ECO 2013 & 2023

Examination #2
Fall 2023

Instructions: Make sure your name and the COURSE CRN number (your last test answer sheet will have
your CRN) are on the top of your answer sheet and that your answers are on ONE page. Email your file
to [email protected] by 11:59PM TODAY. Good luck.

1. On November 1, 2023, gasoline prices fell below $3 per gallon in Orlando. Which of the
following is therefore true?

a. The transaction costs of buying gasoline have been eliminated.

b. The price of gasoline is now fair, whereas before it was only efficient.
c. The quantity of gasoline demanded can be expected to increase.
d. The demand for gasoline will rise this month.
e. B and D only.

2. Over the past few years, the price of homes in Florida has increased as new residents continue to
pour into the state. This means that:

a. The resource directing role of prices will cause more homes to be built.
b. Subjectively, lower-income households could argue that the market for homes unfairly
discriminates against them.
c. The information being conveyed is that home prices are too high and therefore demand will fall.
d. The quantity of homes supplied was greater than the quantity demanded before prices increased.
e. A and B only.

3. In the market for Thanksgiving decorations a determinant of demand would be ______ while
supply determinants would include _____________.

a. Consumer income and tastes; the input costs associated with producing these decorations.
b. Input costs and consumer tastes; the level of competition in the decorations market.
c. The number of sellers serving the market; expectations concerning future prices.
d. The price of Thanksgiving food; the transaction costs of finding these decorations.

4. Recently, the United Autoworkers went on strike demanding “fair wages”. For economists, fair
wages would be _____________ while efficient wages would be _______________.

a. A subjective opinion of the striking workers; when prevailing wages have led to equality between
the quantity of autoworkers demanded and the quantity supplied.
b. Where wages face no pressure from the invisible hand to change over time; Impossible to
calculate using the laws of economics.
c. Where supply and demand intersect in this market; an amount of money where the autoworkers
can take care of their needs.
d. Likely very different than the market equilibrium wage; where self-interested autoworkers and
car companies reach an agreement without the pressure of shortages, or the inefficiency of
surpluses being part of the outcome.
e. A and D only
5. Artificial intelligence (AI), according to Jean Baptiste Say, came from where?

a. Central planning by government officials without any motivation to make profit as well
as a pre-existing consumer demand.
b. The law of supply, that teaches us that as prices increase, supply will increase.
c. The rising demand for AI, which led to entrepreneurs entering the market.
d. Entrepreneurs who supplied us with AI, created jobs in this market and thus ended up
creating a demand for AI technology.
e. The interaction of the laws of supply and demand.

6. In the lesson on ‘price gouging’ you saw that a South Florida gasoline station responded to the
_____ of gasoline by _____. If he had fully adopted the principles of the ‘invisible hand’ he
would have ___________________.

a. Surplus; raising prices way too much; kept prices stable in order to sell more gas.
b. Shortage; raising prices slightly; increased prices much more and allowed the rationing
role of prices to function properly.
c. Market equilibrium condition; raising prices; lowered prices to promote Say’s law.
d. Shortage; raising prices and ordering more gas from Texaco; lowered prices so that
quantity demanded would increase.

7. During the Oklahoma Land Rush of 1889, which role of prices would have been on display if not
for the government’s mismanagement of this market?

a. The rationing role which states that as prices rise, only those buyers most willing and able to pay
would have gained the land they desired.
b. The resource directly role which states that fluctuating prices fail to signal sellers where to
allocate resources like land and capital.
c. The information role that teaches us how rising prices conveys a message that prices were above
equilibrium when the government conducted the land rush.
d. Say’s Law, which teaches us that when demand is greater than supply, price ceilings are efficient.

8. Interest rates on home loans have increased from 2.9% in 2021 to nearly 8% this November. If
this continues into 2024:

a. There will most likely be a market failure without some form of government intervention.
b. The rationing role of prices will no longer be an issue in the housing market next year.
c. There will most likely be a surplus of homes in many parts of the country, downward pressure on
prices and fewer resources being directed into the construction of new homes.
d. There will be a surplus of new homes, rising prices and a decrease in the demand for new homes.
e. B and D only.

9. Suppose you have a neighbor that burns car tires and listens to loud music outside from 2-5am
every day. Who argued that, if transactions costs are low enough, you might be able to get your
neighbor to stop this?

a. Karl Marx
b. Adam Smith
c. Jean Baptiste Say
d. Ronald Coase
 10. Read this excerpt from the Wall Street Journal.

KINDERHOOK, N.Y.—Golden Harvest Farms has grown from a small apple-

growing operation when Doug Grout’s grandfather opened it after World War
II, to a multipronged business that includes a retail stand, cider press,
distillery, tasting room and barbecue restaurant.

But Mr. Grout said he sees a cloudier future for the business due to new state
regulations that will require him to increasingly pay more overtime to the
farmworkers who pick his apples in the coming years, raising one of his
primary costs.

“We were looking to buy another orchard, and that whole thing is tabled,”
said Mr. Grout, 52 years old, who co-owns Golden Harvest with his father, as
he drove between rows of Honeycrisp trees. “We’re stepping away. You’re
going to see farms go out of business. This is very shortsighted.”

For the apple market in New York, the new regulations will:

a. Lead to a decrease in the quantity of apples supplied.

b. Cause the supply curve to shift to the left, leading to higher prices.
c. Create apple shortages, higher prices, and a decrease in demand over time.
d. Cause quantity supplied to fall, higher prices and a market failure.
e. Create more jobs for apple pickers now that a fair wage will be paid.

11. Recently, the Wall Street Journal reported that Whirlpool is planning to decrease the quantity of
appliances supplied from its factories. This is because the __________ appliances is
___________ and consumers can expect _______ prices.

a. Supply of; increasing; lower

b. Quantity demanded for; falling; lower
c. Demand for; falling; no change in
d. Supply of; decreasing; no change in, or slightly higher
e. Demand for; falling; lower

12. During the war between Russia and Ukraine millions of Ukrainians have fled into Poland
Suppose most of these refugees remain and restart their lives in Poland. In the market for labor
the following would likely occur – assuming there was a surplus of labor in Poland before the
refugees arrived.

a. An increase in the quantity of labor supplied and guaranteed labor shortages.

b. Lower wages if the surplus is exacerbated by the increase in the supply of labor.
c. An increase in the supply of labor and a shortage of labor until wages are pushed down
towards equilibrium.
d. A decrease in the demand for labor.
e. None of the above.
13. Suppose over the next several years the level of income and wealth falls in Israel because of the
current war. For Israel’s home-rental market we would observe:

a. Less demand, less supply, and an increase in the quantity of homes rented in the new
market equilibrium condition.
b. Lower prices that are created by a decrease in supply.
c. A decrease in the quantity of houses supplied as demand decreases.
d. A decrease in the quantity of houses supplied as quantity demand decreases.
e. Price gouging in this market would be rampant.

14. The November 2, 2023, Wall Street Journal reports that consumer tastes for the Adidas Samba
shoe have increased dramatically. This means that:

a. Demand is increasing, which should lead to temporary shortages, higher prices and an
increase in quantity supplied.
b. Quantity demanded which should lead to temporary shortages, higher prices and an
increase in quantity supplied.
c. Demand is increasing; which will lead to price gouging and the need for price ceilings.
d. Supply will increase because of the increase in quantity demanded.

15. The January 18, 2023, Wall Street Journal reports that the Florida orange crop for this year was
the lowest in the last 90 years. It is also true that consumer tastes for orange juice have fallen
some over the past few years. This means that we can expect:

a. Higher orange juice prices if the decrease in quantity supplied offsets the decrease in
demand.
b. Lower orange juice prices if the drop in quantity demanded is larger than the drop in
supply.
c. A decrease in the supply of oranges, along with a decrease in the demand for oranges and
higher prices if the supply effect is greater than the demand effect.
d. No change in orange juice prices no matter how much demand or supply changes.
e. None of the above.

16. Suppose the technology associated with producing electric cars advances greatly this year while
the number of buyers in the market falls by a large amount due to economic sluggishness in
China. This would mean that:

a. The price of electric cars would not change but quantity would increase.
b. Quantity supplied would rise, prices would fall, and demand would increase due to the
falling prices.
c. The equilibrium quantity of electric cars would fall if the supply effect is greater than the
demand effect.
d. The price of electric cars would continue to fall.
e. B and C only.
17. The state of Minnesota rations camping sites on a first come, first served system. This has led
to__________ and is _____________ to what America did during World War II. Venezuela
___________ on __________ to distribute food which is _________ to what Minnesota does
with camping sites.

a. An increase in the demand for camping sites and a decrease in supply; not similar; relies; prices;
similar
b. A surplus of camping sites and downward pressure on prices; similar to; does not rely; non-price
rationing; similar
c. The state failing to maximize revenue from this shortage-creating system; similar to; does not
rely; prices; similar
d. The opportunity cost of wasted time for many would-be campers; similar to; refuses to rely; the
invisible hand; similar
e. C and D only.

18. Which of the following is the clearest example (according to the lessons of Adam Smith) of when
government should attempt to interfere, in some manner, with a market outcome?

a. When price gougers come into areas hit by hurricanes and charge high prices for generators.
b. When reckless snow skiers go to the hospital for treatment, only to have most of it paid for with
health insurance because the government is more efficient at creating efficient market outcomes.
c. When businesses pay wages that are too low to support a family.
d. When people allow crab grass to be grown in their yards, destroying property values for their
neighbors.
e. When people try to buy and/or sell pirated movies and music.

19. Your economics professor has a fruit tree that hangs over a fence onto his neighbor’s property.
The neighbor is happy about this because according to economists, this _____________ creates
____ for _________. Meanwhile, _____________ like____________ are usually taxed and
regulated to ___________ consumption.

a. Positive externality; benefits; society; negative externalities loud music; eliminate.

b. Example of the Coase Theorem; positive externalities; everyone; harmful goods; heroin;
eliminate
c. Positive externality; benefits; people who did not engage in the market transaction;
negative externalities; cigarette smoking; reduce
d. Example of Say’s Law; supply; people who are demanders; negative externalities;
alcohol; reduce.
e. All of the above.

20. An increase in the minimum wage to $16.95 per hour would drive wages __________ market
equilibrium for low-level workers at Wal-Mart in poorer urban areas and would __________ the
market for the same type of workers in Williston, North Dakota. Meanwhile, abolishing
agricultural price supports would lead to________________.

a. Above; have no impact on; lower food prices.

b. Below; have no impact on; lower food prices.
c. Below; cause unemployment; higher food prices.
d. Above; cause unemployment; no change in food prices.
e. None of the above.
21. Charter schools in Florida use a lottery to determine which students get in. This means
that__________________________________. An auction in this case would mean that:

a. There is often a shortage of seats at charter schools; the families who place the highest
value on charter school education would be more likely to get a spot.
b. Families who would like to pay for the right to get into charter schools do not have the
opportunity to act on that desire; the price of a seat would rise from zero to some price
above zero.
c. Florida charter schools are not maximizing revenue from this system; Florida charter
schools would earn greater revenue over time.
d. An auction would create an efficient outcome in the market for charter school seats; An
arguably “unfair” market outcome could take place.
e. All of the above.

22. Current research on kidney transplants (see https://www.organdonor.gov/learn/organ-donation-

statistics) shows that 17 people a day die while waiting for an organ. This is because:

a. Of the negative externalities that prevent the government from legalizing the buying and
selling of organs.
b. Because the rationing role of prices is not legally allowed to work in this instance.
c. Because demand is greater than supply, reflecting the fact that people should be more
willing to donate their organs.
d. Because organ prices are so high, most poorer people cannot afford one.
e. A and D only.

23. Take a moment to watch this: https://www.youtube.com/watch?v=Tc8XQGEoEpY&t=7s O.K.,

which of the following would occur in the Orlando housing market if we had a similar law as the
one St. Paul, Minnesota has?

a. Housing shortages because quantity demanded would exceed quantity supplied.

b. Housing surpluses
c. Fair housing prices and an appropriate repudiation of Adam Smith’s invisible hand
d. An equilibrium condition in Orlando’s housing market.
e. Housing shortages because supply would be greater than demand.

24. Shortages and black markets largely came to an end in the Soviet Union because ____________:

a. Barack Obama sped up the rate at which the Soviet Union collapsed by making shortages
there worse in the short run.
b. Franklin Roosevelt worked with Hugo Chavez to implement price controls on the Soviet
economy, leading to the economic collapse occurring today.
c. Ronald Reagan modeled his economic policies on what Karl Marx advocated to
determine how food would be supplied.
d. Ronald Reagan showed that the ideas of Jean Baptiste Say, and Adam Smith were more
efficient economic models than the ideas put forth by Karl Marx.
e. Donald Trump imposed tariffs on the Soviet economy.
25. What is the difference between a change in the demand for classes at Valencia and a change in
the quantity of classes demanded at Valencia?

a. None
b. A change in demand would occur if tuition and fees changed.
c. A change in quantity demanded would occur if fewer people want to attend Valencia.
d. A change in quantity demanded would occur if tuition and fees changed, while a change
in demand would occur if some demand determinant, other than tuition, changed.
e. A change in demand starts with a change in prices while a change in quantity demanded
would occur if income, tastes or some other demand determinant changes.