Question 1

Economic analysis indicates minimum wage legislation has
A)made it possible for any teenager who wants to work to earn almost 80 percent as much as an adult.
B)made it easier for teenagers to find jobs that offer the opportunity for training.
C)been an important source of increases in income since most workers earn at or near the minimum wage.
D)reduced the on-the-job training opportunities available to teenagers.

Accepted Answer

Economic analysis suggests that minimum wage legislation has reduced the on-the-job training opportunities available to teenagers. When employers are required to pay a higher wage to entry-level workers, they may be less willing to take a risk on hiring and training someone with little to no experience. Instead, they may opt to hire someone with more experience or skill, which can limit opportunities for teenagers and other inexperienced workers.

Question 2

The large amount of violence associated with the current drug trade is mostly caused by
A)the fact that drug markets must operate outside the normal legal system.
B)buyers and sellers often being under the influence of drugs at the time of the transaction.
C)buyers and sellers who are often unfamiliar with conducting normal transactions within the legal system.
D)the lack of quantity supplied and quantity demand being in balance in black markets because there is no equilibrium price in these markets.

Accepted Answer

The fact that drug markets must operate outside the normal legal system creates a power vacuum that often leads to violence among drug dealers competing for territory and customers. Without the protection of the law, drug dealers are forced to use violence and intimidation to control their market share. This is compounded by the fact that drug trafficking is often associated with other criminal activities, such as money laundering and arms trading, which further increase the potential for violence.

Question 3

In a market economy, which of the following would most likely cause a prolonged grain surplus?
A)a decrease in the demand for grain
B)an increase in the supply of grain
C)imposition of a price floor above the equilibrium price of grain
D)imposition of a price ceiling below the equilibrium price of grain

Accepted Answer

The answer of In a market economy, which of the...

Question 4

Which of the following statements is true?
A)In both black markets and legal markets, supply and demand determine price.
B)The quality of products sold in black markets and legal markets are similar.
C)The price of products in black markets tends to be the same as those in legal markets for otherwise identical products.
D)The rate of violence is similar in black markets and legal markets.

Accepted Answer

In both black markets and legal markets, supply and demand determine price. This is the basic rule of economics and applies to all markets. The other options are not necessarily true. The quality of products in black markets can be inferior or counterfeit, while legal markets have regulations to ensure quality control. The price in black markets is often higher due to the increased risk and costs involved. The rate of violence in black markets is typically higher due to the lack of regulation and protection.

Question 5

After the ban on the production and sale of alcohol ended in 1933,
A)the quality of alcohol sold declined.
B)the murder rate declined.
C)the profit rate for bootleg sellers of alcohol increased.
D)all of the above occurred.

Accepted Answer

The answer of After the ban on the production and...

Question 6

When a price floor is imposed above the equilibrium price of a commodity,
A)quantity demanded will be greater than quantity supplied for the good.
B)the quantity demanded by consumers will be greater than at the equilibrium price.
C)a shortage of the good will develop.
D)a surplus of the good will develop.

Accepted Answer

When a price floor is imposed above the equilibrium price, it creates a situation where the price is artificially high, and as a result, the quantity supplied exceeds the quantity demanded. This surplus of goods will ultimately lead to a situation where the excess supply will not be sold, and producers will be left with unsold inventory. Therefore, a surplus of the good will develop.

Question 7

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?
A)There will be a shortage of wheat.
B)There will be a surplus of wheat.
C)There will be an increase in the quantity of wheat demanded as the result of the price floor.
D)There will be a decrease in the quantity of wheat supplied as the result of the price floor.

Accepted Answer

When a government sets a price floor above the market equilibrium price, it creates an artificial surplus of goods because the quantity supplied exceeds the quantity demanded at that new higher price. In this case, the price floor of $7 per bushel is above the market equilibrium price of $5 per bushel, so there will be a surplus of wheat. This surplus may result in the government having to buy the excess wheat or farmers being forced to destroy their crops to maintain the price floor. Additionally, the increase in price may cause a decrease in the quantity of wheat demanded as consumers look for cheaper substitutes.

Question 8

A tax on the buyers of coffee will
A)increase the price of coffee paid by buyers, increase the net price of coffee received by sellers, and increase the equilibrium quantity of coffee.
B)decrease the price of coffee paid by buyers, increase the net price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
C)increase the price of coffee paid by buyers, decrease the net price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
D)increase the price of coffee paid by buyers, decrease the net price of coffee received by sellers, and increase the equilibrium quantity of coffee.

Accepted Answer

A tax on the buyers of coffee will increase the cost of purchasing coffee for the buyers, which will decrease the quantity demanded of coffee. This decrease in demand will decrease the equilibrium quantity of coffee. Additionally, the tax will decrease the net price of coffee received by the sellers, as they will be paid less after the tax is imposed. Therefore, choice C is the best option.

Question 9

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?
A)an increase in quantity of unskilled labor demanded
B)a decrease in the quantity of unskilled labor supplied
C)a shortage of unskilled labor
D)a surplus of unskilled labor (unemployment)

Accepted Answer

If the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, it means that the minimum wage is higher than the wage that would naturally occur in the market. This will result in a reduction in the quantity of unskilled labor demanded by employers because they will have to pay a higher wage to their workers. On the other hand, an increase in wage will attract more unskilled workers to enter the labor market, leading to an increase in the quantity of unskilled labor supplied. Therefore, there will be a surplus of unskilled labor, leading to unemployment.

Question 10

Which of the following about minimum wage is true?
A)Most minimum wage workers are employed more than 40 hours per week.
B)Economic analysis indicates an increase in the minimum wage would increase the training opportunities available to inexperienced workers.
C)Most minimum wage workers are heads of families with incomes below the poverty level.
D)Most minimum wage workers are employed part-time, and they are often members of a household with an income well above the poverty level.

Accepted Answer

According to the Bureau of Labor Statistics, as of 2019, the majority of minimum wage workers (58.7%) were employed part-time, and only 17.1% were heads of households with children. Additionally, many minimum wage workers live in households with incomes well above the poverty level. Therefore, option D is the correct choice.

Question 11

Which one of the following will most likely be harmed by legislation exempting teenagers from the minimum wage?
A)a high school student seeking a part-time job
B)a high-skilled, 30-year-old worker who is unlikely to compete with low-skilled teenagers in the employment market
C)a large family that often employs the services of low-skilled, part-time workers
D)an illiterate 40-year-old worker with few labor skills

Accepted Answer

The answer of Which one of the following will most...

Question 12

The actual burden of a tax
A)falls most heavily on the side of the market that is more elastic.
B)falls most heavily on the side of the market that is more inelastic.
C)falls most heavily on the side of the market that is closest to unitary elasticity.
D)is distributed independently of relative elasticities of supply and demand.

Accepted Answer

The burden of a tax falls most heavily on the side of the market that is more inelastic. This is because inelastic demand or supply means that consumers or producers are less responsive to changes in price, and therefore cannot easily adjust their behavior to avoid the tax. As a result, they end up bearing more of the tax burden. Conversely, when demand or supply is more elastic, consumers or producers can more easily adjust their behavior in response to the tax, which reduces the overall burden.

Question 13

If drugs such as marijuana and cocaine were legalized, it would be likely that
A)their prices would decrease.
B)there would be a reduction in tainted or poor quality drugs.
C)there would be less violence occurring in drug transactions.
D)all of the above.

Accepted Answer

If drugs such as marijuana and cocaine were legalized, it is likely that their prices would decrease because they would be more readily available and not subject to the black market markup. This would also lead to a reduction in the sale of tainted or poor quality drugs because they would be subject to regulation and quality control. Furthermore, legalizing drugs would decrease the violence that occurs in drug transactions because there would be no need for illegal drug dealers to resort to violence in order to protect their profits or turf. Therefore, all of the above options are likely outcomes if drugs were legalized.

Question 14

Both price floors and price ceilings lead to
A)shortages.
B)surpluses.
C)reductions in quality.
D)a reduction in the quantity traded.

Accepted Answer

The answer of Both price floors and price ceilings lead...

Question 15

Which of the following statements is true?
A)The quality of products sold in black markets tends to be less reliable than the quality of products in legal markets.
B)For otherwise identical products, the price of products in black markets tends to be higher than in legal markets.
C)The rate of violence is higher in black markets than in legal markets.
D)All of the above are true.

Accepted Answer

The answer of Which of the following statements is true?
A)The...

Question 16

A market that operates outside the legal system, either by selling illegal goods or by selling goods at illegal prices is referred to in economics as a
A)gray market.
B)resource market.
C)black market.
D)criminal market.

Accepted Answer

The market described is commonly known as a black market. It operates outside of the legal system and typically involves illegal goods or illegally priced goods. The term "gray market" is typically used to describe legal goods that are sold through channels that have not been authorized by the manufacturer or original seller. The terms "resource market" and "criminal market" are not commonly used to describe illicit markets.

Question 17

A legal system that provides secure private property rights and unbiased enforcement of contracts
A)is unnecessary for the smooth operation of markets.
B)reduces the efficiency of markets.
C)enhances the efficiency of markets.
D)makes it easier for sellers to cheat or defraud consumers.

Accepted Answer

A legal system that provides secure private property rights and unbiased enforcement of contracts enhances the efficiency of markets. This is because individuals and businesses can have more confidence in their ability to conduct transactions and make investments, leading to increased economic activity and growth. Without such a legal system, transactions may be more risky and costly, hindering economic growth.

Question 18

A tax imposed on the sellers of a good will
A)raise the price paid by buyers and lower the equilibrium quantity.
B)raise the price paid by buyers and raise the equilibrium quantity.
C)raise the net price received by sellers and raise the equilibrium quantity.
D)raise the net price received by sellers and lower the equilibrium quantity.

Accepted Answer

The answer of A tax imposed on the sellers of...

Question 19

A price floor set above an equilibrium price tends to cause persistent imbalances in the market because
A)Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.
B)Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus.
C)Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage.
D)Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.

Accepted Answer

A price floor set above an equilibrium price creates a surplus of the good because the quantity supplied exceeds the quantity demanded at the higher price. This surplus cannot be removed by lowering the price because the price floor prevents it from falling to the equilibrium level where the quantity demanded would equal the quantity supplied. As a result, the market remains imbalanced with a persistent surplus.

Question 20

Taxes adversely affect the allocation of resources because
A)they do not always fall more heavily on the rich than on the poor.
B)the taxes collected are not enough to finance government spending.
C)not everyone pays taxes.
D)they distort prices and thus distort the decisions of households and firms.

Accepted Answer

Taxes distort prices and create artificial incentives that alter the decisions made by households and firms. This can lead to inefficient outcomes in the allocation of resources. Additionally, taxes can be regressive and not always fall more heavily on the rich than on the poor, which can exacerbate inequality. The other options, such as insufficient tax revenue or not everyone paying taxes, do not necessarily adversely affect the allocation of resources.

Quiz 4: Supply and Demand: Applications and Extensions

Economic analysis indicates minimum wage legislation has

The large amount of violence associated with the current drug trade is mostly caused by

In a market economy, which of the following would most likely cause a prolonged grain surplus?

Which of the following statements is true?

After the ban on the production and sale of alcohol ended in 1933,

When a price floor is imposed above the equilibrium price of a commodity,

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?

A tax on the buyers of coffee will

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

Which of the following about minimum wage is true?

Which one of the following will most likely be harmed by legislation exempting teenagers from the minimum wage?

The actual burden of a tax

If drugs such as marijuana and cocaine were legalized, it would be likely that

Both price floors and price ceilings lead to

Which of the following statements is true?

A market that operates outside the legal system, either by selling illegal goods or by selling goods at illegal prices is referred to in economics as a

A legal system that provides secure private property rights and unbiased enforcement of contracts

A tax imposed on the sellers of a good will

A price floor set above an equilibrium price tends to cause persistent imbalances in the market because

Taxes adversely affect the allocation of resources because