Chapter 06 Macro Test Bank final PDF

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Chapter 6 Supply, Demand, and Government PoliciesMULTIPLE CHOICE Which of the following is not correct? a. Economists have two roles: scientist and policy adviser. b. As scientists, economists develop and test theories to explain the world around them. c. Economic policies rarely have effects that t...

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Chapter 6 Supply, Demand, and Government Policies MULTIPLE CHOICE 1. Which of the following is not correct? a. Economists have two roles: scientist and policy adviser. b. As scientists, economists develop and test theories to explain the world around them. c. Economic policies rarely have effects that their architects did not intend or anticipate. d. As policy advisers, economists use their theories to help change the world for the better. ANS: C PTS: 1 DIF: 1 REF: 6-0 NAT: Analytic LOC: Supply and demand TOP: Public policy MSC: Definitional 2. Which of the following is not an example of a public policy? a. rent-control laws b. minimum-wage laws c. taxes d. equilibrium laws ANS: D PTS: 1 DIF: 1 REF: 6-0 NAT: Analytic LOC: Supply and demand TOP: Public policy MSC: Applicative 3. Rent-control laws dictate a. the exact rent that landlords must charge tenants. b. a maximum rent that landlords may charge tenants. c. a minimum rent that landlords may charge tenants. d. both a minimum rent and a maximum rent that landlords may charge tenants. ANS: B PTS: 1 DIF: 1 REF: 6-0 NAT: Analytic LOC: Supply and demand TOP: Rent control MSC: Definitional

4. Minimum-wage laws dictate a. the exact wage that firms must pay workers. b. a maximum wage that firms may pay workers. c. a minimum wage that firms may pay workers. d. both a minimum wage and a maximum wage that firms may pay workers. ANS: C PTS: 1 DIF: 1 REF: 6-0 NAT: Analytic LOC: Supply and demand TOP: Minimum wage MSC: Definitional 5. 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. ANS: B PTS: 1 DIF: 2 REF: 6-0 NAT: Analytic LOC: Supply and demand TOP: Price controls MSC: Interpretive 6. The presence of a price control in a market for a good or service usually is an indication that a. an insufficient quantity of the good or service was being produced in that market to meet the public’s need. b. the usual forces of supply and demand were not able to establish an equilibrium price in that market. c. policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers. d. policymakers correctly believed that price controls would generate no inequities of their own once imposed. ANS: C PTS: 1 DIF: 2 REF: 6-0 NAT: Analytic LOC: Supply and demand TOP: Price controls MSC: Interpretive

7. Price controls a. always produce a fair outcome. b. always produce an efficient outcome. c. can generate inequities of their own. d. All of the above are correct. ANS: C PTS: 1 DIF: 2 NAT: Analytic LOC: Supply and demand MSC: Interpretive

REF: 6-0 TOP: Price controls

8. Policymakers use taxes a. to raise revenue for public purposes but not to influence market outcomes. b. both to raise revenue for public purposes and to influence market outcomes. c. when they realize that price controls alone are insufficient to correct market inequities. d. only in those markets in which the burden of the tax falls clearly on the sellers. ANS: B PTS: 1 DIF: 1 REF: 6-0 NAT: Analytic LOC: Supply and demand TOP: Taxes MSC: Definitional CONTROLS ON PRICES 1. In a competitive market free of government regulation, a. price adjusts until quantity demanded is greater than quantity supplied. b. price adjusts until quantity demanded is less than quantity supplied. c. price adjusts until quantity demanded equals quantity supplied. d. supply adjusts to meet demand at every price. ANS: C PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Prices MSC: Interpretive 2. In a free, competitive market, what is the rationing mechanism? a. seller bias b. buyer bias c. government law d. price ANS: D PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Prices MSC: Interpretive

3. Which of the following is not a function of prices in a market system? a. Prices have the crucial job of balancing supply and demand. b. Prices send signals to buyers and sellers to help them make rational economic decisions. c. Prices coordinate economic activity. d. Prices ensure an equal distribution of goods and services among consumers. ANS: D PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Prices MSC: Interpretive 4. A legal maximum on the price at which a good can be sold is called a price a. floor. b. subsidy. c. support. d. ceiling. ANS: D PTS: 1 DIF: 1 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Definitional 5. A price ceiling is a. often imposed on markets in which “cutthroat competition” would prevail without a price ceiling. b. a legal maximum on the price at which a good can be sold. c. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling. d. All of the above are correct. ANS: B PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive

6. 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. ANS: B PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 7. If a price ceiling is not binding, then a. the equilibrium price is above the price ceiling. b. the equilibrium price is below the price ceiling. c. it has no legal enforcement mechanism. d. None of the above is correct because all price ceilings must be binding. ANS: B PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 8. If a price ceiling is not binding, then a. there will be a surplus in the market. b. there will be a shortage in the market. c. the market will be less efficient than it would be without the price ceiling. d. there will be no effect on the market price or quantity sold. ANS: D PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive

9. If a nonbinding price ceiling is imposed on a market, then the a. quantity sold in the market will decrease. b. quantity sold in the market will stay the same. c. price in the market will increase. d. price in the market will decrease. ANS: B PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 10. 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. ANS: C PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 11. Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective, a. a smaller quantity of the good is bought and sold. b. a smaller quantity of the good is demanded. c. a larger quantity of the good is supplied. d. the price rises above the previous equilibrium. ANS: A PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 12. Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding? a. Improvements in production technology reduce the costs of producing laptop computers. b. The number of firms selling laptop computers decreases. c. Consumers' income decreases, and laptop computers are a normal good. d. The number of consumers buying laptop computers decreases. ANS: B PTS: 1 DIF: 3 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Analytical

13. Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding? a. Cellular phones become more popular. b. Traditional land line phones become more expensive. c. The components used to produce cellular phones become more expensive. d. A technological advance makes cellular phone production less expensive. ANS: D PTS: 1 DIF: 3 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Analytical 14. If the government removes a binding price ceiling from a market, then the price paid by buyers will a. increase, and the quantity sold in the market will increase. b. increase, and the quantity sold in the market will decrease. c. decrease, and the quantity sold in the market will increase. d. decrease, and the quantity sold in the market will decrease. ANS: A PTS: 1 DIF: 3 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Analytical 15. If the government removes a binding price ceiling from a market, then the price received by sellers will a. decrease, and the quantity sold in the market will decrease. b. decrease, and the quantity sold in the market will increase. c. increase, and the quantity sold in the market will decrease. d. increase, and the quantity sold in the market will increase. ANS: D PTS: 1 DIF: 3 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Analytical

16. When a binding price ceiling is imposed on a market, a. price no longer serves as a rationing device. b. the quantity supplied at the price ceiling exceeds the quantity that would have been supplied without the price ceiling. c. all buyers benefit. d. All of the above are correct. ANS: A PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 17. When a binding price ceiling is imposed on a market to benefit buyers, a. no buyers actually benefit. b. some buyers benefit, but no buyers are harmed. c. some buyers benefit, and some buyers are harmed. d. all buyers benefit. ANS: C PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 18. Which of the following would be the least likely result of a binding price ceiling imposed on the market for rental cars? a. an accumulation of dirt in the interior of rental cars b. poor engine maintenance in rental cars c. free gasoline given to people as an incentive to a rent a car d. slow replacement of old rental cars with newer ones ANS: C PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Applicative 19. Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars? a. frequent rental programs such as “Rent nine times and the tenth rental is free!” b. enhanced maintenance programs to promote the high quality of the cars c. free gasoline given to people as an incentive to a rent a car d. slow replacement of old rental cars with newer ones ANS: D PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Applicative

20. A price ceiling is binding when it is set a. above the equilibrium price, causing a shortage. b. above the equilibrium price, causing a surplus. c. below the equilibrium price, causing a shortage. d. below the equilibrium price, causing a surplus. ANS: C PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 21. A binding price ceiling (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price. a. (ii) only b. (iv) only c. (i) and (iii) only d. (ii) and (iv) only ANS: D PTS: 1 DIF: 2 NAT: Analytic LOC: Supply and demand MSC: Interpretive 22. A nonbinding price ceiling (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price. a. (i) only b. (iii) only c. (i) and (iii) only

REF: 6-1 TOP: Price ceilings

d. (ii) and (iv) only ANS: B PTS: 1 DIF: 2 NAT: Analytic LOC: Supply and demand MSC: Interpretive

REF: 6-1 TOP: Price ceilings

23. To say that a price ceiling is binding is to say that the price ceiling a. results in a surplus. b. is set above the equilibrium price. c. causes quantity demanded to exceed quantity supplied. d. All of the above are correct. ANS: C PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 24. To say that a price ceiling is nonbinding is to say that the price ceiling a. results in a surplus. b. is set above the equilibrium price. c. causes quantity demanded to exceed quantity supplied. d. All of the above are correct. ANS: B PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 25. 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. ANS: C PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive

26. The imposition of a binding price ceiling on a market causes quantity demanded to be a. greater than quantity supplied. b. less than quantity supplied. c. equal to quantity supplied. d. Both a) and b) are possible. ANS: A PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 27. If a price ceiling is a binding constraint on a market, then a. the equilibrium price must be below the price ceiling. b. the quantity supplied must exceed the quantity demanded. c. sellers cannot sell all they want to sell at the price ceiling. d. buyers cannot buy all they want to buy at the price ceiling. ANS: D PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 28. Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result, a. the demand for treadmills will increase. b. the supply of treadmills will decrease. c. a shortage of treadmills will develop. d. All of the above are correct. ANS: C PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 29. If a binding price ceiling is imposed on the baby formula market, then a. the quantity of baby formula demanded will increase. b. the quantity of baby formula supplied will decrease. c. a shortage of baby formula will develop. d. All of the above are correct. ANS: D PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive

30. Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the a. demand curve for physicals shifts to the right. b. supply curve for physicals shifts to the left. c. quantity demanded of physicals increases, and the quantity supplied of physicals decreases. d. number of physicals performed stays the same. ANS: C PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 31. When a binding price ceiling is imposed on a market to benefit buyers, a. every buyer in the market benefits. b. every buyer and seller in the market benefits. c. every buyer who wants to buy the good will be able to do so, but only if he waits in long lines. d. some buyers will not be able to buy any amount of the good. ANS: D PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 32. In response to a shortage caused by the imposition of a binding price ceiling on a market, a. price will no longer be the mechanism that rations scarce resources. b. long lines of buyers may develop. c. sellers could ration the good or service according to their own personal biases. d. All of the above are correct. ANS: D PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive

Figure 6-1 Panel (a)

Panel (b)

pr ice

pr ice S

S

pri ce ceil ing

pri ce ceil ing D qua nt ity

D qua nti ty

33. Refer to Figure 6-1. A binding price ceiling is shown in a. panel (a) only. b. panel (b) only. c. both panel (a) and panel (b). d. neither panel (a) nor panel (b). ANS: B PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 34. Refer to Figure 6-1. In which panel(s) of the figure would there be a shortage of the good at the price ceiling? a. panel (a) only b. panel (b) only c. both panel (a) and panel (b) d. neither panel (a) nor panel (b) ANS: B PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive

35. 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. ANS: A PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 36. Refer to Figure 6-1. The price ceiling shown in panel (b) a. is not binding. b. creates a surplus. c. creates a shortage. d. Both a) and b) are correct. ANS: C PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive

Figure 6-2 Price 6 Supply

5 4 3 2

Price ceiling

1

Demand 60

80

120

180 165

Quantity

37. Refer to Figure 6-2. The price ceiling a. is binding. b. causes a shortage. c. causes the quantity demanded to exceed the quantity supplied. d. All of the above are correct. ANS: D PTS: 1 DIF: 1 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 38. 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. ANS: B PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive

39. Refer to Figure 6-2. The price ceiling causes a a. surplus of 40 units. b. surplus of 85 units. c. shortage of 45 units. d. shortage of 85 units. ANS: D PTS: 1 DIF: 2 NAT: Analytic LOC: Supply and demand MSC: Applicative

REF: 6-1 TOP: Price ceilings

40. Refer to Figure 6-2. The price ceiling causes quantity a. supplied to exceed quantity demanded by 45 units. b. supplied to exceed quantity demanded by 85 units. c. demanded to exceed quantity supplied by 45 units. d. demanded to exceed quantity supplied by 85 units. ANS: D PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Applicative 41. A legal minimum on the price at which a good can be sold is called a price a. subsidy. b. floor. c. support. d. ceiling. ANS: B PTS: 1 DIF: 1 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors MSC: Definitional 42. A price floor is a. a legal minimum on the price at which a good can be sold. b. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. c. a source of inefficiency in a market. d. All of the above are correct. ANS: D PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors MSC: Interpretive

43. Which of the following is the most likely explanation for the imposition of a price floor on the market for corn? a. Policymakers have studied the effects of the price floor carefully, and the...