Question 1

Suppose the government sets a price ceiling on bread below the equilibrium price. Which of the following is the most likely immediate result in the bread market?

Accepted Answer

A shortage, because quantity demanded exceeds quantity supplied.

Question 2

Which of the following best describes consumer surplus?

Accepted Answer

The difference between what a consumer is willing to pay and what they actually pay.

Question 3

A price floor is set above the equilibrium price in the market for milk. What is the most likely outcome?

Accepted Answer

Excess supply (surplus) of milk.

Question 4

Which of the following is NOT a nonprice rationing device?

Accepted Answer

Raising the market price to clear the market.

Question 5

If a government imposes a tariff on imported cars, which of the following is a likely effect?

Accepted Answer

Higher prices for cars and reduced imports.

Question 6

Deadweight loss (DWL) can be caused by which of the following?

Accepted Answer

Both price floors and price ceilings.

Question 7

Which formula correctly represents total surplus in a market?

Accepted Answer

$$Total\ Surplus = Consumer\ Surplus + Producer\ Surplus$$

Question 8

A concert venue sets ticket prices below equilibrium, resulting in long lines and tickets selling out quickly. What is the economic term for this situation?

Accepted Answer

Shortage due to a price ceiling.

Question 9

Which of the following best describes the effect of a price ceiling set below equilibrium on consumer and producer surplus?

Accepted Answer

Consumer surplus may increase for some, but total surplus decreases due to deadweight loss.

Question 10

If the government sets a minimum wage above the equilibrium wage, what is the likely result in the labor market?

Accepted Answer

Excess supply of labor (unemployment).

Question 11

Which of the following statements about deadweight loss is correct?

Accepted Answer

Deadweight loss represents the loss of total surplus due to market distortions.

Question 12

Suppose a government issues ration coupons for gasoline, limiting each family to a fixed amount per month. If trading of coupons is allowed, what is the likely market outcome?

Accepted Answer

The price of coupons will rise, similar to price rationing.

Question 13

Which of the following is an example of positive economics?

Accepted Answer

"A price ceiling below equilibrium causes a shortage."

Question 14

If a price floor is set above equilibrium, which area on a supply and demand graph represents the deadweight loss?

Accepted Answer

The triangle between the supply and demand curves, between the quantity demanded and quantity supplied at the floor price.

Question 15

Which of the following best explains why competitive markets maximize total surplus?

Accepted Answer

They allocate resources so that the sum of consumer and producer surplus is as large as possible.

Question 16

A government imposes a tax on a good, causing the price paid by buyers to increase and the price received by sellers to decrease. What is the effect on total surplus?

Accepted Answer

Total surplus decreases due to deadweight loss.

Question 17

Which of the following is a normative economic statement?

Accepted Answer

"The government should set a minimum wage to ensure a fair income for workers."

Question 18

If the supply of a good becomes scarce, what happens to its price in a free market?

Accepted Answer

The price rises until quantity demanded equals quantity supplied.

Question 19

Which of the following best describes producer surplus?

Accepted Answer

The difference between the market price and the minimum price a producer is willing to accept.

Question 20

Which of the following is a likely consequence of using favored customers as a nonprice rationing device?

Accepted Answer

It may result in less fair allocation than simple price rationing.

Chapter 4: Demand and Supply Applications – Rationing, Market Efficiency, and Deadweight Loss

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