Questions:
1. In the market equilibrium, with a price of $500 there are 2000 apartments. If the government decides to enact a rent control policy, with a maximum price of $400, it reduces the quantity to 1500 apartments. Due to the rent control decreasing the total surplus of the market, the policy generates a(n) __________ .
A. excess supply
B. equilibrium
C. higher price
D. deadweight loss
2. If the government sets a maximum price for insulin below the equilibrium price, __________ .
A. there will be an efficient level of insulin produced
B. there will be excess supply of insulin
C. total surplus will be lower than it would be at the market equilibrium price
D. total surplus will be greater than it would be at the market equilibrium price
3. If the government sets a maximum price for gasoline above the equilibrium price, __________ .
A. quantity demanded of gasoline will be equal to quantity supplied of gasoline
B. there will be excess demand for gasoline
C. there will be excess supply of gasoline
D. demand for gasoline will be less than supply of gasoline
4. Assume that linen pants are a normal good and consumer income rises. If the supply of linen pants remains constant, producer surplus __________ .
A. will decrease
B. will increase
C. will remain constant
D. may increase or decrease depending on the amount of the price increase
5. Assume that Crystal's demand for handbags remains constant, but the price of handbags increases. Crystal's consumer surplus __________ .
A. decreases
B. increases
C. remains constant
D. may increase or decrease depending on the amount of the price decrease
6. Producer surplus is equal to __________ .
A. the area under the supply curve
B. the area above the supply curve below the good's price
C. the area under the supply curve below the good's price
D. the good's price times the quantity purchased
7. Taxes may cause deadweight losses because __________ .
A. they transfer purchasing power from buyers to the government
B. they lower the surplus in the market
C. they increase consumer surplus at the expense of producer surplus
D. they transfer purchasing power from sellers to the government
8. At the free market equilibrium, the efficient level of output is produced because __________ .
A. government regulates the output level that must be produced
B. firms are maximizing profit
C. willingness to pay is the same for all consumers
D. total surplus is maximized
9. Assume that the supply of smartphones remains constant, but the price of smartphones increases. Producer surplus __________ .
A. will decrease
B. will increase
C. will remain constant
D. may increase or decrease depending on the amount of the price increase
10. Consumer surplus can be defined as the __________ .
A. value a consumer receives from a good minus the price paid for that good
B. maximum amount the consumer would pay for a good
C. actual amount paid for a good minus the benefit of using that good
D. marginal utility of a good divided by its price
11. Assume that there is rent control in Chicago. Which of the following is true?
A. All consumers in the rental market will benefit because the rent will be lower.
B. The total surplus will fall because there will be a shortage of apartments.
C. The total surplus will rise because consumer surplus will increase.
D. Consumer surplus will increase and as a result all consumers in the rental market will benefit.
12. Recall the application about price controls and the candy bars. During World War II, the U.S. government imposed price controls to set maximum prices on all different products, including candy bars. How did the candy bar producers respond to maximum prices?
A. Producers increased the supply of candy bars.
B. Producers shrank the weight of the candy bars.
C. A lot of the producers dropped out of candy bar market.
D. none of the above
13. Once a firm is forced to consider an external cost, the price of its product will __________ .
A. increase and output will decrease
B. increase and output will increase
C. decrease and output will decrease
D. decrease and output will increase
14. Sirens located around a town to warn citizens of the approach of a tornado are an example of __________ .
A. an external cost
B. a private good
C. a common resource
D. a public good
15. By imposing tolls on people who drive during the busiest times, a government would be attempting to __________ .
A. internalize an externality
B. institute a progressive tax
C. externalize an internality
D. encourage driving to generate revenue
16. A harbor lighthouse that guides approaching ships is an example of __________ .
A. a public good
B. a private good
C. a monopoly
D. a good that is rival
17. If, while producing goods and services, a factory is producing pollution and not incurring the cost of this pollution, then a(n) __________ exists.
A. government failure
B. market failure
C. acceptable outcome
D. none of the above
18. Private goods are __________ .
A. rival in consumption and their benefits are excludable
B. nonrival in consumption and their benefits are excludable
C. nonrival in consumption and their benefits are nonexcludable
D. rival in consumption and their benefits are nonexcludable
19. If the government taxes a firm that is generating an external cost, the price of the firm's product will __________ .
A. increase and output will decrease
B. increase and output will increase
C. decrease and output will decrease
D. decrease and output will increase
20. Which of the following would NOT be considered a public good?
A. national defense
B. radio broadcasts
C. police protection
D. a newspaper
21. Markets that have external costs will produce __________ output than the socially efficient level, whereas markets that have external benefits will produce __________ output than the socially efficient level.
A. less; less
B. more; more
C. more; less
D. less; more
22. Which of the following would be classified as an external cost?
A. As more firms began hiring computer programmers, the salaries of computer programmers increased and therefore the firm's cost of production increased.
B. You eat too much pizza and end up with a stomach ache.
C. You are not able to study at night because there is so much noise coming from the dorm room next to yours.
D. When you purchase a prescription drug you are not made fully aware of all the possible side effects that may result from taking the drug.
23. An external cost of production is __________ .
A. a cost incurred by someone other than the producer
B. the production cost borne by a producer
C. the result of the sum of private and social cost
D. another word for a tax
24. In the absence of government, an under-allocation of resources generally exists for __________ .
A. goods with external costs
B. imported goods and services
C. public goods
D. all of the above
25. The short run can be defined as any period of time __________ .
A. less than one year
B. in which some inputs are fixed
C. in which all inputs are variable
D. in which price is fixed
26. Sarah has a savings account with a $1,000 balance that earns 3% APY. She decides to withdraw the entire balance to buy a laptop computer. What will be her opportunity cost in buying the laptop?
A. the cost of the laptop
B. the foregone interest
C. the foregone interest and the cost of the laptop
D. the cost of the laptop minus the foregone interest
27. Dan owns a factory that manufactures smartphones. He has many costs every month to keep his factory running. Which of the following is one of Dan's fixed costs?
A. plastic used to make the smartphones
B. his electricity bill for the factory
C. his mortgage on the factory
D. memory devices used to store music and video on the smartphones
28. Brandon eats four slices of pizza on a Sunday night but admits each slice of pizza doesn't taste as delicious as the previous one. This suggests that for Brandon __________ .
A. the marginal utility of a slice of pizza is positive but decreasing
B. the marginal utility of a slice of pizza is negative but increasing
C. the total utility of slice of pizza is declining by larger and larger increments
D. the total utility of slice of pizza is increasing by larger and larger increments
29. If marginal product is negative, then __________ .
A. total product will decrease if more of the input is hired
B. total product is equal to zero
C. marginal product will increase if more of the input is hired
D. average product will increase if more of the input is hired
30 From 1998 to 2010, the cost of electricity produced with nuclear power has __________ and the cost of electricity produced with solar power has __________ .
A. increased; increased
B. increased; decreased
C. decreased; increased
D. decreased; decreased
31. Which of the following is a reason why the marginal product increases as output increases?
A. decreasing repetition
B. increasing continuity
C. both A and B
D. neither A nor B
32. Consumers should allocate their scarce income so that __________ .
A. the marginal utility for all goods consumed is zero
B. the marginal utility for all goods consumed is equal
C. the marginal utility divided by price is equal for all goods consumed
D. the marginal utility divided by price is maximized for all goods consumed