Download Chapter 4 Supply and Demand: Practice

Chapter 4 Supply and Demand: Applications
1. Suppose that the supply curve for housing is steeper in city A than in city B. For an
equal increase in demand for housing in each city, house prices will rise more in city
___________ (ceteris paribus). For an equal decrease in demand for housing in each
city, house prices will fall more in city ___________________ (ceteris paribus).
a. A; A
b. B; B
c. A; B
d. B; A
ANS:
a.
b.
c.
d.
Correct.
Incorrect. When a supply curve is relatively steep, price will change more for any
given change in demand than when a supply curve is relatively flat.
Incorrect. When a supply curve is relatively steep, price will change more for any
given change in demand than when a supply curve is relatively flat.
Incorrect. When a supply curve is relatively steep, price will change more for any
given change in demand than when a supply curve is relatively flat.
2. True or False: An increase in the minimum wage (set above the equilibrium wage)
benefits all unskilled workers.
a. True
b. False
ANS:
a.
Incorrect. An increase in the minimum wage, an example of a price floor, benefits
workers who keep their jobs, but it harms those who lose their jobs as a result of a
surplus of labor.
b.
Correct.
3. Colleges and universities use GPAs and SAT scores as ________________ in their
admissions process.
a.
nonprice rationing devices
b.
utility maximizers
c.
normative standards
d.
opportunity costs
ANS:
a.
Correct.
b.
Incorrect. When the number of students that want to attend a university is greater
than the number of openings (at the current tuition), colleges must use nonprice
rationing devices to determine who will be offered admission.
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
c.
d.
Incorrect. When the number of students that want to attend a university is greater
than the number of openings (at the current tuition), colleges must use nonprice
rationing devices to determine who will be offered admission.
Incorrect. When the number of students that want to attend a university is greater
than the number of openings (at the current tuition), colleges must use nonprice
rationing devices to determine who will be offered admission.
4. True or false: There is currently a price floor in the (transplanted) kidney market, and
the price is set at $0.
a. True
b. False
ANS:
a.
Incorrect. The law which prohibits buying and selling kidneys imposes a price
ceiling in this market.
b.
Correct.
5. Why would an economist argue for charging a toll on congested highways and bridges
during peak rush hour traffic?
a.
Because economists are heartless and cannot resist an opportunity to exploit
people who lack alternatives.
b.
Because the toll raises the price of using the highway or bridge during peak rush
hour when there is a shortage of highway capacity, and thus can reduce the
overall costs of being delayed on all drivers by encouraging some drivers to
carpool or drive at a different time.
c.
Because the toll lowers the monetary price of using the highway or bridge during
peak rush hour when there is a shortage of highway capacity, and thus can reduce
the overall cost of being trapped in traffic.
d.
none of the above
ANS:
a.
Incorrect. A toll raises the price of using the congested highway or bridge,
thereby causing some drivers to carpool or drive at a different time.
b.
Correct.
c.
Incorrect. A toll raises the price of using the congested highway or bridge,
thereby causing some drivers to carpool or drive at a different time.
d.
Incorrect. Answer B is correct.
6. If the purchase and sale of marijuana became legalized, the equilibrium quantity of
marijuana would ____________________ and the equilibrium price
a.
rise; would also rise.
b.
rise; would remain the same.
c.
fall; would also fall.
d.
rise; may rise, fall, or remain the same.
ANS:
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
a.
b.
c.
d.
Incorrect. Both demand and supply would most likely increase. This means that
the equilibrium quantity would definitely rise, but the impact on the equilibrium
price would depend upon whether the rise in demand is greater than, equal to, or
less than the increase in supply.
Incorrect. Both demand and supply would most likely increase. This means that
the equilibrium quantity would definitely rise, but the impact on the equilibrium
price would depend upon whether the rise in demand is greater than, equal to, or
less than the increase in supply.
Incorrect. Both demand and supply would most likely increase. This means that
the equilibrium quantity would definitely rise, but the impact on the equilibrium
price would depend upon whether the rise in demand is greater than, equal to, or
less than the increase in supply.
Correct.
7. If more people make a habit of using public transportation
a.
the demand curve for freeway space would shift leftward.
b.
the demand curve for freeway space would shift rightward.
c.
the supply curve for freeway space would shift leftward.
d.
the demand curve for freeway space would shift leftward and the supply curve for
freeway space would shift rightward.
ANS:
a.
Correct.
b.
Incorrect. With more people using public transportation, there would be fewer
people driving on the freeway. This would decrease the demand for freeway
space, but it would not change the supply of freeway space.
c.
Incorrect. With more people using public transportation, there would be fewer
people driving on the freeway. This would decrease the demand for freeway
space, but it would not change the supply of freeway space.
d.
Incorrect. With more people using public transportation, there would be fewer
people driving on the freeway. This would decrease the demand for freeway
space, but it would not change the supply of freeway space.
8At a local college, the supply of seats for an economics class at 10 a.m. is the same as the
supply of seats for the same class at 8 a.m. Every student who wants to attend this class at 8 a.m.
can do so, but not every student who wants to attend the 10 a.m. class can. It follows that the
demand for the 10 a.m. class is ______________ the demand for the 8 a.m. class, assuming that
the college does not vary the students’ tuition by the time of day.
a.
greater than
b.
less than
c.
the same as
d.
none of the above
ANS:
a. Correct.
b. Incorrect. If the market is in equilibrium at 8 a.m., and there are not enough seats
to go around for all those who are interested in taking the class at 10 a.m., then
the demand for 10 a.m. classes must be greater than the demand for 8 a.m.
classes.
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
c. Incorrect. If the market is in equilibrium at 8 a.m., and there are not enough seats
to go around for all those who are interested in taking the class at 10 a.m., then
the demand for 10 a.m. classes must be greater than the demand for 8 a.m.
classes.
d. Incorrect. Answer A is correct.
9. If the government legislates an increase in the minimum wage law such that the new
minimum wage is above the equilibrium wage in the unskilled labor market,
a. the result will be a surplus of labor.
b. the result will be a shortage of labor.
c. the labor market will necessarily still be in equilibrium.
d. the result upon the labor market is impossible to determine.
ANS:
a.
Correct.
b.
Incorrect. The minimum wage is a price floor, and prices floors set above the
equilibrium price will result in a surplus of labor.
c.
Incorrect. The minimum wage is a price floor, and prices floors set above the
equilibrium price will result in a surplus of labor.
d.
Incorrect. The minimum wage is a price floor, and prices floors set above the
equilibrium price will result in a surplus of labor.
10. If a city has a reputation for bad weather, residents of that city will, ceteris paribus,
a. pay more for housing since the demand for housing would be higher than in a city with a
reputation for good weather.
b. pay less for housing since the demand for housing would be lower than in a city with a
reputation for good weather.
c. pay more for housing since the demand for housing would be higher and the supply of
housing would be lower than in a city with a reputation for good weather.
d. pay less for housing since the demand for housing and the supply of housing would both
be lower than in a city with a reputation for good weather.
ANS:
a. Incorrect. The demand for housing would be lower in a city with a reputation for
comparatively bad weather.
b. Correct.
c. Incorrect. The demand for housing would be lower in a city with a reputation for
comparatively bad weather.
d. Incorrect. The demand for housing would be lower in a city with a reputation for
comparatively bad weather.
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be
different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.