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Economic Survey
Mr. Rubin de Celis
Chapter 6 exam – Prices
1. In a free market, if the minimum wage is set below the market equilibrium wage rate,
a) it will have no effect on employment.
b) the result is an increase in unemployment.
c) employers will find many workers willing to accept the lower wage.
d) the result is a decrease in unemployment.
2. In any market, quantities supplied and quantities demanded will
a) never be equal.
b) be equal at only one price and quantity.
c) always be equal.
d) be equal at several different prices and quantities.
3. A market is in equilibrium when
a) quantity demanded is greater than quantity supplied.
b) quantity supplied is greater than quantity demanded.
c) quantity supplied and quantity demanded are equal.
d) quantity supplied and quantity demanded are set by the government.
4. When the actual price in a market is below the equilibrium price, you have
a) equilibrium.
b) a price floor.
c) excess supply.
d) a price ceiling.
5. How are goods and resources distributed in a free market economy?
a) through rationing
b) through prices
c) through government action
d) through disequilibrium
6. Which of the following is an example of spillover costs?
a) People buy products by paying illegally high prices for them.
b) There is a sudden shortage of goods and the supply cannot be increased quickly.
c) People have to pay higher prices for items that are in short supply.
d) A manufacturer continues to pollute a river because it does not pay the costs for cleaning it.
7. When there is excess supply,
a) prices tend to rise.
b) prices tend to fall.
c) demand rises.
d) the government imposes price ceilings.
8. The minimum wage is an example of
a) a price ceiling.
b) a price floor.
c) the action of market forces.
d) market equilibrium.
9. Whenever the market is in disequilibrium and prices are flexible, market forces will
a) push the market toward equilibrium.
b) not affect the economy.
c) keep the market in disequilibrium.
d) prolong a shortage of goods and services.
10. In a ____________, one organization decides the goods to be produced and sets the prices that can
be charged.
a) free market economy
b) command economy
c) surplus
d) market based economy
11. When does a surplus exist?
a) when new products are brought to the market for sale
b) whenever prices drop
c) when there are too few items for the people who want to buy them
d) when there is a greater supply of a good than people want or are able to buy
12. Which of the following is an example of a shortage?
a) Stores cannot sell all the new popular toys they have on hand.
b) Manufacturers make too many units of a popular new toy.
c) Consumers cannot find enough of a popular new toy in stores.
d) Consumers cannot afford to buy a new popular toy.
13. In a rationing system, offering a landlord extra cash to guarantee the availability of an apartment is
a) always legal.
b) a necessity to keep the economy from falling into a recession.
c) considered to be doing business on the black market.
d) encouraged by the government.
14. Rationing is a common form of distribution in a
a) centrally-planned economy.
b) free market economy.
c) price-based system.
d) market based on competition.
15. Which of the following does NOT apply to a market system?
a) It ensures that government intervention is always present.
b) It ensures the availability of products that consumers want.
c) It ensures that sellers decide to stay in business based on their profits.
d) It ensures that sellers respond to changing needs and tastes of customers.
16. Which statement explains why prices rise in a market?
a) Producers produce a quantity greater than consumers want to buy.
b) Consumers buy much less of a good than they have in previous years.
c) New producers enter the market.
d) There is excess demand in the market.
17. If the market equilibrium wage for low-skilled labor is $4.50 per hour, and the minimum wage is
set at $5.15, the result is
a) a market in equilibrium.
b) an excess supply of labor.
c) employers ready to hire more workers.
d) an excess demand for labor.
18. Which of the following is NOT an advantage of a price-based system?
a) prices act as an incentive for buyers and sellers
b) prices are flexible
c) prices act as signals for buyers and sellers
d) prices can easily be set by the government
19. Disequilibrium occurs when
a) quantity supplied and quantity demanded are not equal.
b) quantity supplied and quantity demanded are equal.
c) prices are higher than quantity supplied.
d) there is neither excess supply nor excess demand.
20. Driving to different stores to locate a product is an example of
a) a rationing system.
b) a supply shock.
c) a search cost.
d) spillover cost.
21. To calculate the price elasticity of demand we divide
a) the percentage change in quantity demanded by the percentage change in price.
b) the percentage change in price by the percentage change in quantity demanded.
c) rise by the run
d) the average price by the average quantity demanded.
22. The price elasticity of demand for beef is estimated to be 0.60 (in absolute value). Other things
equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef
demanded to
a) decrease by approximately 12 percent.
b) decrease by approximately 60 percent.
c) decrease by approximately 32 percent
d) decrease by approximately 26 percent.
23. A linear downward sloping demand curve has price elasticities (in absolute values) that
a) decrease as price decreases.
b) increase as price decreases.
c) remain constant along the demand curve.
d) impossible to tell.
24 Jerrell's demand for pizza is price elastic. This means that Jerrell
a) responds significantly to changes in the price of pizza.
b) will not buy any pizza if its price increases.
c) buys roughly the same amount regardless of price.
d) prefers hamburger to pizza
25. A newspaper story on the effect of higher milk prices on the market for ice cream contained
the following: As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent
from last year. . . . And ice cream consumption is down 3 percent.
Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices,"
Associated Press, July 23, 2001.
Based on the information given, calculate the price elasticity of demand for ice-cream
a) 0.75 (in absolute value)
b) 1.33 (in absolute value)
c) 12%
d) We do not have enough information to calculate elasticity.
26. Suppose when the price of jean-jackets increased by 10 percent, the quantity supplied increased by
16 percent. Based on this information, calculate the value of the price elasticity of supply of jeanjackets.
a) 1.6
b) 0.625
c) 6%
d) There is insufficient information to answer the question
Exploring Supply and Demand
First decide if the change affects demand, supply, or both, then decide how the price and quantity
will be affected.
27. If Jackie's income rises, what happens to her demand for airplane trips? If the income of most
consumers of air travel rises (and air travel is a normal good), what will happen to the market
equilibrium price P and quantity Q of this good?
28.. If the taste for sneakers severely declines, what happens to their price and the quantity sold?
29. If the technology for making some communications device (say, cellular telephones) leaps forward,
what is most likely to happen to the price and the quantity sold?
30. Consider the supply and demand for coffee in London. Suppose the price of tea rises sharply. If
coffee is a substitute good for tea, what happens to the price and quantity of coffee?
31. A new rumor sweeps the country that eggs are great diet food and they don't even raise cholesterol
levels. At the same time, advances in chicken husbandry increase the number of eggs that can be
produced. What happens to the price and quantity of eggs? (hint: both supply and demand are affected)
What is the equilibrium price and quantity in each problem given the linear
function Qd=Qs
32.
Qs=-6+12P
Qd=50-2p
33.
Qs=1,000-10P
Qd=25P-50
34
Qs=150-2P
Qd=-30+4P
35. If the elasticity is .5, a 10 % change in price will cause a ____________ % change in the quantity
demanded in the opposite direction.
36 If the elasticity is 3, a -5 % change in price will cause a ____________ % change in the quantity
demanded in the opposite direction.
37. f the quantity demanded changes from 5 to 10 units as the price changes from $14 to $9, the
elasticity is ____________ and is called ____________ .
38.If the quantity demanded changes from 25 to 22 units as the price changes from $3 to $10, the
elasticity is ____________ and is called ____________ .
39. Problems 1–4 are based on the following demand and supply schedules for corn (all quantities are
in millions of bushels per year).
Price per bushel
$0
1
2
3
4
5
6
Quantity demanded
6
5
4
3
2
1
0
Quantity supplied
0
1
2
3
4
5
6
1. Draw the demand and supply curves for corn. What is the equilibrium price? The equilibrium quantity?
2. Suppose the government now imposes a price floor at $4 per bushel. Show the effect of this program graphically.
How large is the surplus of corn?
3. With the price floor, how much do farmers receive for their corn? How much would they have received if there
were no price floor?
4. If the government buys all the surplus wheat, how much will it spend?
40
QS = 100 + 10P; QD = 300 – 30P
a Create a table to show the demand and supply schedule with prices of $0, $3, $5, $7 and $9.
b Create a demand curve, plotting the points from your demand schedule.
c Show the equilibrium quantity bought and sold.
d. Using the two functions, solve for the equilibrium price and quantity