Question 1

To keep the price of gas from rising quickly after a hurricane, the government sometimes institutes price ceilings on the price of gasoline. These price ceilings cause ________ in the gasoline market.
A) surpluses
B) movement of the demand curve
C) movement along the demand curve
D) shortages

Accepted Answer

Price ceilings set a maximum price that can be charged, which often leads to shortages as the quantity demanded exceeds the quantity supplied at that price.

Question 2

Suppose a scientific report states that fish contain dangerously high levels of mercury (toxic to humans). At the same time, the price of diesel fuel, used by fishermen to fuel their boats, falls. What is the effect on the market for fish?
A) A decrease in demand and a fall in price and quantity sold
B) A decrease in demand and supply; price and quantity sold falls
C) A decrease in demand and an increase in supply; price falls but the change in quantity is ambiguous
D) A decrease in demand and supply; price and quantity sold rises

Accepted Answer

The decrease in demand due to health concerns about mercury will lower the price, while the decrease in diesel prices will increase supply, also putting downward pressure on price. The overall effect on quantity is ambiguous because it depends on the relative shifts in demand and supply.

Question 3

After several years of slow economic growth, world demand for petroleum began to rise rapidly in the 1990s. Much of the increase in demand was met by additional supplies from sources outside OPEC. OPEC during this time was unable to restrain output among members in its effort to lift oil prices. What best describes these events?
A) The rise in demand shifted the demand for oil to the right. OPEC actions shifted the demand for oil back to the left.
B) The rise in demand shifted the demand for oil to the right. As price rose, supply of oil also rose.
C) The rise in demand shifted the demand for oil to the right. As price rose, quantity of oil supplied rose.
D) The rise in demand reflects a movement down along the demand curve as supply shifted to the right when suppliers produced more oil.

Accepted Answer

The rise in demand shifted the demand curve to the right, leading to higher prices, which in turn increased the quantity of oil supplied.

Question 4

Fishing for king crabs for a living is risky business. Their migration habits along the Bering Strait are just not understood. The king crabs seem to disappear one year but return mysteriously a few years later, wreaking havoc on the income of crabbers. When crabs disappear, consumers buy lobster instead. What best describes this situation in the king crab market?
A) The supply curve shifts to the left when crabs disappear (their price rises) and shift to the right when they reappear (their price declines).
B) The supply curve shifts to the left when crabs disappear, (their price rises) and the demand curve shifts to the left when consumers substitute lobster for crab (lowering their price). The supply curve then shifts to the right when crabs reappear (their price declines).
C) The price of crab rises when crabs are scarce creating excess demand. The price of crab falls when crabs are abundant creating excess supply.
D) The quantity of crab falls and then rises as crabs disappear and reappear in response to shifts in demand. Demand shifts to the left as consumers substitute toward lobster when crab is scarce and shift to the right when crab is abundant.

Accepted Answer

When king crabs disappear, the supply curve shifts to the left, causing prices to rise. When they reappear, the supply curve shifts to the right, causing prices to decline.

Question 5

Suppose the equilibrium price of oranges is $0.79 an orange, but government takes steps to prevent the price from exceeding $0.60 an orange. The likely result will be a:
A) lower equilibrium price for oranges as the supply curve for oranges shifts to the right.
B) higher equilibrium price for oranges as the demand curve for oranges shifts to the right.
C) shortage of oranges as the price ceiling keeps the market from reaching equilibrium.
D) surplus of oranges as the price ceiling keeps the market from reaching equilibrium.

Accepted Answer

A price ceiling set below the equilibrium price creates a shortage because the quantity demanded exceeds the quantity supplied at the imposed price.

Question 6

What events most likely explain the following Wall Street Journal headline, "Cities Couldn't Give Away Their Trash; Now They Get Top Dollar"?
A) Quantity supplied initially exceeded quantity demanded, but a subsequent increase in the demand for trash not only eliminated the surplus, but led to a rise in the price of trash.
B) Supply initially exceeded demand, but a subsequent increase in the quantity of trash demanded not only eliminated the surplus, but led to a rise in the price of trash.
C) Quantity supplied initially exceeded quantity demanded, but a subsequent increase in the supply of trash not only eliminated the surplus, but led to a rise in the price of trash.
D) Supply initially exceeded demand, but a subsequent increase in the quantity of trash supplied not only eliminated the surplus, but led to a rise in the price of trash.

Accepted Answer

The headline suggests that there was initially more trash available than there was demand for it, leading to a surplus. However, a subsequent increase in demand for trash eliminated the surplus and increased its price.

Question 7

Refer to the following graph.  A price ceiling would be binding, resulting in a market shortage if it is set at:
A) $3.00.
B) $2.25.
C) $1.50.
D) either $3.00 or $1.50.

Accepted Answer

The answer of Refer to the following graph.  A...

Question 8

A Wall Street Journal headline reads: "Cigar Shortage Draws New Brands into Market." The shortage resulted from a renewed interest in smoking cigars. What best describes the facts behind the headline?
A) Price is too low, demand exceeds supply.
B) Price is too low, quantity demanded exceeds quantity supplied.
C) The cigar market is in equilibrium.
D) A shift in supply has equilibrated supply and demand.

Accepted Answer

The renewed interest in smoking cigars has increased the quantity demanded, but the price has not adjusted upwards to balance the increased demand with the available supply, leading to a shortage.

Question 9

An effective price ceiling is best defined as a price:
A) imposed by government below equilibrium price.
B) imposed by government above equilibrium price.
C) higher than any consumer is willing to pay.
D) lower than any supplier is willing to sell.

Accepted Answer

An effective price ceiling is set below the equilibrium price, leading to a shortage as the quantity demanded exceeds the quantity supplied at that price.

Question 10

Refer to the following graph.  If the price is set at Pc:
A) a nonprice rationing mechanism must determine which producers will be able to sell the product.
B) a nonprice rationing mechanism must determine which buyers will be able to purchase the product.
C) anyone willing and able to pay the asking price will be able to purchase the product.
D) the demand curve will shift to the left to achieve a new equilibrium.

Accepted Answer

The answer of Refer to the following graph.  If...

Question 11

An increase in the Federal minimum wage, assuming the minimum is higher than equilibrium wage and that all other things remain constant, will:
A) reduce the number of unemployed.
B) increase the number of unemployed.
C) shift the supply of labor to the right.
D) shift the demand of labor to the right.

Accepted Answer

An increase in the minimum wage above the equilibrium wage creates a surplus of labor, as more workers are willing to work at the higher wage, but employers demand less labor, leading to increased unemployment.

Question 12

Some years ago, Stuyvesant Town and Peter Cooper Village in Manhattan were sold for redevelopment. These villages had been rent controlled, but now that these neighborhoods are no longer rent controlled, one would expect the:
A) houses to be not as well maintained since rent will be so high.
B) housing shortage in the neighborhood to worsen.
C) rent to rise in those neighborhoods.
D) quantity of rentals demanded to rise.

Accepted Answer

When rent control is removed, landlords can charge market rates, leading to an increase in rent prices.

Question 13

When the polio vaccine first became available in the United States, the government controlled the price with an effective price ceiling. Production of the vaccine was not sufficient to fill all orders and the government had to regulate its distribution. Had the vaccine been sold without government intervention, the shortage would have been eliminated by price:
A) falling, quantity demanded decreasing, and supply increasing.
B) falling, demand decreasing, and supply increasing.
C) rising, demand decreasing, and quantity supplied increasing.
D) rising, quantity demanded decreasing, and quantity supplied increasing.

Accepted Answer

A price ceiling kept the price below equilibrium, causing a shortage. Without it, prices would rise, reducing quantity demanded and increasing quantity supplied, eliminating the shortage.

Question 14

Price ceilings and price floors:
A) cause surpluses and shortages in markets respectively.
B) interfere with the allocation function of prices.
C) make the rationing function of markets more efficient.
D) cause demand and supply curves to shift thus having no effect on the rationing function of prices.

Accepted Answer

Price ceilings and floors interfere with the allocation function of prices by preventing the market from reaching equilibrium, leading to inefficiencies such as shortages and surpluses.

Question 15

Refer to the following graphs.  In the early 1990s, mounds of newspapers and worthless plastic piled up at recycling centers. As the nation's economy continued to grow, increased demand eliminated the mounds and turned them into shortages. In the mid-1990s, as recycling became more popular, the mounds of recycled materials returned. What graph best depicts these events on the market for recycled materials?
A) Price remained constant at P0. Quantity demanded first rose, while supply remained constant; quantity supplied then rose, while demand remained constant.
B) Price remained constant at P0. Supply first shifted from S1 to S0 and then back to S1.
C) Price remained constant at P0. Demand shifted from D0 to D1 then supply shifted from S0 to S1.
D) Price remained constant at P0. Demand shifted from D0 to D1 and then back to D0.

Accepted Answer

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

Question 16

When an effective price ceiling is removed, we would expect the price of the good to:
A) increase and the quantity demanded to decrease.
B) increase and the quantity demanded to increase.
C) decrease and the quantity demanded to decrease.
D) decrease and the quantity demanded to increase.

Accepted Answer

When an effective price ceiling is removed, the price is likely to increase to the equilibrium level, leading to a decrease in the quantity demanded as the price rises.

Question 17

Refer to the following graph.  Which price will create the greatest shortage?
A) P0
B) P1
C) P2
D) P3

Accepted Answer

The answer of Refer to the following graph.  Which...

Question 18

Stricter environmental regulations and increased demand for energy have caused an increase in the demand for relatively clean natural gas. In the last several years, improved extraction technologies and new discoveries have increased the availability of natural gas. What has been the net effect on price and quantity for natural gas?
A) Quantity sold and price both fell with certainty.
B) Quantity sold fell and the effect on price is ambiguous.
C) Quantity sold and price both rose with certainty.
D) Quantity sold rose while the effect on price is ambiguous.

Accepted Answer

The increased demand for natural gas raises the quantity sold, while the increased availability due to improved extraction technologies affects the price. The net effect on price is ambiguous because the increase in supply could lower prices, while the increase in demand could raise prices.

Question 19

A number of states have a minimum wage that is higher than the federal minimum. In those states that impose such a minimum wage, it is more likely that the minimum wage acts as a binding:
A) price floor, causing excess supply in the market.
B) price floor, causing excess demand in the market.
C) price ceiling, causing excess supply in the market.
D) price ceiling, causing excess demand in the market.

Accepted Answer

A minimum wage set above the equilibrium wage acts as a binding price floor, leading to excess supply (unemployment) as employers hire fewer workers at the higher wage.

Question 20

When people heard that there was a shortage of specialty dolls, they wanted even more of them. Because of this effect the pressure on the price of these dolls increased. The price of the dolls remained the same however. Thus, the shortage of these dolls:
A) increased.
B) decreased.
C) did not change.
D) may have increased or decreased.

Accepted Answer

The shortage increased because the demand for the dolls rose due to their perceived scarcity, but the price did not adjust to balance the supply and demand, leading to a greater shortage.

Quiz 5: Using Supply and Demand

To keep the price of gas from rising quickly after a hurricane, the government sometimes institutes price ceilings on the price of gasoline. These price ceilings cause ________ in the gasoline market.

Suppose a scientific report states that fish contain dangerously high levels of mercury (toxic to humans) . At the same time, the price of diesel fuel, used by fishermen to fuel their boats, falls. What is the effect on the market for fish?

Suppose the equilibrium price of oranges is $0.79 an orange, but government takes steps to prevent the price from exceeding $0.60 an orange. The likely result will be a:

What events most likely explain the following Wall Street Journal headline, "Cities Couldn't Give Away Their Trash; Now They Get Top Dollar"?

Refer to the following graph. A price ceiling would be binding, resulting in a market shortage if it is set at:

A Wall Street Journal headline reads: "Cigar Shortage Draws New Brands into Market." The shortage resulted from a renewed interest in smoking cigars. What best describes the facts behind the headline?

An effective price ceiling is best defined as a price:

Refer to the following graph. If the price is set at Pc:

An increase in the Federal minimum wage, assuming the minimum is higher than equilibrium wage and that all other things remain constant, will:

Some years ago, Stuyvesant Town and Peter Cooper Village in Manhattan were sold for redevelopment. These villages had been rent controlled, but now that these neighborhoods are no longer rent controlled, one would expect the:

Price ceilings and price floors:

When an effective price ceiling is removed, we would expect the price of the good to:

Refer to the following graph. Which price will create the greatest shortage?

A number of states have a minimum wage that is higher than the federal minimum. In those states that impose such a minimum wage, it is more likely that the minimum wage acts as a binding:

When people heard that there was a shortage of specialty dolls, they wanted even more of them. Because of this effect the pressure on the price of these dolls increased. The price of the dolls remained the same however. Thus, the shortage of these dolls: