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CHAPTER 4—WORKING WITH SUPPLY AND DEMAND
MULTIPLE CHOICE
1) A government-imposed price ceiling set below the market's equilibrium price will create
an excess demand for a product. As a result of the excess demand, either the demand curve
will tend to shift to the left or the supply curve will shift to the right-or both.
a. True
b. False
Answer: B
2) A government-imposed price ceiling set below the market's equilibrium price for a good
will produce an excess supply of the good.
a. True
b. False
Answer: B
3) Figure 4-1 shows the supply and demand for socks. If a price ceiling of $10 per pair is
imposed by the government, the number of pairs actually purchased will be
a. 2 pairs
b. 8 pairs
c. 5 pairs
d. 1 pair
e. 6 pairs
Answer: E
4) Figure 4-1 shows the supply and demand for socks. If a price floor of $10 per pair is
imposed by the government, the number of pairs actually purchased will be
a. 2 pairs
b. 8 pairs
c. 5 pairs
d. 1 pair
e. 6 pairs
Answer: A
5) Figure 4-1 shows the supply and demand for socks. If a price ceiling of $4 per pair is
imposed by the government, the number of pairs actually purchased will be
a. 4 pairs
b. 8 pairs
c. 5 pairs
d. 1 pair
e. 6 pairs
Answer: A
6) Figure 4-1 shows the supply and demand for socks. If a price ceiling of $4 per pair is
imposed by the government
a. there will be a shortage of 14 pairs of socks
b. there will be a shortage of 10 pairs of socks
c. there will be neither a shortage nor a surplus of socks
d. there will be a surplus of 10 pairs of socks
e. there will be a surplus of 14 pairs of socks
Answer: B
7) Figure 4-1 shows the supply and demand for socks. If a price floor of $10 per pair is
imposed by the government
a. there will be a shortage of 14 pairs of socks
b. there will be a shortage of 10 pairs of socks
c. there will be neither a shortage nor a surplus of socks
d. there will be a surplus of 6 pairs of socks
e. there will be a surplus of 14 pairs of socks
Answer: D
8) Rent control is an example of a price ceiling. Which of the following problems must be
addressed under a rent control program?
a. what to do with the surplus of rental units
b. how to subsidize renters so that they can afford to pay the higher rents
c. how to decrease the quantity of rental units to the equilibrium level
d. whether the opportunity cost of rental units equals the competitive market price
e. how to allocate scarce rental units
Answer: E
9) Price ceilings are primarily targeted to help __________, while price floors generally
benefit __________.
a. producers; no one
b. increase tax revenue for governments; producers
c. increase tax revenue for governments; consumers
d. producers; consumers
e. consumers; producers
Answer: E
10) Price floors and price ceilings
a. lead to the same prices and quantities that would be found in a competitive market
b. lead to technical efficiency
c. cause the demand curve to shift to the left
d. usually result from government intervention
e. cause the supply curve to shift to the right
Answer: D
11) In Figure 4-2, if the government imposes a price ceiling of $2, the result will be
a. equilibrium
b. excess supply
c. no different than before the price ceiling is imposed
d. excess demand
e. the demand shifts leftward and supply shifts rightward
Answer: D
12) In Figure 4-2, if the government imposes a price ceiling of $4, the result will be
a. equilibrium
b. excess supply
c. no different than before the price ceiling is imposed
d. excess demand
e. the demand shifts leftward and supply shifts rightward
Answer: C
13) Figure 4-3 shows the supply and demand for socks. If a price floor of $10 is imposed, the
quantity of socks actually purchased will be
a. 6 pairs
b. 10 pairs
c. 2 pairs
d. 8 pairs
e. 1 pair
Answer: C
14) Figure 4-3 shows the supply and demand for socks. If a price floor of $6 is imposed, the
quantity of socks actually purchased will be
a. 10 pairs
b. 5 pairs
c. 6 pairs
d. 15 pairs
e. 13 pairs
Answer: C
15) A price floor on corn would have the effect of
a. creating a surplus regardless of the level at which the price floor is set
b. creating a surplus supply when the floor is above the equilibrium price
c. creating a shortage when the price floor is set below the equilibrium price
d. creating a shortage regardless of where the price floor is set
e. ensuring a more equitable distribution of the good among consumers
Answer: B
16) When the minimum wage is set above the equilibrium market wage,
a. there will be a shortage of labor at the minimum wage
b. it will have no effect on the quantity of labor employed
c. the unemployment rate will rise
d. the quality of the labor force will increase
e. the unemployment rate will fall
Answer: C
17) Suppose that a market is initially in equilibrium. Then the government imposes a price
floor above the equilibrium price. Which of the following will occur in the absence of a black
market?
a. The market will remain in equilibrium.
b. The quantity sold will drop.
c. The quantity demanded will increase.
d. The quantity supplied will decrease.
e. An excess demand will develop.
Answer: B
18) Figure 4-4 depicts a market in which the government has imposed a price floor of $5.00
per unit. To maintain the price floor, the government should
a. buy 200 units of the good
b. sell 200 units of the good
c. buy 700 units of the good
d. sell 700 units of the good
e. buy 500 units of the good
Answer: A
19) In Figure 4-5, if the government imposes a price floor of $2, the result will be
a. equilibrium
b. no different than before the minimum price is imposed
c. a shortage
d. that the demand curve will shift leftward
e. a surplus
Answer: B
20) In Figure 4-5, at a temporary price of $4,
a. all of the following occur
b. a surplus occurs
c. the supply curve will shift leftward
d. the demand curve will shift rightward
e. equilibrium will eventually occur at approximately $3.50
Answer: B
21) Federal subsidies to higher education have the effect of
a. increasing the demand for higher education
b. increasing the supply of higher education
c. decreasing the demand for higher education
d. decreasing the supply of higher education
Answer: A
22) Federal subsidies to higher education have the effect of
a. increasing the number of people seeking higher education and lowering tuition
b. increasing the number of people seeking higher education and raising tuition
c. decreasing the number of people seeking higher education and lowering tuition
d. decreasing the number of people seeking higher education and raising tuition
Answer: B
23) Federal subsidies to higher education benefit
a. only the student
b. only universities
c. both universities and students
d. neither universities nor students
Answer: C
24) A $10,000 federal subsidy per student in higher education would benefit
a. a student by exactly $10,000
b. a university by exactly
c. the student and the university in such a way that they would split the $10,000.
d. the student and the university in such a way that they would each get $10,000.
Answer: C
25) If an excise tax is imposed on a good or service,
a. the supply curve shifts upward
b. the supply curve shifts downward
c. the price paid by consumers decreases
d. the net price received by sellers increases
e. the quantity produced and sold increases
Answer: A
26) After an excise tax is imposed on a good or service,
a. the equilibrium price and quantity are unchanged
b. firms must charge a higher price for any particular quantity
c. firms must charge a lower price for any particular quantity
d. the equilibrium price and quantity will both increase
e. the equilibrium price and quantity will both decrease
Answer: B
27) If an excise tax is imposed on automobiles,
a. the demand curve will shift upward and the market price will increase
b. the supply curve will shift downward and the market price will increase
c. the supply curve will shift upward and the market price will increase
d. the equilibrium quantity supplied will increase
e. the equilibrium quantity demanded will increase
Answer: C
28) If an excise tax is imposed on shoes,
a. government tax revenue will fall
b. the market price of shoes will decrease
c. the supply curve will shift downward
d. the equilibrium quantity demanded will decrease
e. the equilibrium quantity supplied will increase
Answer: D
29) If an excise tax is imposed on shirts,
a. the number of shirts produced will exceed the number demanded
b. the number of shirts demanded will exceed the number supplied
c. the equilibrium market price will decrease
d. the amount consumers pay for each shirt will decrease
e. the net revenue producers receive from each shirt will decrease
Answer: E
30) If an excise tax is imposed on restaurant meals,
a. fewer meals will be produced and sold
b. more meals will be produced and sold
c. the government's tax revenue will fall
d. the market price of meals will decrease
e. restaurants will sell more meals, but at a lower price per meal
Answer: A
31) If an excise tax is imposed on steak,
a. the government's tax revenue will decrease
b. the government's tax revenue will increase
c. the amount of steak produced and sold will increase
d. the market price of steak will decrease
e. the market price will rise but the market quantity will be unaffected
Answer: B
32) An excise tax on cigarettes
a. will cause both the market price and quantity to increase
b. will cause both the market price and quantity to fall
c. will cause the market price to rise and the market quantity to fall
d. will cause the market price to fall and the market quantity to rise
e. None of the above.
Answer: C
33) The incidence of an excise tax
a. refers to who really pays it
b. always falls on suppliers
c. is equally divided between demanders and suppliers
d. is determined by the number of demanders
e. is decided by the government when the tax is imposed
Answer: A
34) Which of the following might explain why the government would create a price ceiling
for a certain good?
a. The equilibrium price that would result in the market would be considered too high
b. The equilibrium price that would result in the market would be considered too low
c. The equilibrium quantity that would result in the market would be considered too high
d. The equilibrium quantity that would result in the market would be considered too low
e. The government never has a reason to create price floors or price ceilings
Answer: A
35) Which of the following might explain why the government would create a price floor for
a certain good?
a. The equilibrium price that would result in the market would be considered too high
b. The equilibrium price that would result in the market would be considered too low
c. The equilibrium quantity that would result in the market would be considered too high
d. The equilibrium quantity that would result in the market would be considered too low
e. The market will never achieve equilibrium on its own
Answer: B
36) Which of the following will decrease the amount of a good that is traded in the market?
a. price floors and price ceilings
b. excise taxes, price floors, and subsidies
c. excise taxes
d. subsidies
e. price floors, price ceilings, and excise taxes
Answer: E
37) If the government thinks the price that a consumer has to pay for a good is too high, then
which of the following would solve this problem?
a. a price ceiling or an excise tax
b. a price floor or an excise tax
c. a price ceiling or a subsidy
d. a price floor or a subsidy
e. none of the above will lower the price a consumer has to pay for a good
Answer: C
38) If the government thinks the price that a consumer has to pay for a good is too low, then
which of the following would solve this problem?
a. a price ceiling or an excise tax
b. a price floor or an excise tax
c. a price ceiling or a subsidy
d. a price floor or a subsidy
e. none of the above will lower the price a consumer has to pay for a good
Answer: B
39) In what way is the result of an excise tax imposed on either demanders or suppliers
similar to the result of a price floor?
a. The amount that consumers pay for the good will be less than they previously paid
b. The amount of the good that will be traded in the market will be greater than previously
traded
c. both price floors and excise taxes create excess demand
d. The amount that consumers pay for the good will be greater than they previously paid
e. Both price floors and excise taxes create excess supply
Answer: D
40) In what way is the result of an excise tax imposed on either demanders or suppliers
similar to the result of a price ceiling?
a. The amount that consumers pay for the good will be less than they previously paid
b. The amount of the good that will be traded in the market will be less than previously traded
c. both price ceilings and excise taxes create excess demand
d. The amount that consumers pay for the good will be greater than they previously paid
e. both price floors and excise taxes create excess supply
Answer: B
41) In what way is the result of a subsidy given to either demanders or suppliers similar to the
result of a price ceiling?
a. The amount that consumers pay for the good will be less than they previously paid
b. The amount of the good that will be traded in the market will be less than previously traded
c. both price ceilings and subsidies create excess demand
d. The amount that consumers pay for the good will be greater than they previously paid
e. both price floors and excise taxes create excess supply
Answer: A
42) Whether an excise tax is imposed on a demander or supplier is irrelevant because
a. in either case the price that the demander has to pay will decrease; while the price the
supplier receives will increase
b. in either case the price that the demander has to pay will increase; while the price the
supplier receives will decrease
c. either situation will create excess demand
d. either situation will create excess supply
e. none of these are correct
Answer: B
43) Whether a subsidy for a certain good is given to a demander or supplier is irrelevant
because
a. in either case, the price that the demander has to pay will decrease; while the price the
supplier receives will increase
b. in either case, the price that the demander has to pay will increase; while the price the
supplier receives will decrease
c. either situation will create excess demand
d. either situation will create excess supply
e. none of these are correct
Answer: A
44) All of the following are examples of stock variables except one. Which one?
a. The amount of currency in circulation
b. The amount of money earned each week
c. The amount of money needed to construct a new building
d. The amount of money in a person’s savings account
e. The amount of money at the Fed
Answer: B
45) Which of the following is an example of a stock variable?
a. The amount of cereal in a person’s pantry
b. The amount of cereal a person buys each week
c. The amount of cereal a child consumes each month
d. The amount of cereal produced each day
e. None of these are stock variables
Answer: A
46) A stock variable
a. measures a process that takes place over a period of time
b. is used often used to measure the quantity demanded of a good at various prices
c. is related to inventory controls
d. measures a quantity in existence at a moment in time
e. is a definition unique to economics
Answer: D
47) A flow variable
a. measures a process that takes place over a period of time
b. is often used to measure the amount of wealth that a household has
c. is related to the supply and demand of water
d. measures a quantity in existence at a moment in time
e. is a definition unique to economics
Answer: A
48) Which of the following would be an example of a flow variable?
a. The amount of money needed to buy a car
b. The amount of money a person has in her or her wallet
c. The amount of income a person earns each week
d. The amount of money a person has in a savings account
e. None of these are flow variables
Answer: C
49) Which of the following is not an example of a flow variable?
a. The amount of income that a person earns each month
b. The amount of interest that a savings account earns each week
c. The amount of money in a savings account
d. The amount of taxes that a person pays each year
e. All of these are flow variables
Answer: C
50) To say that the housing market is in equilibrium means that
a. there are no vacant houses
b. the number of houses that are being constructed is equal to the housing stock
c. the number of houses that are currently empty is equal to the number of households
currently looking to buy a house
d. the quantity demanded of houses is equal to the number of houses currently under
construction
e. the number of houses that people want to own is equal to the housing stock
Answer: E
51) When analyzing the housing market, the supply curve
a. will be upward sloping because the higher the price of a house the more that will exist
b. will be horizontal to illustrate that the supply of housing is a stock variable
c. will be downward sloping; that is what went wrong with the housing market
d. will be vertical to illustrate that the supply of housing is a stock variable
e. could be horizontal, vertical or upward sloping depending upon the housing market in
question
Answer: D
52) Which of the following is not true about the housing market?
a. The price of housing will increase or decrease in order to achieve an equilibrium
b. An increase in the demand for housing will cause an increase in the quantity supplied of
housing
c. When the demand for housing increases, the price of housing will increase but the quantity
supplied will not increase in the short run
d. The housing market is a unique market because most people had to borrow money to buy
their homes
e. The only way to increase the supply of housing is to build more houses
Answer: B
53) Nancy buys a $150,000 home using $30,000 of her own money and gets a mortgage for
the remaining $120,000. If the price of the house increases 5%, what will Nancy’s capital
gain be?
a. $30,000
b. $31,500
c. $35,000
d. $37,500
e. $45,550
Answer: D
54) Gary buys a house for $200,000 using $10,000 of his own money and gets a mortgage for
the remaining $190,000. If the value of the house increases 7%, what will be the percentage
increase in Gary’s investment?
a. 25%
b. 7%
c. 14%
d. 70%
e. 140%
Answer: E
55) Within the context of the housing market, what does MBS stand for?
a. Multi-Banking System
b. Mortgage Backed Security
c. Mortgage Bubble System
d. Mixed Bracket Securities
Answer: B
TRUE/FALSE
1) If the government wants to manipulate the equilibrium price, it will normally create a price
floor or price ceiling; if the government want to manipulate the equilibrium quantity, it will
normally impose taxes or award subsidies.
Answer: True
2) Both a price floor and a price ceiling will reduce that amount of a good that is traded in the
market.
Answer: True
3) A price ceiling will increase the amount that is traded in the market while a price floor will
reduce the amount that is traded in the market
Answer: False
Test Bank for Microeconomics: Principles and Applications
Robert E. Hall, Marc Lieberman
9781111822569, 9781478405238, 9781478498056
