Question 1

Which of the following is a major disadvantage of setting the price of a good below equilibrium and using waiting in line rather than price to ration the good?
A) Compared to price rationing, waiting in line is unfair since it is easier for those with higher incomes to wait in line.
B) Waiting in line imposes a cost on the consumer; paying higher prices does not.
C) Both waiting in line and higher prices are costly to consumers, but unlike the payment of a higher price, waiting in line does not provide suppliers with an incentive to expand future output.
D) Waiting in line benefits consumers at the expense of producers.

Accepted Answer

C

Question 2

Other things constant, a decrease in the demand for computers will
A) increase the price of computers.
B) increase the quantity supplied of computers.
C) increase the demand for computer manufacturing workers.
D) decrease the demand for computer manufacturing workers.

Accepted Answer

A decrease in the demand for computers will lead to a decrease in production, reducing the need for computer manufacturing workers.

Question 3

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 as it is a key material in the construction of homes. This increased demand would cause the price of lumber to increase.

Question 4

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because
A) the market price of the product will fall in response to the subsidy.
B) the market price of the product will rise in response to the subsidy.
C) the market price of the product will not change in response to the subsidy.
D) producers will reduce the supply of the product.

Accepted Answer

When a government subsidy is granted to sellers of a product, the production cost for the sellers decreases. This leads to an increase in supply and a decrease in the price of the product. As the price decreases, buyers may end up capturing some of the benefit of the subsidy in the form of lower prices. Therefore, the market price of the product will fall in response to the subsidy.

Question 5

When a price floor is above the equilibrium price,
A) quantity demanded will exceed quantity supplied, so there will be a shortage.
B) quantity supplied will exceed quantity demanded, so there will be a surplus.
C) the market will be in equilibrium.
D) This is a trick question because price floors are generally set below the equilibrium price.

Accepted Answer

The answer of When a price floor is above the...

Question 6

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that the below-equilibrium prices established by rent controls would
A) create a surplus of rental housing.
B) promote a rapid increase in the future supply of housing.
C) result in poor service and quality deterioration of many rental units.
D) lead to a reduction in housing discrimination against minorities.

Accepted Answer

Rent control typically results in poor service and quality deterioration of many rental units because landlords have less of an incentive to maintain or improve their properties when they are unable to increase rental prices to cover those costs. This can ultimately lead to a decline in the overall quality of housing in the market. A and B are not likely outcomes of rent control, as it is more likely to result in a shortage of rental housing rather than a surplus, and it may not necessarily incentivize an increase in future housing supply. D is not directly related to the impact of rent control on housing quality and is therefore an irrelevant option.

Question 7

An increase in the number of students attending college would tend to
A) reduce the demand for college professors.
B) decrease the number of college professors employed.
C) increase the demand for college professors.
D) reduce the wage for college professors.

Accepted Answer

An increase in the number of students attending college would lead to an increase in demand for college professors, as there would be a greater need for teachers to accommodate the larger student body.

Question 8

The more elastic the supply of a product, the more likely it is that the
A) burden of a tax on the product will fall on sellers.
B) burden of a tax on the product will fall on buyers.
C) burden of a tax on the product will fall equally on both buyers and sellers.
D) deadweight loss of the tax will be smaller.

Accepted Answer

The answer of The more elastic the supply of a...

Question 9

The Laffer curve illustrates the concept that
A) an increase in marginal tax rates will always cause tax revenues to increase.
B) an increase in marginal tax rates will always cause tax revenues to decrease.
C) when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase.
D) when marginal taxes are quite low, an increase in the tax rate will probably cause tax revenues to decline.

Accepted Answer

The Laffer curve shows that at low tax rates, increasing the tax rate will increase government revenue. However, at some point, increasing the tax rate further will actually decrease government revenue because it discourages people from working and participating in the economy. Therefore, when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase - this is known as the "Laffer effect." Choice A and B are incorrect because the Laffer curve illustrates the opposite of these options. Choice D is incorrect because it doesn't take into account the Laffer effect.

Question 10

Which of the following is the most likely result of an increase in the minimum wage?
A) an increase in the employment of unskilled workers
B) a decrease in the number of workers seeking minimum wage jobs
C) an increase in the demand for unskilled workers
D) a decrease in the employment of unskilled workers

Accepted Answer

When the minimum wage is increased, it becomes more expensive for employers to hire unskilled workers. As a result, some employers may choose to reduce their workforce or replace unskilled workers with automation or more skilled workers, leading to a decrease in employment opportunities for unskilled workers. Thus, option D is the most likely result of an increase in the minimum wage.

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. This leads to a decrease in demand for the resource, as consumers are less willing to pay the higher cost. This is represented by a movement along the demand curve to a lower quantity demanded.

Question 12

An increase in the number of students graduating with a major in engineering would result in
A) a decrease in the supply of engineers that would increase the wage of engineers and decrease the number employed.
B) an increase in the supply of engineers that would decrease the wage of engineers and increase the number employed.
C) a decrease in the demand for engineers that would decrease the wage of engineers and decrease the number employed.
D) an increase in the demand for engineers that would increase the wage of engineers and increase the number employed.

Accepted Answer

An increase in the number of students graduating with a major in engineering would increase the supply of engineers in the market. According to the law of supply and demand, an increase in supply would lead to a decrease in wage rates and an increase in the number of engineers employed. Therefore, the correct option is B.

Question 13

If there was an increase in the excise tax imposed on beer suppliers, what would be the effect on the equilibrium price and quantity of beer?
A) price increases; quantity decreases
B) price decreases; quantity decreases
C) price increases; quantity increases
D) price decreases; quantity increases

Accepted Answer

An increase in excise tax on beer suppliers would increase the cost of production for beer, leading to a decrease in supply. As a result, the equilibrium price of beer would increase while the equilibrium quantity of beer would decrease.

Question 14

How would an increase in the price of paper influence the market for college textbooks?
A) The supply of textbooks would increase causing the price of textbooks to fall.
B) The supply of textbooks would increase causing the price of textbooks to rise.
C) The supply of textbooks would decrease causing the price of textbooks to fall.
D) The supply of textbooks would decrease causing the price of textbooks to rise.

Accepted Answer

An increase in the price of paper would increase the cost of producing textbooks, therefore reducing the profit margin for textbooks. Assuming that demand for textbooks is constant, textbook producers would respond to the decreased profit margin by reducing supply. As a result, the supply of textbooks would decrease, causing the price of textbooks to rise, making choice D the correct answer.

Question 15

Which of the following would tend to increase the wage of coal miners?
A) new environmental laws that make it more costly for firms to use coal in their production process
B) an increase in the price of oil, a substitute for coal
C) a decrease in the demand for coal
D) an increase in the supply of coal miners

Accepted Answer

The answer of Which of the following would tend to...

Question 16

Other things constant, an increase in the demand for motorcycles will
A) decrease the price of motorcycles.
B) decrease the quantity of motorcycles bought and sold.
C) decrease the demand for motorcycle workers and lower their wages.
D) increase the demand for motorcycle workers and increase their wages.

Accepted Answer

An increase in the demand for motorcycles will lead to an increase in the production of motorcycles, requiring more motorcycle workers to be employed. This will increase the demand for motorcycle workers and increase their wages. A and B are incorrect because an increase in demand will cause an increase in price and quantity bought and sold, respectively. C is incorrect because an increase in demand will increase the demand for motorcycle workers and possibly increase their wages.

Question 17

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 the labor market, the wage rate is considered as the market price and is shown on the vertical axis. Employment, which represents the quantity of labor demanded or supplied, is shown on the horizontal axis. Therefore, both (b) and (c) are correct. Additionally, the demand for labor is still downward sloping because at a higher wage rate, employers will demand fewer workers, all other factors being equal. Therefore, (A) is incorrect.

Question 18

A new law requiring plumbers to pass strict certification tests that reduce the number of plumbers would
A) increase the wage rate of plumbers.
B) decrease the wage rate of plumbers.
C) increase the employment of plumbers.
D) cause no change in the labor market for plumbers.

Accepted Answer

The reduction in the number of plumbers due to the certification tests would lead to an increase in the wage rate of plumbers as their skills and qualifications become more valuable in the labor market.

Question 19

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

The answer of A substantial revision of the income tax...

Question 20

If the demand for a good is highly inelastic, a tax on the good
A) places the burden of the tax equally on buyers and sellers
B) permits sellers to pass most of the cost increase resulting from the tax on to the consumers of the product
C) reduces the profits earned by sellers since they must write the check to pay the tax
D) makes the demand more inelastic
E) makes the demand more elastic

Accepted Answer

If the demand for a good is highly inelastic, it means that consumers are not very responsive to changes in price. Therefore, if a tax is imposed on the good, sellers can pass on most of the cost increase resulting from the tax onto consumers without losing too many sales. This means that the burden of the tax falls primarily on the consumers, rather than being shared equally between buyers and sellers.

Quiz 4: Supply and Demand: Applications and Extensions

Which of the following is a major disadvantage of setting the price of a good below equilibrium and using waiting in line rather than price to ration the good?

Other things constant, a decrease in the demand for computers will

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

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because

When a price floor is above the equilibrium price,

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that the below-equilibrium prices established by rent controls would

An increase in the number of students attending college would tend to

The more elastic the supply of a product, the more likely it is that the

The Laffer curve illustrates the concept that

Which of the following is the most likely result of an increase in the minimum wage?

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

An increase in the number of students graduating with a major in engineering would result in

If there was an increase in the excise tax imposed on beer suppliers, what would be the effect on the equilibrium price and quantity of beer?

How would an increase in the price of paper influence the market for college textbooks?

Which of the following would tend to increase the wage of coal miners?

Other things constant, an increase in the demand for motorcycles will

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

A new law requiring plumbers to pass strict certification tests that reduce the number of plumbers would

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?

If the demand for a good is highly inelastic, a tax on the good