Download Chapter 6 Self-Paced Book Work

Chapter 6 Self-Paced Book Work
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
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1. Which of the following is NOT a reason why prices effectively perform the allocation function?
a. Competitive markets find their own prices without interference.
b. Prices favor neither the producer nor the consumer.
c. Prices remain surprisingly stable despite unexpected events.
d. Prices are easily understood.
2. In a market economy, a high price is a signal for
a. producers to supply more and consumers to buy less.
b. producers to supply less and consumers to buy more.
c. government to intervene to protect consumers.
d. producers to supply less and consumers to buy less.
3. At a given price, a surplus occurs when
a. the quantity demanded is more than the quantity supplied.
b. the quantity demanded is the same as the quantity supplied.
c. the quantity supplied is less than the quantity demanded.
d. the quantity supplied is greater than the quantity demanded.
4. The federal minimum wage law demonstrates
a. market equilibrium.
b. a societal choice for economic equity over efficiency.
c. the function of equilibrium price in a competitive market.
d. government intervention to ensure the equilibrium price.
5. When economic or political conditions are unstable,
a. the price of gold rises to $850 per ounce.
b. the supply of gold decreases.
c. the price of gold decreases.
d. the demand for gold increases.
6. Prices enable a market economy to adjust to unexpected events by
a. maintaining consumption and production at stable levels.
b. government rationing.
c. ensuring that producers always earn a profit.
d. adjusting consumption and production.
7. All of the following are characteristics of allocation by rationing EXCEPT
a. lack of fairness.
c. efficiency.
b. high administrative cost.
d. diminished incentive for workers.
8. If a competitive market is at equilibrium, and if there is a sudden increase in demand, then a temporary
a. surplus will occur and the price will increase.
b. shortage will occur and the price will fall.
c. surplus will occur and the price will fall.
d. shortage will occur and the price will increase.
9. The theory of competitive pricing
a. is an imperfect model of market performance.
b. is a set of ideal conditions and outcomes.
c. is ineffective when large swings in price occur.
d. demonstrates the need for subsidies and price ceilings.
____ 10. Deficiency payments are part of a federal program to assist
a. farmers.
c. consumers.
b. senior citizens.
d. college students.
____ 11. Prices perform the allocation function well because they do all of the following EXCEPT
a. provide neutrality, favoring neither the producer or consumer.
b. provide flexibility, absorbing unexpected “shocks.”
c. enable the government to use rationing.
d. provide ways for consumers to make decisions.
____ 12. All of the following are characteristics of rationing EXCEPT
a. rationing is often viewed as unfair.
b. rationing creates high administrative costs.
c. rationing decreases the incentive to work.
d. rationing provides an efficient link between producers and consumers.
____ 13. In a market economy, a high price is a signal for
a. producers to produce more and buyers to buy less.
b. producers to produce more and buyers to buy more.
c. producers to produce less and buyers to buy less.
d. producers to produce less and buyers to buy more.
____ 14. In a market economy, a low price is a signal for
a. producers to produce more and buyers to buy less.
b. producers to produce more and buyers to buy more.
c. producers to produce less and buyers to buy less.
d. producers to produce less and buyers to buy more.
____ 15. Economists think of prices as a “system” because
a. they help buyers and sellers allocate resources between markets.
b. they convey information to the government.
c. they convey information to other countries.
d. they make rationing necessary at times.
____ 16. In a competitive market, the adjustment process moves toward market
a. equilibrium.
c. shortage.
b. surplus.
d. model.
____ 17. If there is a shortage in a market, the price is likely to
a. increase.
c. remain the same.
b. decrease.
d. fluctuate.
____ 18. If there is a surplus in a market, the price is likely to
a. increase.
c. remain the same.
b. decrease.
d. fluctuate.
____ 19. The theory of competitive pricing represents
a. a model by which to measure the performance of other less competitive markets.
b. an important theory in economics.
c. a set of ideal conditions and outcomes.
d. all of the above
____ 20. An economic model is described by all of the following EXCEPT
a. it is a set of assumptions that can be listed in a table, illustrated with a graph, or even
stated algebraically.
b. it can be used to help analyze behavior.
c. it can be used to predict outcomes.
d. it is usually so complex that it can be understood only by economists.
____ 21. Which of the following is an example of a price ceiling?
____ 22.
____ 23.
____ 24.
____ 25.
a. minimum wage
c. rent control
b. “free lunch” program
d. government subsidies
Price ceilings that are artificially low are likely to create
a. a price floor.
c. an equilibrium.
b. a surplus.
d. a shortage.
Price floors that are artificially high are likely to create
a. a price ceiling.
c. an equilibrium.
b. a surplus.
d. a shortage.
Why might a government interfere in a market economy by setting prices?
a. to achieve the goals of equity and security
b. to insure an entrepreneur's profit
c. to distort market outcomes
d. to allow the price system to transmit accurate information
What is meant by the phrase “markets talk”?
a. Market changes are written about in newspapers and magazines.
b. Government officials base decisions on the stock market.
c. Businesspeople rely on good communication to conduct business.
d. Markets reflect the thoughts and feelings of buyers and sellers.
Completion
Complete each sentence or statement.
26. ____________________ serve as signals to both producers and consumers.
27. Prices have the advantages of neutrality, ____________________, efficiency, and clarity.
28. ____________________ prices are signals for businesses to produce more and for consumers to buy less.
29. Problems with ____________________ include fairness, high administrative costs, and diminished incentives
to work and produce.
30. A change in price affects the allocation of resources between ____________________.
31. Some economists argue that the ____________________ actually increases the number of people who do not
have jobs.
32. Target prices, or ____________________, can create surpluses of agricultural crops.
33. A price ____________________ is the maximum legal price that can be charged for a product.
34. In the 1930s the U.S. government sought to solve the problem of agricultural surpluses by giving farmers a
____________________ to cover the difference between the market price and target price.
35. Governments interfere in the market economy to help achieve the social goals of ____________________
and security.
36. During times of emergency, the government may establish ____________________ in order to ensure the fair
distribution of certain products.
37. A shortage or surplus signals producers to adjust their output until the ____________________ is reached, the
point at which the quantity supplied equals the quantity demanded.
38. The ____________________, or monetary value of an item, is determined by supply and demand.
39. To ensure the economic stability of the nation's farms, the Commodity Credit Corporation will sometimes
establish a ____________________.
40. Sometimes governments impose a ____________________ to artificially control how high prices will go.
41. When producers are left with a ____________________ of products, they may reduce prices.
42. A ____________________ makes up the difference between the actual market price and the target price.
43. Producers do not like to see a ____________________ in the market because that means they could have sold
more product if they had supplied more.
44. The minimum wage is the ____________________ for wages in the United States.
45. To stimulate sales, a manufacturer may offer a temporary price reduction by providing a
____________________.
Matching
Match each statement with the correct item below.
a. system under which the government or another agency decides everyone's fair share of a
product
b. the minimum wage, the lowest legal price that can be paid to most workers, is an example
of this
c. partial refund of the original price of a product
d. where these occur, resources slowly shift to other markets where equilibrium prices
prevail
e. price that “clears the market”
f. unsold product that causes suppliers to reduce their prices
g. serves as an allocation signal when established by supply and demand
h. loan that has neither a penalty nor an obligation to repay if not paid back
i. condition that leaves suppliers wishing they had more product to sell
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46.
47.
48.
49.
50.
51.
nonrecourse loan
price
rationing
shortage
rebate
price floor
Match each statement with the correct item below.
a. a set of assumptions that can be used to help analyze behavior and predict outcomes
b. the price at which neither a surplus or shortage of a product exists
c. a situation in which prices are relatively stable and the quantity supplied is equal to the
quantity demanded
d. a situation in which the quantity demanded is greater than the quantity supplied
e. an item priced particularly low to attract customers
f. a situation in which the quantity supplied is greater than the quantity demanded at a given
price
____ 52. market equilibrium
____ 53. surplus
____ 54. equilibrium price
____ 55. shortage