of income and government wants to assure farmers that their output will be purchased, the government would have to purchase an amount of output equal to:

A) Q₃ - Q₀.
B) Q₃ - Q₁.
C) Q₂ - Q₁.
D) none of the above are correct.

Question 26

During the 1930s, the role of the federal government in the U.S.agricultural industry:

A) remained unchanged from the earlier decades.
B) decreased substantially.
C) decreased marginally.
D) increased substantially.

Question 27

Between 1930 and 1933, the prices received by farmers tended to:

A) fluctuate up and down about equally.
B) decrease.
C) remain constant.
D) increase.

Question 28

Use the following to answer question(s): Rent Controls

(Exhibit: Rent Controls) If rent controls are imposed, they will most likely be set at either _______ or _______ .

A) Rent₀; Rent₁
B) Rent₁; Rent₃
C) Rent₃; Rent₄
D) All of the above are equally likely rent control levels.

Question 29

In addition to setting prices, the government has attempted to help farmers by:

A) restricting output.
B) essentially paying them not to produce.
C) creating some surpluses, buying them, and also restricting output.
D) doing all of the above.

Question 30

A market price support policy attempts to assist the farm industry by:

A) taxing the incomes of farmers.
B) directly subsidizing the incomes of farmers.
C) establishing price floors in farm output markets.
D) reducing the amount of resources used in farm production.

Question 31

In terms of equity, existing farm policies tend to help:

A) all farmers equally.
B) none of the farmers.
C) poor farmers more than wealthy farmers.
D) wealthy farmers more than poor farmers.

Question 32

Farm products are normal goods, which means that as:

A) incomes go up, the demand curve shifts to the right.
B) incomes go up, the supply curve shifts to the right.
C) price falls, the quantity demanded decreases.
D) as incomes increase, people buy less.

Question 33

A cost that farm subsidies and price floors imposes on the rest of the economy is:

A) excessively mobile farm resources.
B) higher consumer commodity prices.
C) less government-funded agricultural research.
D) efficient farmers that leave the farming industry.

Question 34

A market price floor for wheat:

A) increases the price paid by consumers.
B) decreases the price paid by consumers.
C) decreases the price received by farmers.
D) does not change the price received by farmers.

Question 35

Use the following to answer question(s): Supply and Demand in Agriculture

(Exhibit: Supply and Demand in Agriculture) If the government set an effective price floor at one of the prices shown on the vertical axis:

A) Q₃ bushels of wheat would be supplied.
B) with this much wheat on the market, the price would fall to P₁.
C) the resulting shortage would be made up by the government out of its accumulated stocks.
D) all of the above would be true.

Question 36

A maximum price set below the equilibrium price is a:

A) demand price.
B) supply price.
C) price floor.
D) price ceiling.

Question 37

A price that the government guarantees farmers will receive for a particular crop is a(n):

A) price ceiling.
B) price support.
C) deficiency price.
D) export price.

Question 38

Use the following to answer question(s): Supply and Demand in Agriculture

(Exhibit: Supply and Demand in Agriculture) To help farmers:

A) a price floor would be set at P₄, causing a surplus of Q₃ - Q₀.
B) a price floor would be set at P₂, causing a surplus of Q₂ - Q₀.
C) a price ceiling would be set at P₄, causing a surplus of Q₂ - Q₁.
D) a price floor would be set at P₁, causing a shortage of Q₃ - Q₀.

Question 39

Farm legislation has historically tried to increase farm income by:

A) guaranteeing a minimum price to farmers.
B) imposing limits on production.
C) insulating farmers from fluctuations in prices.
D) doing all of the above.

Question 40

A market price support policy for crops establishes a price floor, which:

A) decreases the price paid by consumers.
B) does not change the price paid by consumers.
C) increases the price received by farmers.
D) decreases the price received by farmers.

Question 41

According to the textbook, much of the discussion about the health-care "problem" in the United States has focused on:

A) the inability of doctors to provide adequate health-care services.
B) rising spending for health care.
C) the shortage of adequate space in hospitals.
D) the surplus of nurses.

Question 42

A price ceiling will have no effect if:

A) it is set above the equilibrium price.
B) the equilibrium price is above the price ceiling.
C) set below the equilibrium price.
D) it creates a shortage.

Question 43

An area of concern in the provision of health care in the United States is that:

A) health care prices are not high enough.
B) too many resources are devoted to health care.
C) physicians have no control over prices.
D) everyone has an excessive amount of insurance.

Question 44

Use the following to answer question(s): Rent Controls

(Exhibit: Rent Controls) If rent controls are set at Rent₀:

A) the shortage of rental units is Q₂ to Q₀.
B) some renters would be willing to pay a price as high as Rent₄ for Q₀ units.
C) no one would have to pay a higher actual price than Rent₀ nor would anyone be willing to do so.
D) there would be a shortage of rental units, but it is impossible to tell how large the shortage is based on the information provided.

Question 45

A ceiling price set in the policy of rent controls:

A) will be set at a price above the equilibrium price.
B) may result in some people who rent out units to leave the business because they cannot cover costs.
C) will lead to rental units being higher in quality because landlords are guaranteed a high price.
D) will create a surplus of housing.

Question 46

Which of the following statements are true about price controls used by some local governments?

A) Price controls are imposed to increase market efficiency.
B) Price controls seem to be a very effective way to reduce inequities.
C) Price controls are put into place when it is thought that the market price is in some way unfair or inequitable.
D) All of the above statements are true.

Question 47

Rent controls set a price ceiling below the equilibrium price and therefore:

A) quantity supplied exceeds the quantity demanded.
B) quantity demanded exceeds the quantity supplied.
C) a surplus of rental units will result.
D) poor people will obviously and clearly be helped.

Question 48

If the government sets out to help low-income people by establishing a maximum amount for rent:

A) a price floor has been set and a shortage of rental units may occur.
B) a price ceiling has been set and a shortage of rental units may occur.
C) in the long run more rental units will appear.
D) poor people will definitely be helped.

Question 49

According to the Case in Point on corn, the Energy Policy Act of 2005 called for _____ production of ethanol using _____.

A) increased; loan guarantees, support for research, and tax credits
B) increased; price ceilings
C) decreased; loan guarantees, support for research, and tax credits
D) decreased; price floors

Question 50

In 2015, the percentage of total output the United States devoted to health care was about ________ percent.

A) 2
B) 6
C) 10
D) 18

Question 51

An area of concern in the provision of health care in the United States is that:

A) health-care costs and spending are too high.
B) too few resources are devoted to health care.
C) physicians have no control over prices.
D) everyone has an excessive amount of insurance.

Question 52

Rent controls:

A) almost always help low-income families find low-cost housing.
B) often help high-income families.
C) cause the quantity supplied to exceed the quantity demanded.
D) result in all of the above.

Question 53

A persistent shortage may occur if:

A) the government imposes a price ceiling.
B) a price floor is imposed.
C) demand keeps falling.
D) all of the above occur.

Question 54

An arrangement in which consumers choose their health-care services while other institutions pay a share of the cost of those services is called a(n) ________ payer system.

A) provider fees
B) insurance premiums
C) third-party
D) catastrophic insurance

Question 55

A maximum legal price is called:

A) a price support.
B) a price floor.
C) a price ceiling.
D) the parity price.

Question 56

A feature of the health-care market is:

A) that demand has fallen relative to supply.
B) that supply has increased relative to demand.
C) that demand has increased relative to supply.
D) all of the above.

Question 57

Price ceilings which lead to shortages will impose costs on society because they:

A) will lead to waiting lines.
B) may result in black market prices, which are higher than the market-determined price would be.
C) lead to a smaller quantity offered on the market.
D) do all of the above.

Question 58

In 1960, the percentage of total output the United States devoted to health care was about ________ percent.

A) 2
B) 5
C) 10
D) 13

Question 59

According to the Case in Point on corn, which of the following is a criticism that has been raised of government spending in support of corn-based ethanol?

A) limited reduction in dependence on foreign oil.
B) detrimental effects on the environment.
C) increased food prices and an increase in world hunger.
D) All of the above.

Question 60

Which of the following statements concerning insurance for health-care services is true?

A) Most workers purchase their own insurance.
B) State governments are the providers of Medicare and Medicaid.
C) In the United States, only private firms provide health insurance.
D) Subscribers to insurance plans may pay a small percentage of the cost of the health care they consume.

Question 61

Use the following to answer question(s): The Market for Health Care

(Exhibit: The Market for Health Care) Based on the exhibit and assuming that there are no third-party payers:

A) the total amount spent on health services is OP₁AQ₁ at price P₁.
B) the equilibrium price and quantity are P₃ and Q₂.
C) at price P₂ there would be a surplus.
D) A and B are true.

Question 62

Use the following to answer question(s): Third-Party Payers

(Exhibit: Third-Party Payers) Suppose insurance lowers the price consumers pay to $20 per visit.Compared to the situation without insurance, this would:

A) reduce the equilibrium price to $20.
B) reduce the quantity demanded to 2 million visits per week.
C) increase the quantity demanded to 3 million visits per week.
D) do none of the above.

Question 63

Use the following to answer question(s): Third-Party Payers

(Exhibit: Third-party payers) At a price of $60 with a third party payer, the total cost of health-care services compared to the price that would prevail if there were no third-party payers has:

A) decreased from $180 million to $80 million.
B) increased from $80 million to $180 million.
C) decreased from $180 million to $80 million, and consumers pay $60 million
D) increased to $180 million, and insurance pays $60 million.

Question 64

Use the following to answer question(s): Third-Party Payers

(Exhibit: Third-Party Payers) When the price of $20 per visit becomes available to the consumer because of insurance:

A) health-care costs become $180 million, of which $60 million is paid by consumers and $120 million is paid by insurance.
B) health-care costs become $180 million, of which $120 million is paid by consumers and $60 million is paid by insurance.
C) the new quantity of physician office visits is 1 million visits per week.
D) both A and C are true.

Question 65

In the last 30 years, the costs of health care have _______ as a percentage of U.S.output.

A) gone up in absolute terms, but decreased
B) gone down absolutely, but increased
C) gone down absolutely and
D) increased absolutely and

Question 66

Use the following to answer question(s): The Market for Health Care

(Exhibit: The Market for Health Care) At price P₃ the total cost of health-care services compared to price P₁ has increased from:

A) OP₃BQ₂ to OP₁AQ₂.
B) OP₁AQ₁ to OP₃BQ₂.
C) OP₃BQ₂ to OP₁AQ₁, and consumers pay OP₁AQ1₂.
D) OP₁AQ₁ to OP₃BQ₂, and insurance pays OP₂CQ₂.

Question 67

Use the following to answer question(s): Third-Party Payers

(Exhibit: Third-Party Payers) Based on the exhibit, and assuming there are no third-party payers:

A) the equilibrium quantity is 3 million physician office visits per week.
B) the equilibrium quantity is 2 million physician office visits per week.
C) the total amount spent on physician office visits at the equilibrium price is $180 million.
D) the equilibrium quantity is 1 million physician office visits per week.

Question 68

Use the following to answer question(s): Third-Party Payers

(Exhibit: Third-Party Payers) Based on the exhibit, and assuming there are no third-party payers:

A) the total amount spent on health services is $80 million per week.
B) the equilibrium price and quantity are $60 and 3 million per week, respectively.
C) At a price of $20, there would be a surplus.
D) At a price of $60, there would be a shortage.

Question 69

Use the following to answer question(s): Third-Party Payers

(Exhibit: Third-Party Payers) Based on the exhibit, and assuming there are no third-party payers, the:

A) equilibrium price for physician office visits is $80.
B) equilibrium quantity is 3 million physician office visits per week.
C) total amount spent on physician office visits per week at the equilibrium price is $40 million.
D) equilibrium price for physician office visits is $40.

Question 70

Economists classify health care as:

A) an inferior good.
B) a normal good.
C) a good with many close substitutes.
D) a good whose quantity changes considerably with a change in price.

Question 71

In markets with third-party payers,

A) prices consumers pay directly for the goods and services they consume decrease.
B) prices suppliers receive for the goods and services they provide increase.
C) total spending increases.
D) all of the above

Question 72

Health care is a(n):

A) abnormal good.
B) superior good.
C) normal good.
D) good where higher incomes lead to less spending.

Question 73

Use the following to answer question(s): The Market for Health Care

(Exhibit: The Market for Health Care) Based on the exhibit and assuming that there are no third-party payers, the:

A) equilibrium price for health-care services is P₂.
B) equilibrium quantity is Q₂.
C) total amount spent on health-care services at the equilibrium price is OP₃BQ₂.
D) equilibrium price for health-care services is P₁.

Question 74

Use the following to answer question(s): The Market for Health Care

(Exhibit: The Market for Health Care) The quantity Q₂ is available at price:

A) P₁.
B) P₂.
C) P₃.
D) none of the above are correct.

Question 75

Use the following to answer question(s): The Market for Health Care

(Exhibit: The Market for Health Care) When the price of P₂ becomes available to the consumer because of insurance:

A) health-care costs are now OP₃BQ₂, of which OP₃CQ₂ is paid by consumers and P₂P₃BQ₂ is paid by insurance.
B) health-care costs are now OP₃BQ₂, of which P₂P₃BQ₂ is paid by consumers and OP₂CQ₂ is paid by insurance.
C) the new quantity of health care is Q₂.
D) the new quantity of health care is Q₁.

Question 76

Which of the following statements is (are) true?

A) In the last few decades health-care spending has grown dramatically.
B) Health-care costs have grown relative to an increasing total output.
C) Health-care costs account for more than two and a half times the share of total output that they did in 1960.
D) All of the above are true.

Question 77

The Affordable Health Care Act of 2010:

A) requires that individuals purchase health insurance.
B) requires that insurance companies provide coverage for children on their parent's policies up to the age of 26.
C) bars insurance companies from denying coverage based on pre-existing conditions.
D) all of the above

Question 78

Use the following to answer question(s): The Market for Health Care

(Exhibit: The Market for Health Care) Suppose insurance lowers the price consumers pay to P₂.Compared to the situation without insurance, this would:

A) reduce the equilibrium price to P₂.
B) reduce the quantity demanded to Q₁.
C) increase the quantity demanded to Q₂.
D) have no effect on quantity demanded.

Question 79

Use the following to answer question(s): Third-Party Payers

(Exhibit: Third-Party Payers) Three million physician office visits per week are available at a price of __________ per visit:

A) $60
B) $40
C) $20
D) none of the above prices are correct.

Question 80

Use the following to answer question(s): The Market for Health Care

(Exhibit: The Market for Health Care) Based on the exhibit and assuming that there are no third-party payers:

A) the equilibrium quantity is Q₂.
B) the equilibrium quantity is Q₁.
C) the total amount spent on health-care services at the equilibrium price is given by the area OP₃BQ₂.
D) none of the above are true.