Question 1

Suppose the government imposes a price ceiling on gasoline that is below the equilibrium price. What is the most likely immediate effect in the gasoline market?

Accepted Answer

Quantity demanded will exceed quantity supplied, resulting in a shortage.

Question 2

Which of the following best describes consumer surplus?

Accepted Answer

The difference between the maximum amount a consumer is willing to pay for a good and its market price.

Question 3

A price floor is set at $10 in a market where the equilibrium price is $7. What will be the likely result?

Accepted Answer

A surplus will occur because quantity supplied exceeds quantity demanded.

Question 4

If the government imposes an oil import tax that raises the price of oil from $80 to $106.64 per barrel, what is the most likely effect on domestic production and imports?

Accepted Answer

Domestic production will increase and imports will decrease.

Question 5

Which of the following is an example of a nonprice rationing mechanism?

Accepted Answer

Distributing goods using waiting in line.

Question 6

What is the deadweight loss in a market?

Accepted Answer

The total loss of producer and consumer surplus from underproduction or overproduction.

Question 7

Suppose the market for concert tickets has a fixed supply of 20,000 seats. If the face-value price is set at $50 but equilibrium price is $300, what is likely to occur?

Accepted Answer

There will be excess demand, leading to alternative rationing mechanisms such as waiting in line or black markets.

Question 8

Which equation correctly represents consumer surplus for a single unit purchased?

Accepted Answer

$CS = P_{max} - P_{market}$

Question 9

A government sets a minimum wage above the equilibrium wage. What is the most likely result in the labor market?

Accepted Answer

A surplus of labor, or unemployment.

Question 10

Which of the following best describes producer surplus?

Accepted Answer

The difference between the current market price and the cost of production for the firm.

Question 11

If a price ceiling is imposed below the equilibrium price, which of the following is most likely to occur?

Accepted Answer

A shortage will develop, and nonprice rationing mechanisms may emerge.

Question 12

Which of the following is a likely unintended consequence of bypassing price rationing with government-imposed price controls?

Accepted Answer

Black markets may emerge, and favored customers may receive special treatment.

Question 13

Suppose a hurricane causes a leftward shift in the supply curve for gasoline. If the price is allowed to adjust freely, what will happen?

Accepted Answer

The price will rise and quantity demanded will decrease until the market clears.

Question 14

Which formula represents the total deadweight loss from underproduction in a market?

Accepted Answer

$DWL = \frac{1}{2} 	imes (Q^* - Q_{actual}) 	imes (P_{demand} - P_{supply})$

Question 15

Which of the following is NOT a source of market failure mentioned in the study materials?

Accepted Answer

Perfect competition.

Question 16

If the government issues ration coupons during a shortage, what is the intended effect?

Accepted Answer

To entitle individuals to purchase a certain amount of a product, limiting total consumption.

Question 17

In the market for a unique painting, such as the Mona Lisa, what determines the final price?

Accepted Answer

The highest bid among all potential buyers.

Question 18

Which of the following statements about black markets is correct?

Accepted Answer

Black markets arise when goods are traded illegally at market-determined prices, often due to price controls.

Question 19

If the market price of hamburgers is $2.50 and some consumers are willing to pay $5.00, what is the consumer surplus for those consumers per hamburger?

Accepted Answer

$5.00 - 2.50 = 2.50$

Question 20

Which of the following best explains why competitive markets are considered efficient?

Accepted Answer

They produce what people want at the least cost when supply and demand interact freely.

Chapter 4: Demand and Supply Applications – Price System, Rationing, and Market Efficiency

Study Guide - Practice Questions

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