Economics 165 Practice Exam Questions - Market Equilibrium and Applications

1. You know the following facts:: a) the Boston Celtics have just won the 1989 NBA championships with the LA Lakers. Both Larry Bird and Magic Johnson, wearing Converse basketball shoes, have played magnificently. As a result, millions of young boys and girls wish to emulate them in every particular.; b) Converse announces major labor strikes by 50% of their employees.

What is the effect on Price and Quantity exchanged in the market for Converse basketball shoes?; A. price would increase and quantity exchanged would decrease.; B. price and quantity exchanged would both decrease.; C. price would increase and quantity exchanged would be indeterminate.; D. price would be indeterminate and quantity exchanged would not change.; E. there is not enough information to determine either price or quantity.

2. If it is observed that, in a particular market, price has risen and quantity exchanged has increased, it is likely that:: A. supply has increased.; B. supply has decreased.; C. demand has increased.; D. demand has decreased.

3. All of the following statements about price floors are true except:: A. There will be a surplus of a commodity when a price floor is set above the equilibrium price.; B. The government may have to set up a system of storage to handle the excess supply when a price floor is set above the equilibrium price.; C. If the price floor is set below the equilibrium price, the intervention will have no effect on the market.; D. If the price floor is set below the equilibrium price, the price must be reduced.

Use the graph below to answer question number 4

4. To be effective, a price ceiling must lie:: A. above P0 but below P2; B. anywhere above P0; C. above P3; D. anywhere below P0

5. The quantity demanded will equal the quantity supplied at a free market equilibrium and also when:: A. a price floor is established above the equilibrium price.; B. a shortage of a commodity persists.; C. a price ceiling is established below the equilibrium price.; D. an effective price ceiling exists and the government is able to prevent the development of a black market.; E. none of the above cause quantity demanded to equal quantity supplied.

6. If, in response to a price ceiling, a black market develops that gains control of all of the supply of the commodity, all of the following will be true except:: A. the black market price will be higher than the ceiling price.; B. excess profits will go to the black marketeers.; C. quantity demanded will exceed quantity exchanged at the black market price.; D. the black market price will be higher than the equilibrium price.; E. all of the above are true.

7. During 1988's presidential election, Jesse Jackson, Ted Kennedy and others strongly endorsed the need for an increase in the current minimum wage. Suppose that the current minimum wage is actually increased and that the government can enforce the minimum wage and the minimum wage is actually above the equilibrium wage for at least some workers. We would expect:: A. the number of jobs available to black youths and other relatively unskilled workers to fall.; B. the number of jobs available to union workers and other relatively skilled workers to rise.; C. wage income to fall for at least some unskilled workers.; D. wage income to rise for all relatively skilled workers.; E. all of the above.

8. Excess supply for a commodity is ordinarily eliminated through market forces by:: A. price rising, demand decreasing, and supply increasing.; B. price rising, quantity demanded decreasing, and quantity supplied increasing.; C. price rising, demand increasing, and supply decreasing.; D. price rising, quantity demanded increasing, and quantity supplied decreasing.; E. none of the above eliminate excess supply.

9. A price completely stabilized by the government buying surpluses and selling its stocks when there are shortages means that:: A. poor farmers will benefit the most.; B. government has imposed a perfectly vertical demand curve on farms.; C. farmers' revenues will be proportional to output.; D. all farms will have satisfactory incomes and receipts will be stabilized.; E. none of the above.

10. You know the following facts:: a) the Boston Celtics have just won the 1989 NBA championships with the LA Lakers. Both Larry Bird and Magic Johnson, wearing Converse basketball shoes, have played magnificently. As a result, millions of young boys and girls wish to emulate them in every particular.; b) Nike invests in new equipment that significantly increases labor productivity.; What is the effect on Price and Quantity exchanged in the market for Nike basketball shoes?; A. quantity exchanged would decrease and price would be indeterminate.; B. price and quantity exchanged would both decrease.; D. price would decrease and quantity exchanged would be indeterminate.; E. there is not enough information to determine either price or quantity.

11. The quantity demanded will equal the quantity supplied at a free market equilibrium and also when:: A. a price floor is established above the equilibrium price.; B. suppliers are able to sell their commodity for the black market price.; C. a price ceiling is established below the equilibrium price.; D. an effective price ceiling exists and the government is able to prevent the development of a black market.; E. none of the above cause quantity demanded to equal quantity supplied.

12. In 1968, there were 20 million acres of commercially valuable forestland in Utah. The timber on this land was worth roughly 2 billion dollars. In 1969, forest fires destroyed half of this timber, yet the value in the market for the remaining timber was higher (2.6 billion dollars) than in 1968.: A. this shows how the market maximizes human satisfaction.; B. this shows that market prices are an inaccurate measure of value because half of a forest can not be worth more than the full forest.; C. this could happen if, for whatever reason, demand for timber increased simultaneously driving up both the price and quantity demanded of timber.; D. none of the above.

13. A subsidy on a good does not:: A. drive a "wedge" between the prices buyers pay and the prices sellers receive.; B. tend to increase the supply of the commodity from consumers' perspective.; C. tend to increase demand from the perspective of suppliers.; D. always mean that suppliers receive more and buyers pay less.; E. none of the above.

14. When the actual price of a good is above its equilibrium market price, competition among:: A. buyers will force the actual price upward.; B. sellers will force the actual price upward.; C. sellers will force the actual price downward.; D. buyers will force the actual price downward.; E. none of the above.

15. Consider the market for labor where the wage rate is the price of labor. Assume initially that the federal minimum wage equals the market equilibrium wage rate. Now assume the government increases its minimum wage to $1 above the market equilibrium wage rate. One would not expect:: A. unemployment rates for teenagers and other unskilled workers to rise.; B. an increase in the quantity of workers supplied.; C. a decrease in the quantity of workers demanded.; D. incomes from wages to rise for all working-class families.

16. Economic theory suggests that divorce rates are higher in urban areas as opposed to rural areas for all of the following reasons except:: A. the (opportunity) cost of divorce for women in rural areas is higher than for women in urban areas.; B. the benefits from marriage are generally greater in rural areas than in urban areas.; C. life tends to be less stressful in rural areas than in urban areas.; D. women in urban areas have more earning capacity than women in rural areas.