Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which one of the following is not likely to be an outcome of a rent ceiling? 1)

A) A black market for rent-controlled housing.
B) A short-run shortage of housing.
C) Long waiting lists of potential renters for rent-controlled housing.
D) A black market price below the rent ceiling.
E) Increased search activity for rent-controlled housing.

2) Suppose the government introduces a ceiling on the fees that lawyers are permitted to charge. If 2)
the fee ceiling is set ________ the equilibrium wage rate, the amount of work done by lawyers
________, the consumer surplus of people who hire lawyers ________, and the producer surplus
of law firms ________ .
A) below; decreases; increases; decreases
B) above; increases; increases; increases
C) below; decreases; decreases; decreases
D) below; increases; increases; increases
E) above; decreases; decreases; decreases

Use the figure below to answer the following questions.

Figure 6.1.2

3) Refer to Figure 6.1.2. What would be the maximum black market price of the good if a price 3)
ceiling is set at $10 a unit?
A) $10.
B) 50 goods sold at $10 and 50 goods sold at $20.
C) $15.
D) $20.
E) 50 goods sold at $10 and 50 goods sold at $15.

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Use the table below to answer the following questions.

Table 6.2.2

Wage Rate Quantity Supplied Quantity Demanded

(dollars per hour) (millions of hours) (millions of hours)
7 60 30
6 50 40
5 40 50
4 30 60
3 20 70

4) Refer to Table 6.2.2. What is the level of unemployment in millions of hours if the minimum 4)
wage is set at $7 per hour?
A) 30 B) zero C) 40 D) 10 E) 20

5) Suppose the minimum wage is $4 per hour, and 1,100 units of labour are hired. Then the 5)
government raises the minimum wage to $6 per hour, and 900 units are now hired. Choose the
correct statement.
A) Total wages paid to workers has fallen.
B) There is unemployment in this labour market.
C) The price elasticity of demand for labour is 0.5.
D) The quantity of labour supplied is greater at the higher minimum wage.
E) all of the above except A.

Use the table below to answer the following questions.

Table 6.2.1

Wage Rate Quantity Supplied Quantity Demanded

(dollars per hour) (hours per week) (hours per week)
7 1,000 200
6 800 400
5 600 600
4 400 800

6) Table 6.2.1 gives the supply and demand schedules for teenage labour in Genoa City. Suppose a 6)
new fast food restaurant opens and increases the quantity demanded of teenage labour by 400
hours per week at each wage rate. If the teenage labour market is unregulated, there is an
increase in teenage employment to
A) 600 hours per week and a wage of $7 per hour.
B) 400 hours per week and a wage of $7 per hour.
C) 1,000 hours per week and a wage of $7 per hour.
D) 1,000 hours per week and a wage of $5 per hour.
E) 800 hours per week and a wage of $6 per hour.

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 7) Complete the following sentence. A price floor set below the equilibrium price results in 7)
A) a decrease in demand.
B) a shortage.
C) a surplus.
D) an increase in supply.
E) the equilibrium price.

8) A subsidy 8)
A) decreases the quantity supplied in the market.
B) decreases total revenue received by farmers.
C) raises the price received by farmers.
D) lowers the price received by farmers.
E) prevents the deadweight loss from underproduction.

9) A production quota 9)
A) raises the price and decreases the marginal social cost of production.
B) increases demand for the good.
C) lowers the price and increases the marginal social cost of production.
D) increases the marginal social cost of production.
E) makes production more efficient.

Use the table below to answer the following questions.

Table 16.2.1

Marginal Social Marginal Private Marginal Social

Output Benefit Cost Cost
(units) (dollars) (dollars) (dollars)
0 80 0 20
1 70 10 30
2 60 20 40
3 50 30 50
4 40 40 60
5 30 50 70
6 20 60 80

10) Refer to Table 16.2.1. Given in the table are the marginal private cost and the marginal social cost 10)
of the production of chemical fertilizer and the marginal social benefit from the consumption of
fertilizer. If the market is unregulated, the quantity produced is
A) 4 units. B) 2 units. C) 1 unit. D) 5 units. E) 3 units.

11) A market economy tends to ________ goods with negative externalities and ________ goods with 11)
positive externalities.
A) overproduce; underproduce
B) underproduce; overproduce
C) underproduce; underproduce
D) overproduce; overproduce
E) produce; consume

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Use the table below to answer the following questions.

Table 16.3.1

Marginal Private Marginal Social Marginal Social

Output Benefit Cost Benefit
(units) (dollars) (dollars) (dollars)
0 80 20 100
1 70 30 90
2 60 40 80
3 50 50 70
4 40 60 60
5 30 70 50
6 20 80 40

12) Refer to Table 16.3.1. The table shows marginal private benefit and the marginal social benefit 12)
from the consumption of chemical fertilizer and the marginal social cost of the production of
fertilizer. An efficient quantity is produced if the government
A) subsidizes production by $20 per unit.
B) taxes production by $10 per unit.
C) provides vouchers for consumption of $20 per unit.
D) subsidizes production by $10 per unit.
E) either A or C.

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Use the figure below to answer the following questions.

Figure 16.3.3

13) Refer to Figure 16.3.3. The figure shows the marginal private benefit and marginal social cost of 13)
a university education. Society's external benefit from university graduates is $10,000 each. With
no subsidy
A) no students go to university.
B) 10 million students go to university.
C) less than 10 million students go to university.
D) more than 10 million students go to university.
E) none of the above.

14) If positive externalities exist and production is left to the private market, then at the quantity 14)
produced
A) MSC = MSB.
B) MSC > MSB.
C) MSC < MSB.
D) MSB = marginal external benefit.
E) MSB = 1/MSC.

15) Air pollution generated by a paper mill factory is an example of a 15)

A) negative production externality.
B) positive consumption externality.
C) marginal external benefit.
D) negative consumption externality.
E) positive production externality.

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Use the figure below to answer the following questions.

Figure 16.3.1

16) Refer to Figure 16.3.1. The figure shows the marginal private benefit curve, the marginal social 16)
benefit curve, and the market supply curve. If production is left to the private market, then the
price is
A) greater than P4.
B) P4.
C) P2.
D) P3.
E) P1.

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Use the figure below to answer the following questions.

Figure 16.3.3

17) Refer to Figure 16.3.3. The figure shows the marginal private benefit and marginal social cost of 17)
a university education. If society's external benefit from university graduates is $10,000 each,
then
A) a subsidy of $20,000 per student paid to the universities achieves efficiency.
B) 10 million students per year is the efficient number students.
C) a subsidy of $10,000 per student paid to the universities achieves efficiency.
D) a tax of $10,000 per student imposed on the universities achieves efficiency.
E) none of the above answers are correct.

18) Diminishing marginal utility means that 18)

A) the utility from one hamburger is greater than the utility from two hamburgers.
B) Ralph will enjoy his second hamburger less than the first one.
C) the price of two hamburgers is less than twice the price of one.
D) the utility from eating two hamburgers will be more than twice the utility from eating the
first one.
E) hamburgers seem smaller as you eat more of them.

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Use the table below to answer the following questions.

Table 8.1.1

Quantity Total Utility Marginal Utility

0 0
30
1 30
12
2 A
5
3 B
C
4 50

19) Refer to Table 8.1.1. The value of B is 19)

A) 42. B) 47. C) 0. D) 18. E) 30.

20) Which one of the following is not true in consumer equilibrium? 20)
A) The total utilities of all goods are equal.
B) The marginal utility per dollar is equal for all goods.
C) Given prices and her income, the consumer finds that any other choice of goods to
consume would lower her utility.
D) The consumer is maximizing utility, given her income and the prices of goods and
services.
E) The consumer will not change her choices unless prices or income change.

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Answer Key
Testname: UNTITLED5

1) D
2) C
3) D
4) A
5) E
6) E
7) E
8) C
9) A
10) A
11) A
12) E
13) B
14) C
15) A
16) C
17) C
18) B
19) B
20) A