Question 1

A Wall Street Journal headline reads: "Cigar Shortage Draws New Brands into Market." The shortage resulted from a renewed interest in smoking cigars. What best describes the facts behind the headline?
A)Price is too low, demand exceeds supply.
B)Price is too low, quantity demanded exceeds quantity supplied.
C)The cigar market is in equilibrium.
D)A shift in supply has equilibrated supply and demand.

Accepted Answer

The headline suggests that there is a shortage of cigars. This means that the quantity demanded of cigars exceeds the quantity supplied in the market. The fact that new brands are entering the market suggests that the existing supply is not sufficient to meet the demand, indicating a situation of excess demand or a shortage. Therefore, option B, "Price is too low, quantity demanded exceeds quantity supplied", best describes the situation.

Question 2

After several years of slow economic growth, world demand for petroleum began to rise rapidly in the 1990s. Much of the increase in demand was met by additional supplies from sources outside OPEC. OPEC during this time was unable to restrain output among members in its effort to lift oil prices. What best describes these events?
A)The rise in demand shifted the demand for oil to the right. OPEC actions shifted the demand for oil back to the left.
B)The rise in demand shifted the demand for oil to the right. As price rose, supply of oil also rose.
C)The rise in demand shifted the demand for oil to the right. As price rose, quantity of oil supplied rose.
D)The rise in demand reflects a movement down along the demand curve as supply shifted to the right when suppliers produced more oil.

Accepted Answer

The rise in demand for petroleum caused a shift to the right in the demand curve. However, OPEC was unable to restrain supply among members, which caused an increase in the quantity of oil supplied, shifting the supply curve to the right as well. As a result, prices rose, but the quantity of oil supplied also increased, reflecting a movement up along the supply curve. Therefore, the best choice is C.

Question 3

Refer to the following graph.  If the price is set at Pc:
A)a nonprice rationing mechanism must determine which producers will be able to sell the product.
B)a nonprice rationing mechanism must determine which buyers will be able to purchase the product.
C)anyone willing and able to pay the asking price will be able to purchase the product.
D)the demand curve will shift to the left to achieve a new equilibrium.

Accepted Answer

The answer of Refer to the following graph.  If...

Question 4

When an effective price ceiling is removed, we would expect the price of the good to:
A)increase and the quantity demanded to decrease.
B)increase and the quantity demanded to increase.
C)decrease and the quantity demanded to decrease.
D)decrease and the quantity demanded to increase.

Accepted Answer

An effective price ceiling means that the price of the good cannot go above a certain level. When this price ceiling is removed, the market is free to determine the price based on the supply and demand for the good. Since the quantity demanded is typically higher at a lower price, and the quantity supplied is typically higher at a higher price, we would expect the price to increase (as suppliers are able to charge more) and the quantity demanded to decrease (as consumers are less willing or able to buy at a higher price). Therefore, the correct answer is A.

Question 5

A number of states have a minimum wage that is higher than the federal minimum. In those states that impose such a minimum wage, it is more likely that the minimum wage acts as a binding:
A)price floor, causing excess supply in the market.
B)price floor, causing excess demand in the market.
C)price ceiling, causing excess supply in the market.
D)price ceiling, causing excess demand in the market.

Accepted Answer

A minimum wage set above the federal minimum acts as a price floor in the labor market, leading to a potential excess supply of labor (unemployment) because employers may hire fewer workers at the higher wage.

Question 6

Stricter environmental regulations and increased demand for energy have caused an increase in the demand for relatively clean natural gas. In the last several years, improved extraction technologies and new discoveries have increased the availability of natural gas. What has been the net effect on price and quantity for natural gas?
A)Quantity sold and price both fell with certainty.
B)Quantity sold fell and the effect on price is ambiguous.
C)Quantity sold and price both rose with certainty.
D)Quantity sold rose while the effect on price is ambiguous.

Accepted Answer

The increased availability of natural gas has led to an increase in quantity sold. However, the effect on price is ambiguous as it is also influenced by stricter environmental regulations and increased demand for energy. Therefore, choice D (quantity sold rose while the effect on price is ambiguous) is the best answer.

Question 7

An increase in the Federal minimum wage, assuming the minimum is higher than equilibrium wage and that all other things remain constant, will:
A)reduce the number of unemployed.
B)increase the number of unemployed.
C)shift the supply of labor to the right.
D)shift the demand of labor to the right.

Accepted Answer

If the minimum wage is higher than the equilibrium wage, employers will likely reduce the number of workers they hire, leading to an increase in unemployment. This is because it becomes more expensive for employers to hire and retain workers, and they may seek to automate certain tasks or reduce their workforce to offset the increased costs. A higher minimum wage does not shift the supply or demand of labor, it only affects the price employers are willing to pay for labor.

Question 8

Suppose the equilibrium price of oranges is $0.79 an orange, but government takes steps to prevent the price from exceeding $0.60 an orange. The likely result will be a:
A)lower equilibrium price for oranges as the supply curve for oranges shifts to the right.
B)higher equilibrium price for oranges as the demand curve for oranges shifts to the right.
C)shortage of oranges as the price ceiling keeps the market from reaching equilibrium.
D)surplus of oranges as the price ceiling keeps the market from reaching equilibrium.

Accepted Answer

When the government sets a price ceiling below the equilibrium price, it creates a situation where the quantity demanded exceeds the quantity supplied, resulting in a shortage. In this case, the price ceiling of $0.60 is below the equilibrium price of $0.79, which means that suppliers will not be willing to supply as many oranges at the lower price. At the same time, consumers will be willing to buy more oranges at the lower price, resulting in excess demand. This excess demand will lead to a shortage of oranges in the market.

Question 9

Refer to the following graph.  A price ceiling would be binding, resulting in a market shortage if it is set at:
A)$3.00.
B)$2.25.
C)$1.50.
D)either $3.00 or $1.50.

Accepted Answer

The answer of Refer to the following graph.  A...

Question 10

Refer to the following graphs.  In the early 1990s, mounds of newspapers and worthless plastic piled up at recycling centers. As the nation's economy continued to grow, increased demand eliminated the mounds and turned them into shortages. In the mid-1990s, as recycling became more popular, the mounds of recycled materials returned. What graph best depicts these events on the market for recycled materials?
A)Price remained constant at P0. Quantity demanded first rose, while supply remained constant; quantity supplied then rose, while demand remained constant.
B)Price remained constant at P0. Supply first shifted from S1 to S0 and then back to S1.
C)Price remained constant at P0. Demand shifted from D0 to D1 then supply shifted from S0 to S1.
D)Price remained constant at P0. Demand shifted from D0 to D1 and then back to D0.

Accepted Answer

The answer of Refer to the following graphs.  In...

Question 11

Fishing for king crabs for a living is risky business. Their migration habits along the Bering Strait are just not understood. The king crabs seem to disappear one year but return mysteriously a few years later, wreaking havoc on the income of crabbers. When crabs disappear, consumers buy lobster instead. What best describes this situation in the king crab market?
A)The supply curve shifts to the left when crabs disappear (their price rises)and shift to the right when they reappear (their price declines).
B)The supply curve shifts to the left when crabs disappear, (their price rises)and the demand curve shifts to the left when consumers substitute lobster for crab (lowering their price). The supply curve then shifts to the right when crabs reappear (their price declines).
C)The price of crab rises when crabs are scarce creating excess demand. The price of crab falls when crabs are abundant creating excess supply.
D)The quantity of crab falls and then rises as crabs disappear and reappear in response to shifts in demand. Demand shifts to the left as consumers substitute toward lobster when crab is scarce and shift to the right when crab is abundant.

Accepted Answer

When king crabs disappear, their reduced availability means the supply decreases, shifting the supply curve to the left and increasing the price. When they reappear, the increased availability shifts the supply curve to the right, decreasing the price. This choice accurately reflects the impact of the crabs' migration habits on the market without incorrectly attributing changes to the demand curve for crabs based on consumer substitution towards lobster.

Question 12

When people heard that there was a shortage of specialty dolls, they wanted even more of them. Because of this effect the pressure on the price of these dolls increased. The price of the dolls remained the same however. Thus, the shortage of these dolls:
A)increased.
B)decreased.
C)did not change.
D)may have increased or decreased.

Accepted Answer

The increased demand for the specialty dolls, without a change in price, suggests that the shortage of these dolls would have increased. This is because the higher demand, with unchanged supply and price, would exacerbate the shortage.

Question 13

Some years ago, Stuyvesant Town and Peter Cooper Village in Manhattan were sold for redevelopment. These villages had been rent controlled, but now that these neighborhoods are no longer rent controlled, one would expect the:
A)houses to be not as well maintained since rent will be so high.
B)housing shortage in the neighborhood to worsen.
C)rent to rise in those neighborhoods.
D)quantity of rentals demanded to rise.

Accepted Answer

Since the neighborhoods are no longer rent controlled, the rent is expected to rise in those areas.

Question 14

An effective price ceiling is best defined as a price:
A)imposed by government below equilibrium price.
B)imposed by government above equilibrium price.
C)higher than any consumer is willing to pay.
D)lower than any supplier is willing to sell.

Accepted Answer

An effective price ceiling is a government-imposed limit on how high a price can be charged for a good or service. It is effective if it is set below the equilibrium price, as this will create a shortage of the product since there will be excess demand at the artificially low price. Therefore, option A is the correct choice.

Question 15

When the polio vaccine first became available in the United States, the government controlled the price with an effective price ceiling. Production of the vaccine was not sufficient to fill all orders and the government had to regulate its distribution. Had the vaccine been sold without government intervention, the shortage would have been eliminated by price:
A)falling, quantity demanded decreasing, and supply increasing.
B)falling, demand decreasing, and supply increasing.
C)rising, demand decreasing, and quantity supplied increasing.
D)rising, quantity demanded decreasing, and quantity supplied increasing.

Accepted Answer

When a price ceiling is removed, the price of a good typically rises to eliminate a shortage. This higher price reduces the quantity demanded (as some consumers are priced out of the market) and encourages producers to increase the quantity supplied, thus eliminating the shortage.

Question 16

To keep the price of gas from rising quickly after a hurricane, the government sometimes institutes price ceilings on the price of gasoline. These price ceilings cause ________ in the gasoline market.
A)surpluses
B)movement of the demand curve
C)movement along the demand curve
D)shortages

Accepted Answer

Price ceilings set below the market equilibrium price cause a shortage by creating excess demand and reduce the incentive for suppliers to increase the quantity supplied. This can lead to long lines and rationing of gasoline.

Question 17

Suppose a scientific report states that fish contain dangerously high levels of mercury (toxic to humans). At the same time, the price of diesel fuel, used by fishermen to fuel their boats, falls. What is the effect on the market for fish?
A)A decrease in demand and a fall in price and quantity sold
B)A decrease in demand and supply; price and quantity sold falls
C)A decrease in demand and an increase in supply; price falls but the change in quantity is ambiguous
D)A decrease in demand and supply; price and quantity sold rises

Accepted Answer

The report about high mercury levels in fish would decrease demand as consumers avoid buying fish due to health concerns. The fall in diesel fuel prices would lower operating costs for fishermen, leading to an increase in supply as it becomes cheaper to catch and sell fish. Therefore, the price would fall due to decreased demand and increased supply, but the change in quantity sold is ambiguous because the effects of decreased demand and increased supply work in opposite directions on quantity.

Question 18

Price ceilings and price floors:
A)cause surpluses and shortages in markets respectively.
B)interfere with the allocation function of prices.
C)make the rationing function of markets more efficient.
D)cause demand and supply curves to shift thus having no effect on the rationing function of prices.

Accepted Answer

The answer of Price ceilings and price floors:
A)cause surpluses and...

Question 19

What events most likely explain the following Wall Street Journal headline, "Cities Couldn't Give Away Their Trash; Now They Get Top Dollar"?
A)Quantity supplied initially exceeded quantity demanded, but a subsequent increase in the demand for trash not only eliminated the surplus, but led to a rise in the price of trash.
B)Supply initially exceeded demand, but a subsequent increase in the quantity of trash demanded not only eliminated the surplus, but led to a rise in the price of trash.
C)Quantity supplied initially exceeded quantity demanded, but a subsequent increase in the supply of trash not only eliminated the surplus, but led to a rise in the price of trash.
D)Supply initially exceeded demand, but a subsequent increase in the quantity of trash supplied not only eliminated the surplus, but led to a rise in the price of trash.

Accepted Answer

A) This choice correctly describes a situation where the initial excess supply of trash (meaning cities had more trash than they could dispose of or sell) is followed by an increase in demand for trash (perhaps for recycling or energy generation), which not only absorbs the excess supply but also drives up the price of trash. This scenario aligns with basic economic principles of supply and demand.

Question 20

Refer to the following graph.  Which price will create the greatest shortage?
A)P0
B)P1
C)P2
D)P3

Accepted Answer

The answer of Refer to the following graph.  Which...

Quiz 5: Using Supply and Demand

A Wall Street Journal headline reads: "Cigar Shortage Draws New Brands into Market." The shortage resulted from a renewed interest in smoking cigars. What best describes the facts behind the headline?

Refer to the following graph. If the price is set at Pc:

When an effective price ceiling is removed, we would expect the price of the good to:

A number of states have a minimum wage that is higher than the federal minimum. In those states that impose such a minimum wage, it is more likely that the minimum wage acts as a binding:

An increase in the Federal minimum wage, assuming the minimum is higher than equilibrium wage and that all other things remain constant, will:

Suppose the equilibrium price of oranges is $0.79 an orange, but government takes steps to prevent the price from exceeding $0.60 an orange. The likely result will be a:

Refer to the following graph. A price ceiling would be binding, resulting in a market shortage if it is set at:

When people heard that there was a shortage of specialty dolls, they wanted even more of them. Because of this effect the pressure on the price of these dolls increased. The price of the dolls remained the same however. Thus, the shortage of these dolls:

Some years ago, Stuyvesant Town and Peter Cooper Village in Manhattan were sold for redevelopment. These villages had been rent controlled, but now that these neighborhoods are no longer rent controlled, one would expect the:

An effective price ceiling is best defined as a price:

To keep the price of gas from rising quickly after a hurricane, the government sometimes institutes price ceilings on the price of gasoline. These price ceilings cause ________ in the gasoline market.

Suppose a scientific report states that fish contain dangerously high levels of mercury (toxic to humans) . At the same time, the price of diesel fuel, used by fishermen to fuel their boats, falls. What is the effect on the market for fish?

Price ceilings and price floors:

What events most likely explain the following Wall Street Journal headline, "Cities Couldn't Give Away Their Trash; Now They Get Top Dollar"?

Refer to the following graph. Which price will create the greatest shortage?