Question 1

Suppose a drought in California causes apple farmers to leave a large portion of their land fallow. What is the most likely effect on the equilibrium price and quantity of apples in the United States?

Accepted Answer

The supply curve shifts left, causing equilibrium price to rise and equilibrium quantity to fall.

Question 2

If the government imposes a price ceiling below the equilibrium price in the rental housing market, what is the most likely outcome?

Accepted Answer

A shortage of rental housing, as quantity demanded exceeds quantity supplied.

Question 3

A growing middle class in developing countries increases the demand for edible oils, while U.S. farmers shift from soy to corn production. What is the combined effect on the price of edible oils?

Accepted Answer

Both increased demand and decreased supply cause the price of edible oils to rise.

Question 4

Which of the following best describes the effect of a price floor set above the equilibrium price?

Accepted Answer

It creates a surplus, as quantity supplied exceeds quantity demanded.

Question 5

A minimum wage is an example of which type of government intervention, and what is its likely effect on the labor market?

Accepted Answer

A price floor, likely causing unemployment as quantity of labor supplied exceeds quantity demanded.

Question 6

Suppose the government imposes an excise tax of $10,000 on each boat sold. What is the most likely effect on the market for boats?

Accepted Answer

The supply curve shifts up by $10,000, increasing the price buyers pay by less than $10,000 and reducing the equilibrium quantity.

Question 7

If the government limits the number of taxi licenses in a city, what is the likely effect when demand for taxi services increases?

Accepted Answer

Wages for taxi drivers and the price of taxi medallions both increase.

Question 8

Which of the following is true about third-party-payer markets, such as health care with insurance?

Accepted Answer

Equilibrium quantity and total spending are higher than if consumers paid the full price themselves.

Question 9

A tariff is best described as:

Accepted Answer

An excise tax on an imported good.

Question 10

If both the demand and supply for a good increase simultaneously, what happens to the equilibrium quantity?

Accepted Answer

Equilibrium quantity increases.

Question 11

Suppose the government sets a price ceiling on gasoline below the equilibrium price. Which of the following is a likely consequence?

Accepted Answer

Non-price rationing methods, such as long lines or favoritism, will arise.

Question 12

Which of the following equations represents the effect of an excise tax of $t$ per unit on the supply curve?

Accepted Answer

$P = S(Q) + t$

Question 13

If the government issues a limited number of licenses for a profession, what is the likely effect on wages and the price of obtaining a license?

Accepted Answer

Both wages and the price of licenses increase.

Question 14

Which of the following best describes the effect of a price floor on the market for agricultural products?

Accepted Answer

It leads to excess supply, as farmers produce more than consumers are willing to buy at the floor price.

Question 15

If the government imposes a quota that restricts the quantity of a good below the equilibrium quantity, what is the likely effect on price?

Accepted Answer

Price increases due to the artificial scarcity.

Question 16

In a third-party-payer system, such as health insurance, if the copayment is $C$ and the market price is $P$, what is the relationship between the quantity demanded and the price paid by the consumer?

Accepted Answer

Quantity demanded is higher at price $C$ than it would be at price $P$.

Question 17

If the demand for sand increases due to construction booms, what happens to the equilibrium price and quantity of sand?

Accepted Answer

Both equilibrium price and quantity increase.

Question 18

Which of the following is NOT a likely result of a binding price ceiling?

Accepted Answer

A surplus of the good.

Question 19

If the government imposes a tariff on imported steel, what is the most likely effect on the domestic steel market?

Accepted Answer

The equilibrium price of steel rises and the equilibrium quantity falls.

Chapter 5: Using Supply and Demand – Government Intervention and Market Outcomes

Study Guide - Practice Questions

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