Question 1

When a price floor is imposed above the equilibrium price of a commodity,
A) quantity demanded will be greater than quantity supplied for the good.
B) the quantity demanded by consumers will be greater than at the equilibrium price.
C) a shortage of the good will develop.
D) a surplus of the good will develop.

Accepted Answer

A price floor set above the equilibrium price results in a surplus because it leads to a higher price than consumers are willing to pay, reducing quantity demanded while increasing quantity supplied.

Question 2

In a market economy, which of the following would most likely cause a prolonged grain surplus?
A) a decrease in the demand for grain
B) an increase in the supply of grain
C) imposition of a price floor above the equilibrium price of grain
D) imposition of a price ceiling below the equilibrium price of grain

Accepted Answer

A price floor set above the equilibrium price prevents the market from clearing, leading to a surplus as producers supply more grain than consumers are willing to buy at that price.

Question 3

When the price of a good is legally set below the equilibrium level, a shortage often results. This shortage
A) is a temporary failure of the market mechanism.
B) is the result of a shift in demand.
C) is the result of a shift in supply.
D) occurs because the price ceiling prevents the market mechanism from establishing an equilibrium price.

Accepted Answer

A shortage occurs because a price ceiling prevents the market from reaching equilibrium, where supply equals demand, leading to excess demand at the artificially low price.

Question 4

Which of the following would tend to increase the price of lumber?
A) a technological advance that lowers the cost of cutting timber
B) an increase in the demand for newly constructed homes
C) a decrease in the demand for wooden rocking chairs
D) a decrease in the tax imposed on firms who produce lumber

Accepted Answer

An increase in the demand for newly constructed homes would increase the demand for lumber, thus driving up its price.

Question 5

A law establishing a minimum legal price for a good or service (the minimum wage for example) is known as
A) an equilibrium price.
B) a price floor.
C) a price ceiling.
D) a price wall.

Accepted Answer

A price floor is a government-imposed minimum price for a good or service.

Question 6

Both price floors and price ceilings lead to
A) shortages.
B) surpluses.
C) reductions in quality.
D) a reduction in the quantity traded.

Accepted Answer

Price floors and price ceilings both disrupt the market equilibrium, leading to a reduction in the quantity traded due to either excess supply or demand.

Question 7

Economic analysis indicates minimum wage legislation has
A) made it possible for any teenager who wants to work to earn almost 80 percent as much as an adult.
B) made it easier for teenagers to find jobs that offer the opportunity for training.
C) been an important source of increases in income since most workers earn at or near the minimum wage.
D) reduced the on-the-job training opportunities available to teenagers.

Accepted Answer

Minimum wage legislation can lead to reduced on-the-job training opportunities for teenagers as employers may be less willing to hire and train inexperienced workers at higher wage rates.

Question 8

An effective minimum wage
A) imposes a price ceiling on the wages of various categories of low-skill workers.
B) increases the demand for low-skill workers.
C) makes it easier for low skill workers to find jobs.
D) increases the earnings of some low-skill workers while reducing the employment and training opportunities available to others.

Accepted Answer

An effective minimum wage sets a floor on wages, which can increase earnings for some workers but may also lead to reduced employment opportunities as employers may hire fewer workers or reduce training due to higher labor costs.

Question 9

When a supply and demand model is used to analyze the market for labor,
A) demand is generally no longer downward sloping.
B) the wage rate is used on the vertical axis as the market price.
C) employment is used on the horizontal axis as the market quantity.
D) both b and c.

Accepted Answer

In a labor market model, the wage rate is typically used on the vertical axis as the price of labor, and employment is used on the horizontal axis as the quantity of labor.

Question 10

The market pricing system corrects an excess supply by
A) raising the product price and increasing producer profits.
B) lowering the product price and decreasing producer profits.
C) raising the product price and decreasing producer profits.
D) lowering the product price and increasing producer profits.

Accepted Answer

When there is excess supply, prices tend to decrease to encourage more consumers to buy the product, which can lead to decreased producer profits until the market reaches equilibrium.

Question 11

Other things constant, as the price of a resource increases,
A) the quantity of the resource demanded falls.
B) the quantity of the resource supplied falls.
C) the price of the product the resource helps to produce falls.
D) there is less of an incentive for users of the resource to find substitute resources.

Accepted Answer

As the price of a resource increases, the cost of using that resource also increases, leading to a decrease in the quantity demanded by firms seeking to minimize costs.

Question 12

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?
A) an increase in quantity of unskilled labor demanded
B) a decrease in the quantity of unskilled labor supplied
C) a shortage of unskilled labor
D) a surplus of unskilled labor (unemployment)

Accepted Answer

When the minimum wage is set above the market equilibrium, it results in a higher wage than what the market would naturally set. This leads to a surplus of unskilled labor because employers demand less labor at the higher wage, while more workers are willing to work at this higher wage, resulting in unemployment.

Question 13

Which one of the following will most likely be harmed by legislation exempting teenagers from the minimum wage?
A) a high school student seeking a part-time job
B) a high-skilled, 30-year-old worker who is unlikely to compete with low-skilled teenagers in the employment market
C) a large family that often employs the services of low-skilled, part-time workers
D) an illiterate 40-year-old worker with few labor skills

Accepted Answer

An illiterate 40-year-old worker with few labor skills would likely be harmed because they might be directly competing with teenagers for low-skilled jobs. If teenagers are exempt from the minimum wage, employers might prefer hiring them over the 40-year-old worker due to lower labor costs.

Question 14

Which of the following about minimum wage is true?
A) Most minimum wage workers are employed more than 40 hours per week.
B) Economic analysis indicates an increase in the minimum wage would increase the training opportunities available to inexperienced workers.
C) Most minimum wage workers are heads of families with incomes below the poverty level.
D) Most minimum wage workers are employed part-time, and they are often members of a household with an income well above the poverty level.

Accepted Answer

Most minimum wage workers are employed part-time, and they are often members of a household with an income well above the poverty level.

Question 15

A substantial revision of the income tax code that made business and personal tax returns much easier to complete would tend to cause which of the following changes in the labor market for accountants?
A) an increase in the demand for accountants
B) an increase in the employment of accountants
C) a decrease in the wage rate of accountants
D) an increase in the number of students choosing to major in accounting

Accepted Answer

A simplification of the tax code would likely reduce the demand for accountants, as fewer people would need their services for tax preparation, leading to a decrease in the wage rate for accountants.

Question 16

A price floor set above an equilibrium price tends to cause persistent imbalances in the market because
A) Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.
B) Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus.
C) Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage.
D) Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.

Accepted Answer

A price floor set above the equilibrium price results in a surplus because the quantity supplied exceeds the quantity demanded. The price cannot fall to eliminate this surplus, leading to persistent imbalances.

Question 17

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?
A) There will be a shortage of wheat.
B) There will be a surplus of wheat.
C) There will be an increase in the quantity of wheat demanded as the result of the price floor.
D) There will be a decrease in the quantity of wheat supplied as the result of the price floor.

Accepted Answer

A price floor set above the equilibrium price leads to a surplus because the higher price reduces the quantity demanded and increases the quantity supplied.

Question 18

A price floor that sets the price of a good above market equilibrium will cause
A) a decrease in quantity demanded of the good.
B) an increase in quantity supplied of the good.
C) a surplus of the good.
D) all of the above.

Accepted Answer

A price floor above equilibrium leads to a higher price, reducing quantity demanded (A), increasing quantity supplied (B), and resulting in a surplus (C).

Question 19

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen?
A) The quantity of milk demanded will increase.
B) The quantity of milk supplied will decrease.
C) There will be a surplus of milk.
D) There will be a shortage of milk.

Accepted Answer

A price floor set above the market equilibrium price will result in a surplus because the higher price encourages producers to supply more milk than consumers are willing to buy at that price.

Question 20

Suppose that the minimum wage was increased to $10 per hour. Which of the following would be most likely to result from the minimum wage increase?
A) an increase in the employment of low-skill workers previously employed at wage rates of less than $10 per hour
B) an increase in the number of jobs providing low-skill workers with on-the-job training
C) a reduction in the number of teenagers unemployed
D) an increase in the demand for high-skill workers providing services that are a good substitute for those whose wages were pushed up by the higher minimum wage

Accepted Answer

When the minimum wage is increased, employers may seek to hire more high-skill workers who can perform tasks more efficiently, as they may be seen as a better value compared to low-skill workers whose wages have increased.

Quiz 4: Supply and Demand: Applications and Extensions

When a price floor is imposed above the equilibrium price of a commodity,

In a market economy, which of the following would most likely cause a prolonged grain surplus?

When the price of a good is legally set below the equilibrium level, a shortage often results. This shortage

Which of the following would tend to increase the price of lumber?

A law establishing a minimum legal price for a good or service (the minimum wage for example) is known as

Both price floors and price ceilings lead to

Economic analysis indicates minimum wage legislation has

An effective minimum wage

When a supply and demand model is used to analyze the market for labor,

The market pricing system corrects an excess supply by

Other things constant, as the price of a resource increases,

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

Which one of the following will most likely be harmed by legislation exempting teenagers from the minimum wage?

Which of the following about minimum wage is true?

A substantial revision of the income tax code that made business and personal tax returns much easier to complete would tend to cause which of the following changes in the labor market for accountants?

A price floor set above an equilibrium price tends to cause persistent imbalances in the market because

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?

A price floor that sets the price of a good above market equilibrium will cause

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen?

Suppose that the minimum wage was increased to $10 per hour. Which of the following would be most likely to result from the minimum wage increase?