Question 1

When a hurricane destroys a significant portion of an apple crop:
A)apple prices rise, and quantity sold rises.
B)apple prices decline, and quantity sold falls.
C)apple prices rise, and quantity sold falls.
D)apple prices decline, and quantity sold rises.

Accepted Answer

When a significant portion of the apple crop is destroyed by a hurricane, the supply of apples decreases. This leads to an increase in the price of apples as growers try to make up for their losses. However, since fewer apples are available, the quantity sold also decreases. Therefore, the correct answer is C as both price and quantity sold decrease.

Question 2

Which of the following would be the most likely effect of a 75 percent tax on punitive awards by juries?
A)An increase in the number of lawsuits asking for punitive damages
B)A decrease in the number of cases settled out of court
C)An increase in the incentive for plaintiffs to pursue legal action against individuals or businesses who have caused injury due to gross negligence
D)An increase in pre-trial settlements since plaintiffs are willing to accept lower settlement amounts that are not taxed

Accepted Answer

A 75 percent tax on punitive awards would discourage plaintiffs from pursuing more significant sums in court, and they would be more likely to accept pre-trial settlements that are not taxed. Therefore, an increase in pre-trial settlements since plaintiffs are willing to accept lower settlement amounts that are not taxed is the most likely effect of such a tax.

Question 3

The standard supply/demand framework:
A)can be modified to explain real-world events.
B)cannot be modified to explain real-world events.
C)should not be modified to explain real-world events.
D)explains real-world events with no need for modification.

Accepted Answer

While the standard supply/demand framework is a useful starting point, it often needs to be modified or supplemented to explain real-world events. Factors such as market power, externalities, imperfect information, and government intervention can all affect market outcomes and may require adjustments to the basic framework.

Question 4

Tariffs increase equilibrium price and quantity.

Accepted Answer

The answer of Tariffs increase equilibrium price and quantity....

Question 5

The effect of successful compliance with recycling regulation by homeowners on the market for recycled paper along with a concurrent rise in demand for products made with recycled paper is best shown by a shift to the right in the supply of and demand for recyclable paper and a certain drop in its price.

Accepted Answer

The answer of The effect of successful compliance with recycling...

Question 6

Trade sanctions imposed on Iraq that limited Iraq's production of oil after the 1990 Gulf War on the oil market are best shown graphically with a price ceiling below equilibrium price.

Accepted Answer

The answer of Trade sanctions imposed on Iraq that limited...

Question 7

At a Chicago Bulls game 20,000 tickets were sold at $30 apiece.The game was sold out and some people did not get tickets.This suggests that the selling price:
A)was at equilibrium.
B)was below equilibrium.
C)was above equilibrium.
D)could not have been any higher.

Accepted Answer

The answer of At a Chicago Bulls game 20,000 tickets...

Question 8

The minimum wage is an example of a price floor.

Accepted Answer

A price floor is a government-imposed minimal price that is above the equilibrium price, which leads to a situation where the quantity of a good or service supplied exceeds the quantity demanded. The minimum wage establishes a legal minimum price that employers must pay to their employees for their labor, which can lead to an excess supply of labor (i.e., unemployment) if the market equilibrium wage is below the minimum wage level.

Question 9

Online music stores such as Apple's iTunes provide an alternative to buying CDs.The introduction of online music stores has shifted:
A)the supply curve of CDs to the right.
B)the supply curve of CDs to the left.
C)the demand curve of CDs to the right.
D)the demand curve of CDs to the left.

Accepted Answer

The introduction of online music stores has made it easier for people to purchase music without needing to buy physical CDs. This has led to a decrease in the demand for CDs, causing the demand curve for CDs to shift to the left. Therefore, choice D is the correct answer.

Question 10

A price floor causes excess demand, resulting in the need to ration by some means other than price.

Accepted Answer

The answer of A price floor causes excess demand, resulting...

Question 11

Given a downward sloping demand curve, a tax on the supply of a good will result in an increase in equilibrium price that is less than the amount of the tax.

Accepted Answer

This is because a tax on the supply of a good will shift the supply curve upward, leading to a decrease in quantity supplied and an increase in equilibrium price. However, because the demand curve is downward-sloping, the increase in price will result in a decrease in quantity demanded. As a result, the burden of the tax will be shared by producers (through a decrease in quantity supplied) and consumers (through a decrease in quantity demanded), resulting in a smaller increase in equilibrium price than the amount of the tax.

Question 12

Suppose a recent and widely circulated medical article reports new benefits of exercise.Simultaneously, the price of the parts needed to make bikes falls.What is the likely effect on the equilibrium price and quantity of exercise bikes sold?
A)Price of exercise bikes decreases and quantity sold remains the same.
B)Price of exercise bikes increases and quantity sold also increases.
C)Price of exercise bikes remains the same and quantity sold increases.
D)The change in price is ambiguous, but the quantity sold increases.

Accepted Answer

The decrease in the price of parts needed to make bikes will lead to a decrease in the cost of production for exercise bikes, which could in turn lead to a decrease in the price of exercise bikes. This would increase the demand for exercise bikes, as there are new benefits of exercise reported, resulting in an increase in quantity sold. However, it is difficult to determine the exact direction of the price change, hence the change in price is ambiguous, but the quantity sold increases.

Question 13

Suppose the price of tomatoes dramatically increases.Which of the following could cause this change?
A)Hurricanes during the late summer damages the Florida crop, shifting supply left
B)A reduction in tariffs of tomatoes from Central American, shifting supply right
C)Anews report stating that a pesticide used on tomatoes might cause cancer, shifting the demand to the right
D)Advertising for catsup increases demand for catsup, shifting the demand curve to the left

Accepted Answer

A hurricane damaging the crop would reduce the supply of tomatoes, shifting the supply curve to the left and causing the price to increase.

Question 14

The U.S.Postal Service printed 150,000 sheets of a stamp depicting Bill Pickett, but recalled them when the USPS realized the image on the stamp was Bill's brother, Ben instead.They were unable to recall 183 sheets that had already been sold.The effect of this recall was to:
A)drastically reduce the demand for the stamps, causing their equilibrium price to fall.
B)have no effect on either supply of or demand for the Bill Pickett stamps because there is no market for them.
C)drastically reduce the supply of the Bill Pickett stamps, causing their equilibrium price to rise.
D)drastically reduce the supply of the Bill Pickett stamps, causing their equilibrium price to fall.

Accepted Answer

The answer of The U.S.Postal Service printed 150,000 sheets of...

Question 15

When gasoline prices rose in the early 2000s, the demand for SUVs fell.An economist would predict that SUV prices would decline or at least not rise as quickly.

Accepted Answer

When there is a decrease in demand for a product, the price tends to go down in order to stimulate demand. In this case, the decrease in demand for SUVs would lead to a decrease in price or a slower increase in price.

Question 16

The Katrina disaster in New Orleans decreased the ability of oil companies to purify crude oil into gasoline.This caused:
A)the supply curve for gasoline to shift inward.
B)the supply curve for gasoline to shift outward.
C)the quantity of gasoline demanded to move out along the demand curve.
D)the quantity of gasoline supplied to move in along the supply curve.

Accepted Answer

The disaster reduced the refining capacity, leading to a decrease in the supply of gasoline, which shifts the supply curve inward.

Question 17

When the person who chooses how much to purchase doesn't have to bear the full cost, the quantity demanded tends to be higher.

Accepted Answer

This is the basic principle of externalities in economics, where a third party bears the cost or benefit of a transaction between two parties. In this case, the person who chooses how much to purchase (buyer) is not bearing the full cost, and thus tends to demand more than if they were bearing the full cost themselves.

Question 18

Real-world experience shows that when weather conditions reduce crop yields, the price of agricultural products will fall.

Accepted Answer

When weather conditions reduce crop yields, the supply of agricultural products decreases which would normally cause the price of these products to increase, not fall.

Question 19

European Union subsidizes its farmers.How do these subsidies make it difficult for farmers in developing economies to compete in the world farm market?
A)The subsidies set a price ceiling for EU farm goods, keeping prices below the market equilibrium, and lowering the price developing country farmers can receive for their produce.
B)The subsidies shift the supply of EU farm goods to the right, lowering world prices of farm goods and the price developing country farmers can receive for their produce.
C)The subsidies function as a tariff, causing imports from developing countries to become artificially expensive, thus denying European consumers the benefits of cheap imported food
D)The subsidies create ethical problems for Europeans who want to buy farm products from developing countries since the subsidies are raising the price of developing country produce.

Accepted Answer

The EU subsidies increase the supply of farm products, causing an increase in world supply and a decrease in world prices. This makes it difficult for farmers in developing economies to compete in the world farm market, as they cannot match the lower prices offered by the subsidized EU farmers.

Question 20

The U.S.imposes substantial taxes on cigarettes but not on loose tobacco.When the tax on cigarettes went into effect, the demand for home cigarette rolling machines most likely:
A)decreased, causing the price of cigarette rolling machines to fall and the quantity of machines purchased to fall.
B)decreased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to fall.
C)increased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to rise.
D)increased, causing the price of cigarette rolling machines to rise and the quantity of machines purchased to fall.

Accepted Answer

With the imposition of substantial taxes on cigarettes, the demand for home cigarette rolling machines is likely to increase as it would be an alternative for smokers to make their cigarettes. As a result, the price of cigarette rolling machines would rise as the demand for such machines would increase. The quantity of machines purchased would also increase as more smokers would turn to home cigarette rolling machines.

Quiz 5: Using Supply and Demand

When a hurricane destroys a significant portion of an apple crop:

Which of the following would be the most likely effect of a 75 percent tax on punitive awards by juries?

The standard supply/demand framework:

Tariffs increase equilibrium price and quantity.

Trade sanctions imposed on Iraq that limited Iraq's production of oil after the 1990 Gulf War on the oil market are best shown graphically with a price ceiling below equilibrium price.

At a Chicago Bulls game 20,000 tickets were sold at $30 apiece.The game was sold out and some people did not get tickets.This suggests that the selling price:

The minimum wage is an example of a price floor.

Online music stores such as Apple's iTunes provide an alternative to buying CDs.The introduction of online music stores has shifted:

A price floor causes excess demand, resulting in the need to ration by some means other than price.

Given a downward sloping demand curve, a tax on the supply of a good will result in an increase in equilibrium price that is less than the amount of the tax.

Suppose a recent and widely circulated medical article reports new benefits of exercise.Simultaneously, the price of the parts needed to make bikes falls.What is the likely effect on the equilibrium price and quantity of exercise bikes sold?

Suppose the price of tomatoes dramatically increases.Which of the following could cause this change?

The U.S.Postal Service printed 150,000 sheets of a stamp depicting Bill Pickett, but recalled them when the USPS realized the image on the stamp was Bill's brother, Ben instead.They were unable to recall 183 sheets that had already been sold.The effect of this recall was to:

When gasoline prices rose in the early 2000s, the demand for SUVs fell.An economist would predict that SUV prices would decline or at least not rise as quickly.

The Katrina disaster in New Orleans decreased the ability of oil companies to purify crude oil into gasoline.This caused:

When the person who chooses how much to purchase doesn't have to bear the full cost, the quantity demanded tends to be higher.

Real-world experience shows that when weather conditions reduce crop yields, the price of agricultural products will fall.

European Union subsidizes its farmers.How do these subsidies make it difficult for farmers in developing economies to compete in the world farm market?

The U.S.imposes substantial taxes on cigarettes but not on loose tobacco.When the tax on cigarettes went into effect, the demand for home cigarette rolling machines most likely: