Chapter 4 MCQ

Question 1

If customers are allowed to steal the iced cappuccinos without paying, this would still be a market. TF

Answer 1

1. False. Transactions would not be voluntary and there would be no incentive to supply the product to consumers.

Question 2

The price should cover what it costs to make the iced cappuccinos, but not thecost of Apu’s time. TF

Answer 2

False. Price should cover all opportunity costs.

Question 3

In order for price and quantity adjustments to occur in this market, Apu needs to beaware of the personal wants of his neighbours. TF

Answer 3

False. Price and quantity adjustments do not require the consumer or business to know anything about anyone’s personal wants or production capabilities.

Question 4

If Apu prices above the maximum price that consumers are willing to pay, he will end up with excess supply. TF

Answer 4

True. Surplus, with quantity supplied greater than quantity demanded.

Question 5

If Apu prices below the maximum price that consumers are willing to pay, he will lose out on potential profits. TF

Answer 5

True.

Question 6

If Apu sets a price that leaves him with no excess demand and no excess supply, he has found the equilibrium price. TF

Answer 6

True. Definition of market-clearing price.

Question 7

When a market is in equilibrium, consumers who are not willing to pay the market-clearingprice have made a smart choice. TF

Answer 7

False. May not be willing or able to pay the equilibrium price.

Question 8

When a market is in equilibrium, the market-clearing quantity equals thequantity demanded at the equilibrium price. TF

Answer 8

True. Quantity demanded equals quantity supplied.

Question 9

If new businesses enter the steel market, the equilibrium price of steel falls and theequilibrium quantity decreases. TF

Answer 9

False. Increased supply causes equilibrium price to fall and quantity to increase.

Question 10

Suppose the demand for earbuds increases while the cost of producing them decreases.The market-clearing quantity of earbudsincreases and the price always falls. TF

Answer 10

False. Increase in demand and increase in supply increase market-clearing quantity, but effect on price uncertain.

Question 11

Durham University researchers report Scottish grey seals are having more sexthanks to global warming. This is because, as drinking water becomes scarce, the females must travel farther distances and other males are able to seduce them. The market price for seal coat fur will likely increase. TF

Answer 11

False. Increased supply lowers the price of grey seals, reducing the cost of producing seal coat fur, resulting in a lower price.

Question 12

Ontario recently had a ratio of 27 students for each full-time professor, while other provinces had a ratio of 18-to-one. It is estimated that Ontario needs 11 000 more professors by the end of the decade. If universities reduced qualification requirements to allow students with college degrees to teach introductory university courses, this would help reduce the shortage. TF

Answer 12

True. Reduced qualifications increases supply.

Question 13

Producer surplus is the marginal cost of producing a product minus the price ofthe product. TF

Answer 13

False. Price minus marginal cost.

Question 14

Deadweight loss is the difference between consumer surplus and producer surplus atthe economically efficient outcome. TF

Answer 14

False. Decrease in total surplus compared to economically efficient outcome.

Question 15

The economically efficient outcome has the smallest deadweight loss. TF

Answer 15

True. Maximum total surplus and zero deadweight loss.

Question 16

The place where buyers and sellers meet is called a(n)

store.
economy.
party.
market.

Answer 16

d) Market.

Question 17

Voluntary exchange happens in a market as long as the

price is less than the marginal opportunity cost of the seller.

marginal benefit for the buyer is less than the price.

price equals or exceeds the marginal opportunity cost of the buyer.

marginal benefit for the buyer exceeds the price.

Answer 17

d) Price must cover marginal opportunity cost of seller and be less than marginal benefit of buyer.

Question 18

For markets to work,

governments must establish fair market prices.

governments must establish an online trading system.

governments must define and protect property rights.

all of the above are true.

Answer 18

c) Government guarantees of property rights allow markets to function.

Question 19

If a market is not at the market-clearing price,

prices adjust.

prices send signals for consumers and businesses to change their smart decisions.

quantities adjust.

all of the above.

Answer 19

d) When prices change, so do smart choices and quantities.

Question 20

Which of the following is not a quantity adjustment?

Tim Hortons asking its workers to work overtime

bookstores ordering extra copies ofThe Hunger Games

Leon’s Furniture eliminating sales tax on all patio furniture

a fish processing plant laying off 10 percent of its workers

Answer 20

c) Price adjustment.

Question 21

When the price is too low we see

unsold products.
excess supply.
shortages.
frustrated sellers.

Answer 21

c) Excess demand and frustrated buyers.

Question 22

A price at which there are no shortages and no surpluses is a

maximum price.
minimum price.
affordable price.
market-clearing price.

Answer 22

d) Market-clearing price.

Question 23

In equilibrium,

the price consumers are willing to pay equals the prices suppliers are willing to accept.

consumers would like to buy more at the current price.

producers would like to sell more at the current price.

all of the above.

Answer 23

a) No one is kicking himself about wanting to buy or sell more.

Question 24

9 If demand increases and supply decreases, this leads to

higher prices.
lower prices.
chaos.
a shortage in the market.

Answer 24

a) Draw rightward shift demand and leftward shift supply.

Question 25

10 Which will cause prices to fall?

demand increases and supply decreases

demand increases and supply increases

demand decreases and supply decreases

demand decreases and supply increases

Answer 25

d) Draw leftward shift demand and rightward shift supply.

Question 26

A surplus can be eliminated by

increasing supply.

decreasing the quantity demanded.

allowing the price to fall.

allowing the market-clearing quantity to fall.

Answer 26

c) Falling price increases quantity demanded and decreases quantity supplied.

Question 27

The Children’s Fitness Tax Credit was introduced by the Government of Canada to provide parents with a tax credit (benefit) of up to $500 to register a child under the age of 16 in a program of physical activity. Therefore,

demand for The Hunger Games novels may increase.

demand for The Hunger Games novels may decrease.

supply of The Hunger Games novels may increase.

supply of The Hunger Games novels may decrease.

Answer 27

b) Exercise and reading books are substitute activities for a child’s time.

Question 28

Consumer surplus is the

difference between the amount a consumer is willing to accept and the price actually received.

difference between the amount a consumer is willing and able to pay and the price actually paid.

difference between the amount a consumer is willing and able to pay and the amount a producer is willing to accept.

area under the marginal benefit curve.

Answer 28

b) Area under the marginal benefit curve and above the (market) price actually paid.

Question 29

For any quantity produced, total surplus is the

deadweight loss.

area under the marginal benefit curve but above the marginal cost curve.

area above the marginal cost curve but below the market price.

area under the marginal benefit curve but above the market price.

Answer 29

b) Consumer surplus plus producer surplus.

Question 30

If the quantity produced is more than the efficient market outcome,

deadweight loss is eliminated.

total surplus is greater than total surplus for the efficient market outcome.

marginal cost is greater than marginal benefit.

marginal benefit is greater than marginal cost.

Answer 30

c) For any quantity greater than the equilibrium quantity, read up to marginal cost and marginal benefit curves.