4.1 The Price System: Rationing and Allocating Resources: Chapter 4 Demand and Supply Applications

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com
Principles of Microeconomics, 10e (Case/Fair/Oster)

Chapter 4 Demand and Supply Applications
4.1 The Price System: Rationing and Allocating Resources

1 Multiple Choice
1) In the short run, it is necessary to a good whenever excess demand exists.

A) nonprice ration
B) price allocate
C) discontinue distribution of
D) increase production of
Answer: A
Diff: 2
Topic: The Price System: Rationing and Allocating Resources
Skill: Conceptual
AACSB: Reflective Thinking
2) Issuing coupons, waiting in line and catering to favored customers are all methods of
A) unbiased favoritism.
B) exploiting wealth.
C) income distribution.
D) nonprice rationing.
Answer: D
Diff: 2
Skill: Conceptual
3) The automatically distributes scarce goods.

A) price system
B) barter system
C) laissez faire economy
D) command economy
Answer: A
Diff: 2
Skill: Conceptual
4) Attempts to bypass price rationing in the market

A) are costly.
B) are easily administered.
C) are efficient.
D) are an effective tool for aiding low-income households.
Answer: A
Diff: 2
Skill: Conceptual
1
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5) During periods of , favored customers receive special treatment from dealers.

A) excess supply
B) excess demand
C) price above equilibrium
D) equilibrium
Answer: B
Diff: 2
Skill: Definition
6) A situation where illegal trading at market prices takes place is known in economics as a
A) smugglerʹs market.
B) pirate market.
C) black market.
D) command market.
Answer: C
Diff: 2
Skill: Definition
7) When supply is or the product is , then price is demand determined.

A) fixed; unique
B) variable; standardized
C) fixed; standardized
D) variable; unique
Answer: A
Diff: 2
Skill: Conceptual
8) A government-imposed maximum price will have no economic impact if

A) it is below the equilibrium price.
B) it is at or below the equilibrium price.
C) it is above the equilibrium price.
D) there is a fixed supply of the good.
Answer: C
Diff: 1
Skill: Conceptual
2
9) If Leonardo is scalping tickets for a World Cup game, he will be successful at selling the
tickets for a profit
A) when prices are too high.
B) only when there is excess supply.
C) any time teams in the World Cup game are popular.
D) when the price set by the World Cup organizers is less than the market equilibrium
price.
Answer: D
Diff: 1
Skill: Conceptual
10) If Andrew is scalping tickets for the Stanley Cup, he will be successful at selling the tickets
for a profit
A) when the price set by the National Hockey League is less than the market equilibrium
price.
B) when prices are too high.
C) any time the Stanley Cup is popular.
D) only when there is excess supply.
Answer: A
Diff: 1
Skill: Conceptual
3
Refer to the information provided in Figure 4.1 below to answer the questions that follow.
Figure 4.1
11) Refer to Figure 4.1. At the world price of 30 cents per apple the United States imports
million apples per day.
A) 2
B) 4
C) 6
D) 10
Answer: C
Diff: 2
Skill: Analytic
AACSB: Analytic Skills
12) Refer to Figure 4.1. The United States will import 2 million apples per day if a per-apple tax
of is levied on imported apples.
A) 10 cents
B) 20 cents
C) 30 cents
D) 40 cents
Answer: A
Diff: 2
Skill: Analytic
4
13) Refer to Figure 4.1. The United States will import 6 million apples per day if a per-apple tax
of is levied on imported apples.
A) 0 cents
B) 10 cents
C) 20 cents
D) 30 cents
Answer: A
Diff: 2
Skill: Analytic
14) Refer to Figure 4.1. Assume that initially there is free trade. The price of apples in the United
States will increase to 40 cents per apple if a per apple tax tax is imposed.
A) 10 cents
B) 20 cents
C) 30 cents
D) 40 cents
Answer: A
Diff: 2
Skill: Analytic
15) Refer to Figure 4.1. Assume that initially there is free trade. The quantity demanded of
apples will be reduced by 2 million per day if the United States imposes a tax of
per apple.
A) 10 cents
B) 20 cents
C) 30 cents
D) 40 cents
Answer: A
Diff: 2
Skill: Analytic
5
Figure 4.2
16) Refer to Figure 4.2. The market is initially in equilibrium at the intersection of S2 and D, and
supply shifts from S2 to S1. Which of the following statements is true?
A) Price will still serve as a rationing device causing quantity demanded to rise from 8 to
11 soft pretzels.
B) There is no need for price to serve as a rationing device in this case because the new
equilibrium quantity is lower than the original equilibrium quantity.
C) Price will still serve as a rationing device causing quantity supplied to fall from 8 to 4
soft pretzels.
D) The market cannot move to a new equilibrium until there is also a change in supply.
Answer: A
Diff: 1
Skill: Analytic
17) An example of an effective price ceiling would be the government setting the price of wheat
at per bushel when the market price is at $4.25 per bushel.
A) $3.75
B) $5.00
C) $7.75
D) $12.00
Answer: A
Diff: 2
Skill: Conceptual
6
18) If the equilibrium price of gasoline is $3.00 per gallon and the government will not allow oil
companies to charge more than $2.00 per gallon of gasoline, which of the following will
happen?
A) The market will be in equilibrium at a price of $2.00.
B) Supply must eventually increase so that the market will come into equilibrium at a
price of $2.00.
C) Demand must eventually decrease so that the market will come into equilibrium at a
price of $2.00.
D) A nonprice rationing system such as ration coupons must be used to ration the
available supply of gasoline.
Answer: D
Diff: 1
Skill: Conceptual
19) An example of a would be the government setting the price of coffee below the
equilibrium price.
A) non-income tax
B) rational expenditure
C) black market
D) price ceiling
Answer: D
Diff: 2
Skill: Conceptual
20) If the market price of green tea is $20.00 per pound but the government will not allow green
tea growers to charge more than $15.00 per pound of green tea, which of the following will
happen?
A) Demand must eventually decrease so that the market will come into equilibrium at a
price of $17.50.
B) There will be a shortage of green tea.
C) Supply must eventually increase so that the market will come into equilibrium at a
price of $17.50.
D) There will be a surplus of green tea.
Answer: B
Diff: 3
Skill: Conceptual
7
21) In the short run, whenever excess demand exists, it is necessary to

A) ration the good.
B) put the good on sale.
C) increase the supply of the good.
D) impose a price ceiling on the good.
Answer: A
Diff: 2
Skill: Conceptual
22) The rationing mechanism in market economies is the adjustment of

A) supply.
B) demand.
C) quantity.
D) price.
Answer: D
Diff: 2
Skill: Definition
23) An effective price ceiling must be set

A) above the equilibrium price.
B) below the equilibrium price.
C) at the equilibrium price.
D) either at or above the equilibrium price.
Answer: B
Diff: 2
Skill: Definition
24) An effective price floor must be set

A) above the equilibrium price.
B) below the equilibrium price.
C) at the equilibrium price.
D) either at or below the equilibrium price.
Answer: A
Diff: 2
Skill: Definition
8
25) For a particular product, an effective price ceiling results in

A) quantity demanded greater than quantity supplied.
B) quantity supplied greater than quantity demanded.
C) quantity demanded equal to quantity supplied.
D) demand equal to supply.
Answer: A
Diff: 2
Skill: Conceptual
26) For a particular product, an effective price floor results in

A) quantity demanded greater than quantity supplied.
B) quantity supplied greater than quantity demanded.
C) quantity demanded equal to quantity supplied.
D) demand equal to supply.
Answer: B
Diff: 2
Skill: Conceptual
9
Figure 4.3
27) Refer to Figure 4.3. The government setting the price of pencils at $0.40 would be an example
of an effective
A) price floor.
B) price ceiling.
C) market equilibrium.
D) price surplus.
Answer: B
Diff: 1
Skill: Analytic
28) Refer to Figure 4.3. The government setting the price of pencils at $0.50 would be an example
of an effective
A) price floor.
B) price ceiling.
C) market equilibrium.
D) price shortage.
Answer: A
Diff: 1
Skill: Analytic
10
29) Refer to Figure 4.3. In the market for pencils, the quantity demanded will be greater than the
quantity supplied if the government imposes an effective
A) price floor.
B) price ceiling.
C) market equilibrium price.
D) price surplus.
Answer: B
Diff: 1
Skill: Conceptual
30) Refer to Figure 4.3. A non-price rationing system such as queuing must be used to ration the
available supply of pencils if the government will not allow retailers to charge more than
for a pencil.
A) $0.40
B) $0.45
C) $0.50
D) $0.55
Answer: A
Diff: 2
Skill: Analytic
31) Refer to Figure 4.3. Retailers will have an excess supply of pencils if the government will not
allow retailers to charge less than for a pencil.
A) $0.50
B) $0.45
C) $0.40
D) the equilibrium price
Answer: A
Diff: 1
Skill: Analytic
32) A shortage will occur if a is set the equilibrium price.

A) price floor; below
B) price floor; above
C) price ceiling; above
D) price ceiling; below
Answer: D
Diff: 2
Skill: Conceptual
11
33) The market will be in equilibrium if is set the equilibrium price.

A) a price floor; below
B) a price ceiling; below
C) actual price; above
D) actual price; below
Answer: A
Diff: 2
Skill: Conceptual
34) Quantity demanded will equal quantity supplied if a is set the

equilibrium price.
A) price ceiling; above
B) price ceiling; below
C) price floor; above
D) price ceiling, at or below
Answer: A
Diff: 3
Skill: Conceptual
35) A surplus will occur if a is set the equilibrium price.

A) price floor; below
B) price floor; above
C) price ceiling; above
D) price ceiling; below
Answer: B
Diff: 1
Skill: Conceptual
36) The government imposes a maximum price on apartments that is BELOW the equilibrium
price. You accurately predict that
A) the law will have no economic impact.
B) the law will create a surplus of apartments.
C) renters will find that landlords start offering to furnish the apartments.
D) landlords are less likely to do routine maintenance work in the apartments.
Answer: D
Diff: 3
Skill: Conceptual
12
37) The type of non-price rationing that most closely approaches the market outcome is
A) favored customer rationing.
B) first-come, first-served basis or queuing.
C) coupon rationing with coupons that can be resold.
D) coupon rationing with coupons that cannot be resold.
Answer: C
Diff: 3
Skill: Conceptual
38) The government imposes a price ceiling on heating oil that is below the market price. The
rationing scheme that will minimize the misallocation of resources would be
A) using rationing coupons that cannot be resold.
B) using rationing coupons that can be resold.
C) using rationing on a first-come, first-served basis.
D) using rationing only on weekdays.
Answer: B
Diff: 3
Skill: Conceptual
39) The government imposes a price floor on wheat that is below the market price. You are
asked to suggest a rationing scheme that will minimize the misallocation of resources. You
suggest
A) using rationing coupons that cannot be resold.
B) using rationing coupons that can be resold.
C) using a queuing system to compensate for the excess demand.
D) that no rationing system will be necessary.
Answer: D
Diff: 3
Skill: Conceptual
40) Laura is scalping tickets for a Lakerʹs game. She can sell her tickets for at least a normal
profit
A) when prices are too high.
B) any time the Lakers are popular.
C) when the price set by the Lakers is less than the market equilibrium price.
D) only when there is excess supply.
Answer: C
Diff: 3
Skill: Conceptual
13
41) Related to the Economics in Practice on p. 79: The true cost of the Shakespeare in the Park tickets
is
A) zero.
B) $0 plus the opportunity cost of the time spent in line.
C) the cost to put on the performance.
D) the additional cost to the city of extra security.
Answer: B
Diff: 2
Topic: The Price System: Economics in Practice
Skill: Conceptual
42) Related to the Economics in Practice on p. 79: The initial price of $0 for the Shakespeare in the
Park tickets is akin to the city of New York the tickets.
A) issuing a price floor on
B) issuing a price ceiling on
C) issuing ration coupons for
D) assigning favored customer status for
Answer: B
Diff: 2
Topic: The Price System: Economics in Practice
Skill: Conceptual
2 True/False
1) Goods are allocated in a market system by nonprice rationing.

Answer: FALSE
Diff: 2
Skill: Conceptual
2) In the short run, nonprice rationing will happen whenever there is excess demand in a
market.
Answer: TRUE
Diff: 2
Skill: Conceptual
3) When supply is fixed, price is demand determined.

Answer: TRUE
Diff: 2
Skill: Conceptual
14
4) With nonprice rationing those who are both able and willing to pay for a product necessarily
get the product.
Answer: FALSE
Diff: 2
Skill: Conceptual
5) Establishing a list of favored customers is an alternative rationing mechanism to price

rationing.
Answer: TRUE
Diff: 2
Skill: Conceptual
6) A surplus exists when there is excess demand in a market.

Answer: FALSE
Diff: 1
Skill: Definition
7) In a ʺblack marketʺ, goods are traded at the same prices as they would be in a normal
market.
Answer: FALSE
Diff: 2
Skill: Conceptual
8) Queuing is a system of nonprice rationing.

Answer: TRUE
Diff: 2
Skill: Definition
9) Ration coupons are tickets or coupons that give someone a right to purchase a certain
amount of a product during a specific period of time.
Answer: TRUE
Diff: 2
Skill: Definition
15
4.2 Supply and Demand Analysis

1 Multiple Choice
Figure 4.4
1) Refer to Figure 4.4. At the world price of per barrel of oil, the United States imports
6 million barrels of oil per day.
A) $100
B) $125
C) $150
D) >$150
Answer: B
Diff: 2
Topic: Supply and Demand Analysis
Skill: Analytic
2) Refer to Figure 4.4. The United States will import 2 million barrels of oil per day if a
per barrel tax is levied on imported oil.
A) $25
B) $50
C) $100
D) $150
Answer: A
Diff: 2
Skill: Analytic
16
3) Refer to Figure 4.4. The price of oil in the United States would be $125 per barrel, and the
United States would import 6 million barrels of oil per day if the United States levies
per barrel tax on imported oil.
A) no
B) a $25
C) a $50
D) a $100
Answer: A
Diff: 2
Skill: Analytic
4) Refer to Figure 4.4. Assume that initially there is free trade. The price of oil in the United
States will increase to $150 per barrel if the United States then imposes tax per
barrel of imported oil.
A) no
B) a $25
C) a $50
D) a $100
Answer: B
Diff: 2
Skill: Analytic
5) Refer to Figure 4.4. Assume that initially there is free trade. Tax revenue of $ 50 million per
day will be generated if the United States imposes a tax per barrel on imported oil.
A) $25
B) $50
C) $100
D) $150
Answer: A
Diff: 2
Skill: Analytic
6) Refer to Figure 4.4. Assume that initially there is free trade. If the United States allowed
drilling for more oil in the Gulf of Mexico, it could
A) reduce U.S. oil imports without a tax.
B) decrease the demand for domestic oil.
C) reduce the supply of domestic oil.
D) increase the domestic price of oil.
Answer: A
Diff: 2
Skill: Conceptual
17
Figure 4.5
7) Refer to Figure 4.5. The United States imports 9 million CD-Rom drives at a world price of
per CD-Rom drive.
A) $15
B) $25
C) between $15 and $25
D) >$25
Answer: A
Diff: 2
Skill: Analytic
8) Refer to Figure 4.5. The United States will import 3 million CD-Rom drives if tax
per CD-Rom drive is levied on imported CD-Rom drives.
A) no
B) a $10
C) a $15
D) a $25
Answer: B
Diff: 2
Skill: Analytic
18
9) Refer to Figure 4.5. The price of CD-Rom drives in the United States would be $15 per CD-
Rom drive, and the United States would import 9 million CD-Rom drives if the United
States imposed tax per CD-Rom drive on imported CD-Rom drives.
A) no
B) a $10
C) a $15
D) a $25
Answer: A
Diff: 1
Skill: Analytic
10) Refer to Figure 4.5. Assume that initially there is free trade. The quantity demanded of CD-
Rom drives will be reduced by 3 million CD-Rom drives if the United States imposes
tax per CD-Rom drive on imported CD-Rom drives.
A) no
B) a $10
C) a $15
D) a $25
Answer: B
Diff: 2
Skill: Analytic
11) Refer to Figure 4.5. Assume that initially there is free trade. The quantity of CD-Rom drives
supplied by U.S. firms will increase by 3 million CD-Rom drives if the United States then
imposes tax per CD-Rom drive on imported CD-Rom drives.
A) no
B) a $10
C) a $15
D) a $25
Answer: B
Diff: 2
Skill: Analytic
2 True/False
1) A U.S. import fee on steel would reduce imports and lower the price of U.S. steel products.
Answer: FALSE
Diff: 2
Skill: Conceptual
19
2) A U.S. import fee on steel would increase the domestic quantity demanded of steel.
Answer: FALSE
Diff: 2
Skill: Conceptual
3) A U.S. import fee on steel would increase the domestic quantity supplied of steel.
Answer: TRUE
Diff: 2
Skill: Conceptual
4.3 Supply and Demand and Market Efficiency

1 Multiple Choice
1) The difference between current market price and full costs of production for the firm is
known as
A) consumer surplus.
B) producer surplus.
C) market surplus.
D) nonprice surplus.
Answer: B
Diff: 2
Topic: Supply and Demand and Market Efficiency
Skill: Definition
2) The difference between the maximum a person is willing to pay and current market price is
known as
A) consumer surplus.
B) producer surplus.
C) market surplus.
D) nonprice surplus.
Answer: A
Diff: 2
Skill: Definition
20
3) If the most someone is willing to pay for an airline ticket to Las Vegas is $300 and the market
price of the ticket is $200, then this buyer will get consumer surplus of
A) $100.
B) $200.
C) $300.
D) $500.
Answer: A
Diff: 2
Skill: Analytic
4) The market price of a bowling ball is $125 and the full cost of producing it is $35, then a
bowling ball producing firm gets producer surplus of
A) $35.
B) $90.
C) $125.
D) $160.
Answer: B
Diff: 2
Skill: Analytic
21
Equilibrium in this market occurs at the intersection of curves S and D.
Figure 4.6
5) In figure 4.6 the area of [A + B + C] represents

A) producer surplus.
B) consumer surplus.
C) consumer surplus plus producer surplus.
D) consumer surplus minus producer surplus.
Answer: B
Diff: 2
Skill: Analytic
6) In figure 4.6 the area of [E + F + G] represents

A) producer surplus.
B) consumer surplus.
C) consumer surplus plus producer surplus.
D) consumer surplus minus producer surplus.
Answer: A
Diff: 2
Skill: Analytic
22
7) In figure 4.6, consumer surplus is area [A + B + E] if price is

A) P1.
B) P2.
C) P3.
D) above P3.
Answer: A
Diff: 2
Skill: Analytic
8) In figure 4.6, producer surplus is area G if price is

A) below P1.
B) P1.
C) P2.
D) P3.
Answer: B
Diff: 2
Skill: Analytic
9) In figure 4.6 the deadweight loss due to under production is area [C + F] if price is
A) P1.
B) P2.
C) P3.
D) > P3.
Answer: A
Diff: 2
Skill: Analytic
10) In figure 4.6 producer surplus changes by the area [E + F] if price goes from equilibrium to
A) P1.
B) P3.
C) < P1.
D) > P3.
Answer: A
Diff: 3
Skill: Analytic
23
11) In figure 4.6 consumer surplus changes by the area [E - C] if price goes from equilibrium to
A) P1.
B) P3.
C) < P1.
D) > P3.
Answer: A
Diff: 3
Skill: Analytic
12) The total of consumer plus producer surplus is at the market equilibrium.
A) greatest
B) smallest
C) zero
D) negative
Answer: A
Diff: 2
Skill: Conceptual
13) A deadweight loss occurs in a market.

A) only when there is overproduction
B) only when there is underproduction
C) when there is efficient production
D) when there is underproduction or overproduction
Answer: A
Diff: 2
Skill: Conceptual
2 True/False
1) Producer surplus is the difference between the most a person is willing to pay and market
price.
Answer: FALSE
Diff: 2
Skill: Definition
2) Producer surplus describes a situation in which there is excess quantity demanded.

Answer: FALSE
Diff: 2
Skill: Definition
24
3) If someone is willing to pay $800 to go to the World Cup but can buy a ticket for $500, they
will get $300 in consumer surplus.
Answer: TRUE
Diff: 2
Skill: Analytic
4) A firm that sells a motorcycle for $15,000 also gets producer surplus of $15,000.
Answer: FALSE
Diff: 2
Skill: Conceptual
5) The total of consumer plus producer surplus is at a minimum at the market equilibrium.
Answer: FALSE
Diff: 2
Skill: Conceptual
6) The total of producer and consumer surplus is maximized when there is overproduction.
Answer: FALSE
Diff: 2
Skill: Conceptual
25

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To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.

Principles of Microeconomics, 10e (Case/Fair/Oster)

4.1 The Price System: Rationing and Allocating Resources

1) In the short run, it is necessary to a good whenever excess demand exists.

3) The automatically distributes scarce goods.

4) Attempts to bypass price rationing in the market

5) During periods of , favored customers receive special treatment from dealers.

7) When supply is or the product is , then price is demand determined.

8) A government-imposed maximum price will have no economic impact if

21) In the short run, whenever excess demand exists, it is necessary to

22) The rationing mechanism in market economies is the adjustment of

23) An effective price ceiling must be set

24) An effective price floor must be set

25) For a particular product, an effective price ceiling results in

26) For a particular product, an effective price floor results in

32) A shortage will occur if a is set the equilibrium price.

33) The market will be in equilibrium if is set the equilibrium price.

34) Quantity demanded will equal quantity supplied if a is set the

35) A surplus will occur if a is set the equilibrium price.

1) Goods are allocated in a market system by nonprice rationing.

3) When supply is fixed, price is demand determined.

5) Establishing a list of favored customers is an alternative rationing mechanism to price

6) A surplus exists when there is excess demand in a market.

8) Queuing is a system of nonprice rationing.

4.2 Supply and Demand Analysis

4.3 Supply and Demand and Market Efficiency

5) In figure 4.6 the area of [A + B + C] represents

6) In figure 4.6 the area of [E + F + G] represents

7) In figure 4.6, consumer surplus is area [A + B + E] if price is

8) In figure 4.6, producer surplus is area G if price is

13) A deadweight loss occurs in a market.

2) Producer surplus describes a situation in which there is excess quantity demanded.

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