Econ 2030: Dickinson: PRACTICE QUESTIONS 1

Name:

Multiple Choice
Identify the choice that best completes the statement or answers the question.

NOTE: Question order mostly follows chapter order in this practice problem set (though not necessarily the same number of questions per chapter). Exams will have questions from different chapters mixed up in random order to create different test versions.

The adage, "There is no such thing as a free lunch," is used to illustrate the principle that

a.	goods are scarce.
b.	people face tradeoffs.
c.	income must be earned.
d.	households face many decisions.

Which of the following is not an example of scarcity?

a.	Only some people can afford to buy a Ferrari.
b.	Every individual in society cannot attain the highest standard of living to which he or she might aspire.
c.	Doug has an unlimited supply of apples in his orchard.
d.	Each member of a household cannot get everything he or she wants.

In economics, the cost of something is

a.	the dollar amount of obtaining it.
b.	always measured in units of time given up to get it.
c.	what you give up to get it.
d.	often impossible to quantify, even in principle.

For a college student who wishes to calculate the true costs of going to college, the costs of room and board

a.	should be counted in full, regardless of the costs of eating and sleeping elsewhere.
b.	should be counted only to the extent that they are more expensive at college than elsewhere.
c.	usually exceed the opportunity cost of going to college.
d.	plus the cost of tuition, equals the opportunity cost of going to college.

Which is the most accurate statement about trade?

a.	Trade can make every nation better off.
b.	Trade makes some nations better off and others worse off.
c.	Trading for a good can make a nation better off only if the nation cannot produce that good itself.
d.	Trade helps rich nations and hurts poor nations.

Trade

a.	allows specialization, which increases costs.
b.	allows specialization, which reduces costs.
c.	reduces specialization, which increases costs.
d.	reduces specialization, which reduces costs.

Prior to the collapse of communism, communist countries worked on the premise that economic well-being could be best attained by

a.	a market economy.
b.	a strong reliance on prices and individuals’ self-interests.
c.	a system of large privately-owned firms.
d.	the actions of government central planners.

The term market failure refers to

a.	a situation in which the market on its own fails to allocate resources efficiently.
b.	an unsuccessful advertising campaign which reduces demand for a product.
c.	a situation in which competition among firms becomes ruthless.
d.	a firm which is forced out of business because of losses.

Almost all variation in living standards is attributable to differences in countries'

a.	population growth rates.
b.	productivity.
c.	systems of public education.
d.	taxes.

10.

Suppose a typical worker in India can produce 32 units of product in an eight-hour day, while a typical worker in Bangladesh can produce 30 units of product in a 10-hour day. We can conclude that

a.	worker productivity in Bangladesh is higher than in India.
b.	the standard of living will likely be higher in India than in Bangladesh.
c.	productivity is 4 units per hour for the worker in Bangladesh and 3 units per hour for the worker in India.
d.	there will be no difference between the standard of living in India and Bangladesh.

Table 2-3

Production Possibilities for Libraryland

Books	Magazines
400	0
300	200
200	350
100	450
0	500

11.

Refer to Table 2-3. What is the opportunity cost to Libraryland of increasing the production of books from 200 to 300?

a.	100 magazines
b.	150 magazines
c.	200 magazines
d.	350 magazines

Figure 2-4

12.

Refer to Figure 2-4. Efficient production is represented by which point(s)?

a.	Y, Z
b.	W, Y, Z
c.	V, Y, Z
d.	V

13.

One way to characterize the difference between positive statements and normative statements is as follows:

a.	Positive statements tend to reflect optimism about the economy and its future, whereas normative statements tend to reflect pessimism about the economy and its future.
b.	Positive statements offer descriptions of the way things are, whereas normative statements offer opinions on how things ought to be.
c.	Positive statements involve advice on policy matters, whereas normative statements are supported by scientific theory and observation.
d.	Economists outside of government tend to make normative statements, whereas government-employed economists tend to make positive statements.

14.

Normative conclusions

a.	come from positive analysis alone.
b.	are based on ignorance of positive analysis.
c.	involve value judgments.
d.	reflect the economist’s role as scientist.

15.

Which of the following is not an example of a positive, as opposed to normative, statement?

a.	Higher gasoline prices will reduce gasoline consumption.
b.	Equality is more important than efficiency.
c.	Trade restrictions lower our standard of living.
d.	If a nation wants to avoid inflation, it will restrict the growth rate of the quantity of money.

16.

Which of the following is one of the basic reasons why economists often appear to give conflicting advice to policymakers?

a.	similar opinions about the validity of economic theories
b.	significant differences in education
c.	differences in personal values
d.	a reliance on normative statement for research theories

17.

Policies such as rent control and trade barriers persist in spite of the fact that economists are virtually united in their opposition to such policies, probably because

a.	economists have not yet convinced the general public that the policies are undesirable.
b.	economists engage in positive analysis, not normative analysis.
c.	economists have values that are different from the values of most non-economists.
d.	economists’ theories are not easily confirmed or refuted in laboratory analysis.

18.

A production possibilities frontier is a straight line when

a.	the more resources the economy uses to produce one good, the fewer resources it has available to produce the other good.
b.	an economy is interdependent and engaged in trade instead of self-sufficient.
c.	the rate of tradeoff between the two goods being produced is constant.
d.	the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

19.

Suppose there are only two people in the world. Each person’s production possibilities frontier also represents his or her consumption possibilities when

a.	neither person faces trade-offs.
b.	the frontiers are straight lines.
c.	the frontiers are bowed out.
d.	they choose not to trade with one another.

Table 3-3

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate.

	Machine Minutes Needed to Make 1
	Toothbrush	Hairbrush
Zimbabwe	3	10
Portugal	5	6

20.

Refer to Table 3-3. Which of the following represents Zimbabwe’s and Portugal’s production possibilities frontiers when each country has 60 minutes of machine time available?

a.	Zimbabwe Portugal
b.	Zimbabwe Portugal
c.	Zimbabwe Portugal
d.	Zimbabwe Portugal

Table 3-11
Assume that Falda and Varick can switch between producing wheat and producing cloth at a constant rate.

	Quantity Produced in 1 Hour
	Bushels of Wheat	Yards of Cloth
Falda	8	12
Varick	6	15

21.

Refer to Table 3-11. Falda’s opportunity cost of one bushel of wheat is

a.	2/3 yard of cloth and Varick’s opportunity cost of one bushel of wheat is 2/5 yard of cloth.
b.	2/3 yard of cloth and Varick’s opportunity cost of one bushel of wheat is 5/2 yards of cloth.
c.	3/2 yards of cloth and Varick’s opportunity cost of one bushel of wheat is 2/5 yard of cloth.
d.	3/2 yards of cloth and Varick’s opportunity cost of one bushel of wheat is 5/2 yards of cloth.

22.

Refer to Table 3-11. Falda’s opportunity cost of one yard of cloth is

a.	2/3 bushel of wheat and Varick’s opportunity cost of one yard of cloth is 2/5 bushel of wheat.
b.	2/3 bushel of wheat and Varick’s opportunity cost of one yard of cloth is 5/2 bushels of wheat.
c.	3/2 bushels of wheat and Varick’s opportunity cost of one yard of cloth is 2/5 bushel of wheat.
d.	3/2 bushels of wheat and Varick’s opportunity cost of one yard of cloth is 5/2 bushels of wheat.

Figure 3-2

Peru’s Production Possibilities Frontier

23.

Refer to Figure 3-2. The fact that the line slopes downward reflects the fact that

a.	for Peru, it is more costly to produce emeralds than it is to produce rubies.
b.	Peru will produce more emeralds and fewer rubies as time goes by.
c.	Peru faces a tradeoff between producing emeralds and producing rubies.
d.	Peru should specialize in producing rubies.

24.

Suppose a gardener produces both green beans and corn in her garden. If the opportunity cost of one bushel of corn is 3/5 bushel of green beans, then the opportunity cost of 1 bushel of green beans is

a.	3/5 bushel of corn.
b.	5/3 bushels of corn.
c.	3 bushels of corn.
d.	5 bushels of corn.

25.

Suppose Jim and Tom can both produce two goods: baseball bats and hockey sticks. Which of the following is not possible?

a.	Jim has an absolute advantage in the production of baseball bats and in the production of hockey sticks.
b.	Jim has an absolute advantage in the production of baseball bats and a comparative advantage in the production of hockey sticks.
c.	Jim has an absolute advantage in the production of hockey sticks and a comparative advantage in the production of baseball bats.
d.	Jim has a comparative advantage in the production of baseball bats and in the production of hockey sticks.

26.

Which of the following statements is not correct?

a.	Trade allows for specialization.
b.	Trade has the potential to benefit all nations.
c.	Trade allows nations to consume outside of their production possibilities curves.
d.	Absolute advantage is the driving force of specialization.

Table 3-2

Assume that Aruba and Iceland can switch between producing coolers and producing radios at a constant rate.

	Labor Hours Needed to Make 1
	Cooler	Radio
Aruba	2	5
Iceland	1	4

27.

Refer to Table 3-2. Aruba has an absolute advantage in the production of

a.	coolers and Iceland has an absolute advantage in the production of radios.
b.	radios and Iceland has an absolute advantage in the production of coolers.
c.	both goods and Iceland has an absolute advantage in the production of neither good.
d.	neither good and Iceland has an absolute advantage in the production of both goods.

28.

Refer to Table 3-2. Assume that Aruba and Iceland each has 80 labor hours available. Originally, each country divided its time equally between the production of coolers and radios. Now, each country spends all its time producing the good in which it has a comparative advantage. As a result, the total output of coolers increased by

a.	20.
b.	40.
c.	60.
d.	80.

Figure 3-4

Perry’s Production Possibilities Frontier	Jordan’s Production Possibilities Frontier

29.

Refer to Figure 3-4. The opportunity cost of 1 novel for Perry is

a.	1/6 poem.
b.	2 poems.
c.	6 poems.
d.	12 poems.

30.

Refer to Figure 3-4. Suppose Perry is willing to trade 4 poems to Jordan for each novel that Jordan writes and sends to Perry. Which of the following combinations of novels and poems could Jordan then consume, assuming Jordan specializes in novel production and Perry specializes in poem production?

a.	1 novel and 14 poems
b.	2 novels and 8 poems
c.	3 novels and 6 poems
d.	4 novels and 2 poems

31.

Refer to Figure 3-4. Jordan should specialize in the production of

a.	novels.
b.	poems.
c.	both goods.
d.	neither good.

Figure 3-10
Alice and Betty’s Production Possibilities in one 8-hour day.

Alice’s Production Possibilities Frontier	Betty’s Production Possibilities Frontier

32.

Refer to Figure 3-10. What are Alice and Betty’s opportunity costs of 1 pizza?

a.	Alice’s opportunity cost of 1 pizza is 1/2 of a pitcher of lemonade and Betty’s opportunity cost of 1 pizza is 2/3 of a pitcher of lemonade.
b.	Alice’s opportunity cost of 1 pizza is 1 pitcher of lemonade and Betty’s opportunity cost of 1 pizza is 3 pitchers of lemonade.
c.	Alice’s opportunity cost of 1 pizza is 2 pitchers of lemonade and Betty’s opportunity cost of 1 pizza is 1.5 pitchers of lemonade.
d.	Alice’s opportunity cost of 1 pizza is 400 pitchers of lemonade and Betty’s opportunity cost of 1 pizza is 450 pitchers of lemonade.

33.

Refer to Figure 3-10. Which of the following statements is correct regarding absolute advantage?

a.	Alice has an absolute advantage in the production of both lemonade and pizzas.
b.	Betty has an absolute advantage in the production of both lemonade and pizzas.
c.	Alice has an absolute advantage in the production of pizzas while Betty has an absolute advantage in the production of lemonade.
d.	Alice has an absolute advantage in the production of lemonade while Betty has an absolute advantage in the production of pizzas.

34.

Economists generally support

a.	trade restrictions.
b.	government management of trade.
c.	export subsidies.
d.	free international trade.

35.

When a country has a comparative advantage in producing a certain good,

a.	the country should import that good.
b.	the country should produce just enough of that good for its own consumption.
c.	the country’s opportunity cost of that good is high relative to other countries’ opportunity costs of that same good.
d.	None of the above is correct.

36.

Suppose the US and Mexico both produce semiconductors and auto parts and the US has a comparative advantage in semiconductors while Mexico has a comparative advantage in auto parts. If the US exports semiconductors to Mexico and imports auto parts from Mexico,

a.	both countries, as a whole, will be better off.
b.	all individuals in both countries will be better off.
c.	both countries, as a whole, will be worse off.
d.	all individuals in both countries will be worse off.

Figure 3-8

Chile’s Production Possibilities Frontier	Colombia’s Production Possibilities Frontier

37.

Refer to Figure 3-8. Chile should specialize in the production of

a.	coffee and import soybeans.
b.	soybeans and import coffee.
c.	both goods and import neither good.
d.	neither good and import both goods.

38.

A competitive market is a market in which

a.	an auctioneer helps set prices and arrange sales.
b.	there are only a few sellers.
c.	the forces of supply and demand do not apply.
d.	no individual buyer or seller has any significant impact on the market price.

39.

In competitive markets,

a.	firms produce identical products.
b.	buyers can influence the market price more easily than sellers.
c.	markets are more likely to be in equilibrium.
d.	sellers are price setters.

40.

The law of demand states that, other things equal, an increase in

a.	price causes quantity demanded to increase.
b.	price causes quantity demanded to decrease.
c.	quantity demanded causes price to increase.
d.	quantity demanded causes price to decrease.

41.

Which of the following is not held constant in a demand schedule?

a.	income
b.	tastes
c.	price
d.	expectations

Figure 4-2

42.

Refer to Figure 4-2. If Consumer A and Consumer B are the only consumers in the market, then the market quantity demanded when the price is $6 is

a.	4 units.
b.	6 units.
c.	8 units.
d.	12 units.

Figure 4-4

43.

Refer to Figure 4-4. Which of the following would cause the demand curve to shift from Demand C to Demand A in the market for DVDs?

a.	an increase in the price of DVDs
b.	a decrease in the price of DVD players
c.	a change in consumer preferences toward watching movies in movie theaters rather than at home
d.	an expectation by buyers that their incomes will increase in the very near future

44.

Refer to Figure 4-4. Which of the following would cause the demand curve to shift from Demand A to Demand B in the market for golf balls in the United States?

a.	a decrease in the price of golf balls
b.	an increase in the price of green fees
c.	an expectation by buyers that their incomes will increase in the very near future
d.	a change in consumer tastes away from golf and toward tennis

45.

A leftward shift of a demand curve is called a(n)

a.	increase in demand.
b.	decrease in demand.
c.	decrease in quantity demanded.
d.	increase in quantity demanded.

46.

Which of the following is not a determinant of the demand for a particular good?

a.	the prices of related goods
b.	income
c.	tastes
d.	the prices of the inputs used to produce the good

47.

Currently you purchase ten frozen pizza per month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase frozen pizzas in January. For you, frozen pizzas are a(n)

a.	substitute good.
b.	normal good.
c.	inferior good.
d.	complementary good.

48.

Suppose that a decrease in the price of good X results in fewer units of good Y being demanded. This implies that X and Y are

a.	complementary goods.
b.	normal goods.
c.	inferior goods.
d.	substitute goods.

49.

If toast and butter are complements, then which of the following would increase the demand for toast?

a.	a decrease in the price of toast
b.	a decrease in the price of butter
c.	an increase in the price of butter
d.	Both a) and b) are correct.

50.

The difference between a supply schedule and a supply curve is that a supply schedule

a.	incorporates demand and a supply curve does not.
b.	incorporates profit and a supply curve does not.
c.	can shift, but a supply curve cannot shift.
d.	is a table, and a supply curve is drawn on a graph.

Figure 4-10

51.

Refer to Figure 4-10. Which of the following would cause the supply curve to shift from Supply A to Supply C in the market for winter coats?

a.	an increase in the price of winter coats
b.	a decrease in the number of firms selling winter coats
c.	a decrease in the price of zippers and snaps
d.	a decrease in the price of winter hats and gloves

52.

Refer to Figure 4-10. Which of the following would cause the supply curve to shift from Supply B to Supply A in the market for tennis racquets?

a.	a decrease in the price of tennis balls
b.	an expectation by firms that the price of tennis racquets will increase in the very near future
c.	a decrease in the price of tennis racquet strings
d.	an improvement in technology that allows firms to use less labor in the production of tennis racquets

53.

The market supply curve

a.	is found by vertically adding the individual supply curves.
b.	slopes downward.
c.	represents the sum of the prices that all the sellers are willing to accept for a given quantity of the good.
d.	represents the sum of the quantities supplied by all the sellers at each price of the good.

54.

Equilibrium price must decrease when demand

a.	increases and supply does not change, when demand does not change and supply decreases, and when demand decreases and supply increases simultaneously.
b.	increases and supply does not change, when demand does not change and supply decreases, and when demand increases and supply decreases simultaneously.
c.	decreases and supply does not change, when demand does not change and supply increases, and when demand decreases and supply increases simultaneously.
d.	decreases and supply does not change, when demand does not change and supply increases, and when demand increases and supply decreases simultaneously.

55.

When supply and demand both increase, equilibrium

a.	price will increase.
b.	price will decrease.
c.	quantity may increase, decrease, or remain unchanged.
d.	price may increase, decrease, or remain unchanged.

Table 4-8
A country club usually only allows members to purchase tickets for its celebrity golf tournament, but the club is considering allowing non-members to purchase tickets this year. The demand and supply schedules are as follows:

Price	Quantity Demanded by Members	Quantity Demanded by Non-members	Quantity Supplied
$10	1000	500	600
$15	800	400	600
$20	600	300	600
$25	400	200	600
$30	200	100	600

56.

Refer to Table 4-8. If only members are allowed to purchase tickets to this year's celebrity golf tournament, then what will be the equilibrium price?

a.	$10
b.	$15
c.	$20
d.	$25

57.

Refer to Table 4-8. If both members and non-members are allowed to purchase tickets to this year's celebrity golf tournament, then what will be the equilibrium price?

a.	$10
b.	$15
c.	$20
d.	$25

Figure 4-15

58.

Refer to Figure 4-15. At a price of $35, there would be

a.	a shortage, and the price would tend to rise from $35 to a higher price.
b.	a surplus, and the price would tend to rise from $35 to a higher price.
c.	excess demand, and the price would tend to fall from $35 to a lower price.
d.	excess supply, and the price would tend to fall from $35 to a lower price.

Figure 4-17

59.

Refer to Figure 4-17. If the price is $10, then there would be a

a.	shortage of 400 units, and price would rise.
b.	surplus of 400 units, and price would rise.
c.	shortage of 600 units, and price would rise.
d.	surplus of 600 units, and price would rise.

60.

Refer to Figure 4-17. At a price of $15,

a.	quantity demanded exceeds quantity supplied.
b.	there is a shortage.
c.	there is an excess demand.
d.	All of the above are correct.

61.

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?

a.	Price would fall, and the effect on quantity would be ambiguous.
b.	Price would rise, and the effect on quantity would be ambiguous.
c.	Quantity would fall, and the effect on price would be ambiguous.
d.	Quantity would rise, and the effect on price would be ambiguous.

62.

If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers’ incomes rise?

a.	Both the equilibrium price and quantity would increase.
b.	Both the equilibrium price and quantity would decrease.
c.	The equilibrium price would increase, and the equilibrium quantity would decrease.
d.	The equilibrium price would decrease, and the equilibrium quantity would increase.

63.

If the price of walnuts rises, many people would switch from consuming walnuts to consuming pecans. But if the price of salt rises, people would have difficulty purchasing something to use in its place. These examples illustrate the importance of

a.	the availability of close substitutes in determining the price elasticity of demand.
b.	a necessity versus a luxury in determining the price elasticity of demand.
c.	the definition of a market in determining the price elasticity of demand.
d.	the time horizon in determining the price elasticity of demand.

64.

For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

a.	There are many substitutes for this good.
b.	The good is a necessity.
c.	The market for the good is narrowly defined.
d.	The relevant time horizon is long.

65.

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for bubble gum is

a.	inelastic.
b.	elastic.
c.	unit elastic.
d.	perfectly inelastic.

Figure 5-1

66.

Refer to Figure 5-1. Between point A and point B, price elasticity of demand is equal to

a.	0.33.
b.	0.67.
c.	1.5
d.	2.67.

67.

In the case of perfectly inelastic demand,

a.	the change in quantity demanded equals the change in price.
b.	the percentage change in quantity demanded equals the percentage change in price.
c.	infinitely-large changes in quantity demanded result from very small changes in the price.
d.	quantity demanded stays the same whenever price changes.

68.

If the demand curve is linear and downward sloping, which of the following statements is not correct?

a.	Demand is more elastic on the lower part of the demand curve than on the upper part.
b.	Different pairs of points on the demand curve can result in different values of the price elasticity of demand.
c.	Different pairs of points on the demand curve result in identical values of the slope of the demand curve.
d.	Starting from a point on the upper part of the demand curve, an increase in price leads to a decrease in total revenue.

69.

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni

a.	and soy-burgers are both normal goods with income elasticities equal to 1.
b.	is an inferior good and soy-burgers are normal goods; both have income elasticities of 1.
c.	is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1.
d.	and soy-burgers are both inferior goods with income elasticities equal to -1.

70.

Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two goods to be

a.	positive.
b.	negative.
c.	either positive or negative. It depends whether A and B are normal goods or inferior goods.
d.	either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the demand curve.

Figure 5-13

71.

Refer to Figure 5-13. Over which range is the supply curve in this figure the most elastic?

a.	$16 to $40
b.	$40 to $100
c.	$100 to $220
d.	$220 to $430

72.

Refer to Figure 5-13. Using the midpoint method, what is the price elasticity of supply between $100 and $220?

a.	0.58
b.	0.67
c.	1.00
d.	1.73

73.

If the quantity supplied responds only slightly to changes in price, then

a.	supply is said to be elastic.
b.	supply is said to be inelastic.
c.	an increase in price will not shift the supply curve very much.
d.	even a large decrease in demand will change the equilibrium price only slightly.

74.

Which of the following statements is valid when the market supply curve is vertical?

a.	Market quantity supplied does not change when the price changes.
b.	Supply is perfectly elastic.
c.	An increase in market demand will increase the equilibrium quantity.
d.	An increase in market demand will not increase the equilibrium price.

75.

Which of the following is an illustration of the market for original paintings by deceased artist Vincent Van Gogh?

a.
b.
c.
d.

a.	A
b.	B
c.	C
d.	D

76.

Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will

a.	raise both price and total revenues.
b.	lower both price and total revenues.
c.	raise price and lower total revenues.
d.	lower price and raise total revenues.

77.

Good news for farming can be bad news for farmers because the

a.	supply curve for an individual farmer is usually perfectly elastic.
b.	supply curve for an individual farmer is usually perfectly inelastic.
c.	demand for basic foodstuffs is usually inelastic, meaning that factors that shift supply to the right decrease total revenues to sellers.
d.	demand for basic foodstuffs is usually elastic, meaning that factors that shift supply to the right increase total revenues to sellers.

Scenario 5-3
Milk has an inelastic demand, and beef has an elastic demand. Suppose that a mysterious increase in bovine infertility decreases both the population of dairy cows and the population of beef cattle by 50 percent.

78.

Refer to Scenario 5-3. The equilibrium price will

a.	increase in both the milk and beef markets.
b.	increase in the milk market and decrease in the beef market.
c.	decrease in the milk market and increase in the beef market.
d.	decrease in both the milk and beef markets.

79.

Refer to Scenario 5-3. Total consumer spending on milk will

a.	increase, and total consumer spending on beef will increase.
b.	increase, and total consumer spending on beef will decrease.
c.	decrease, and total consumer spending on beef will increase.
d.	decrease, and total consumer spending on beef will decrease.

Scenario 5-4
Suppose the government is concerned about firms in the United States importing illegal caviar. As a result, the government increases border patrols to catch illegal shipments. U.S. Customs agents perform DNA testing on the caviar to determine if it comes from endangered species of fish. If so, the government destroys the caviar.

80.

Refer to Scenario 5-4. What would we expect to observe in the caviar market?

a.	Equilibrium prices and quantities will increase.
b.	Equilibrium prices will increase by more if the demand for caviar is elastic than if demand is inelastic.
c.	Total revenues to caviar firms will increase if the demand for caviar is inelastic.
d.	All of the above are correct.

81.

Price controls are usually enacted

a.	as a means of raising revenue for public purposes.
b.	when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
c.	when policymakers detect inefficiencies in a market.
d.	All of the above are correct.

82.

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?

a.	Policymakers have studied the effects of the price ceiling carefully, and they recognize that the price ceiling is advantageous for society as a whole.
b.	Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.
c.	Sellers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.
d.	Buyers and sellers of milk have agreed that the price ceiling is good for both of them and have therefore pressured policymakers into imposing the price ceiling.

83.

A price ceiling will be binding only if it is set

a.	equal to the equilibrium price.
b.	above the equilibrium price.
c.	below the equilibrium price.
d.	either above or below the equilibrium price.

84.

A shortage results when a

a.	nonbinding price ceiling is imposed on a market.
b.	nonbinding price ceiling is removed from a market.
c.	binding price ceiling is imposed on a market.
d.	binding price ceiling is removed from a market.

Figure 6-1

Panel (a)	Panel (b)

85.

Refer to Figure 6-1. The price ceiling shown in panel (a)

a.	is not binding.
b.	creates a surplus.
c.	creates a shortage.
d.	Both a) and b) are correct.

Figure 6-2

86.

Refer to Figure 6-2. The price ceiling

a.	causes a shortage of 45 units of the good.
b.	makes it necessary for sellers to ration the good.
c.	is not binding because it is set below the equilibrium price.
d.	Both a) and b) are correct.

87.

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?

a.	Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.
b.	The number of farmers selling soybeans decreases.
c.	Consumers' income increases, and soybeans are a normal good.
d.	The number of consumers buying soybeans increases.

Figure 6-6

88.

Refer to Figure 6-6. Which of the following statements is correct?

a.	A price ceiling set at $12 would be binding, but a price ceiling set at $8 would not be binding.
b.	A price floor set at $8 would be binding, but a price ceiling set at $8 would not be binding.
c.	A price ceiling set at $9 would result in a surplus.
d.	A price floor set at $11 would result in a surplus.

Figure 6-9

89.

Refer to Figure 6-9. A price floor set at

a.	$4 will be binding and will result in a shortage of 3 units.
b.	$4 will be binding and will result in a shortage of 6 units.
c.	$7 will be binding and will result in a surplus of 6 units.
d.	$7 will be binding and will result in a surplus of 12 units.

90.

Refer to Figure 6-9. At which price would a price floor be nonbinding?

a.	$8
b.	$7
c.	$6
d.	$5

Table 6-2

Price	Quantity Demanded	Quantity Supplied
$0	250	0
$5	200	75
$10	150	150
$15	100	225
$20	50	300
$25	0	375

91.

Refer to Table 6-2. A price ceiling set at $5 will

a.	be binding and will result in a shortage of 50 units.
b.	be binding and will result in a shortage of 75 units.
c.	be binding and will result in a shortage of 125 units.
d.	not be binding.

92.

In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that

a.	OPEC raised the price of crude oil in world markets.
b.	U.S. gasoline producers raised the price of gasoline.
c.	the U.S. government maintained a price ceiling on gasoline.
d.	Americans typically commuted long distances.

93.

One economist has argued that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this?

a.	He fears that low rents will cause low-income people to move into the city, reducing the quality of life for other people.
b.	He fears that rent control will benefit landlords at the expense of tenants, increasing inequality in the city.
c.	He fears that rent controls will cause a construction boom, which will make the city crowded and more polluted.
d.	He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

94.

If the minimum wage exceeds the equilibrium wage, then

a.	the quantity demanded of labor will exceed the quantity supplied.
b.	the quantity supplied of labor will exceed the quantity demanded.
c.	the minimum wage will not be binding.
d.	there will be no unemployment.

Figure 6-13

95.

Refer to Figure 6-13. In this market, a minimum wage of $7.25 is

a.	binding and creates a labor shortage.
b.	binding and creates unemployment.
c.	nonbinding and creates a labor shortage.
d.	nonbinding and creates neither a labor shortage nor unemployment.

96.

If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would

a.	decrease by less than $500.
b.	decrease by exactly $500.
c.	decrease by more than $500.
d.	increase by an indeterminate amount.

97.

A tax imposed on the buyers of a good will lower the

a.	price paid by buyers and lower the equilibrium quantity.
b.	price paid by buyers and raise the equilibrium quantity.
c.	effective price received by sellers and lower the equilibrium quantity.
d.	effective price received by sellers and raise the equilibrium quantity.

98.

The tax incidence

a.	is the manner in which the burden of a tax is shared among participants in a market.
b.	can be shifted to the buyer by imposing the tax on the buyers of a product in a market.
c.	can be shifted to the seller by imposing the tax on the sellers of a product in a market.
d.	All of the above are correct.

99.

How is the burden of a tax divided?

(i)	When the tax is levied on the sellers, the sellers bear a higher proportion of the tax burden.
(ii)	When the tax is levied on the buyers, the buyers bear a higher proportion of the tax burden.
(iii)	Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear an equal proportion of the tax burden.
(iv)	Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden.

a.	(i) and (ii) only
b.	(iv) only
c.	(i), (ii), and (iii) only
d.	(i), (ii), and (iv) only

Figure 6-20

100.

Refer to Figure 6-20. The per-unit burden of the tax on buyers of the good is

a.	$2.
b.	$4.
c.	$6.
d.	$8.