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Chapter 4 - Extra Practice Questions

This document summarizes key concepts about market efficiency and government intervention in markets from Chapter 4. It includes multiple choice questions about marginal benefits and costs, consumer and producer surplus, demand and supply graphs, market equilibrium, rent controls causing inefficiencies through shortages and deadweight loss, and how price caps can lead to shortages and black markets.

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21 views

Chapter 4 - Extra Practice Questions

This document summarizes key concepts about market efficiency and government intervention in markets from Chapter 4. It includes multiple choice questions about marginal benefits and costs, consumer and producer surplus, demand and supply graphs, market equilibrium, rent controls causing inefficiencies through shortages and deadweight loss, and how price caps can lead to shortages and black markets.

Uploaded by

professorkactus2
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 4: Efficiency and Equity; Govt actions in markets

1. Choose the correct statement.

• The benefit from one more unit of a good or service is its marginal benefit, and we measure
marginal benefit by the maximum price that is willingly paid for another unit of the good or
service.
• The benefit from one more unit of a good or service is its marginal benefit, and we measure
marginal benefit by the area under the demand curve.
• An efficient outcome results when marginal benefit exceeds marginal cost.
• The value of one more unit of a good or service is always equal to the price of one more unit of a
good or service.

2. Consumer surplus is _______.

• greater on the 100th unit of a good that we buy than on the 1st unit of a good that we buy
• the value of a good minus the price paid for it, summed over the quantity bought
• equal to the amount that we pay for a good or service
• the value that we receive by purchasing a good or service

3. The graph shows the demand curve for DVD players.

Identify the area that shows consumer surplus on DVD players.

Price
D
(dollars
per
player)
P*

D
Quantity of DVD players

4. The graph shows the supply curve of suits

Identify the area that shows the producer surplus on suits.


Price (dollars
S
per suit)

P*

Quantity of suits

5. The graph shows the demand and supply curve of clothes manufactured.

Draw a point showing the market equilibrium. Draw the consumer and producer surplus for clothes.

P
S

6. All of the following may cause market failure (loss of efficiency) except

• taxes
• rent control
• deadweight loss equals zero
• price floor

7. Government imposes a rent ceiling of $ 1000 per month. The ceiling results in ______.

• a consumer surplus greater than producer surplus


• a producer surplus greater than consumer surplus
• a deadweight loss
• maximization of total surplus

8. Search Activity and/or black market result in renters paying _____ rent.
• the most efficient amount of
• a higher than the efficient amount of
• a lower than the efficient amount of

9. With the rent ceiling, the market is _____ because _____.

• inefficient; the marginal social benefit from the last apartment rented is greater than its marginal
social cost
• inefficient; the marginal social cost of the last apartment rented is greater than its marginal social
benefit
• efficient; the marginal social cost of the last apartment rented is greater than its marginal social
benefit
• efficient; a rent ceiling gives poorer people greater access to housing

10. The table shows the market for apartments.

Quantity Quantity
Rent
(dollars demanded supplied
per month) (apartments per month)

300 1,300 400


600 1,100 500
900 900 600
1,200 700 700
1,500 500 800

If a rent ceiling is set at $900 a month, what is the housing shortage?

If a rent ceiling is set at $1,500 a month, what is the housing shortage?

11. When the rent is not permitted to allocate scarce housing, then a fair allocation method is ______.

• a lottery
• first-come, first-served
• personal characteristics
• none of the above

12. A price cap on gasoline would hurt middle class people more than the high price of gasoline hurts
them, because a cap ______.

• creates a shortage, which leads to lines at the pump, search costs, and possibly a black market
in gasoline
• creates a decrease in consumer surplus and a decrease in producer surplus
• creates a deadweight loss
• all of the above
13. The graph shows the market for housing with a strictly enforced rent ceiling.

Draw a point at the maximum black market rent. Draw an arrow that shows the housing shortage at
the rent ceiling price.
Rent
S

Rent Ceiling
D

Quantity

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