True/False Indicate whether the
sentence or statement is true or false.
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1.
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Market equilibrium is the situation in which the quantity of output supplied is
equal to the quantity demanded.
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2.
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The amount of a price change is affected by the elasticity of both the supply
and demand curves.
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3.
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If the price of an item is too high in a competitive market, a shortage appears
until the price goes down.
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4.
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Perfect competition is not necessary for the theory of competitive pricing to be
practical.
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5.
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Economists often use an academic model to help analyze behavior and predict
outcomes.
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Multiple Choice Identify the
letter of the choice that best completes the statement or answers the question.
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6.
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In a market economy, a high price is a signal for
a. | producers to supply more and consumers to buy less. | b. | producers to supply
less and consumers to buy more. | c. | government to intervene to protect
consumers. | d. | producers to supply less and consumers to buy less. |
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7.
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At a given price, a surplus occurs when
a. | the quantity demanded is more than the quantity supplied. | b. | the quantity
demanded is the same as the quantity supplied. | c. | the quantity supplied is less than the quantity
demanded. | d. | the quantity supplied is greater than the quantity
demanded. |
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8.
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The federal minimum wage law demonstrates
a. | market equilibrium. | b. | a societal choice for economic equity over
efficiency. | c. | the function of equilibrium price in a competitive market. | d. | government
intervention to ensure the equilibrium price. |
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9.
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Prices enable a market economy to adjust to unexpected events by
a. | maintaining consumption and production at stable levels. | b. | government
rationing. | c. | ensuring that producers always earn a profit. | d. | adjusting
consumption and production. |
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10.
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All of the following are characteristics of allocation by rationing
EXCEPT
a. | lack of fairness. | c. | efficiency. | b. | high administrative cost. | d. | diminished incentive for
workers. |
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11.
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If a competitive market is at equilibrium, and if there is a sudden increase in
demand, then a temporary
a. | surplus will occur and the price will increase. | b. | shortage will occur
and the price will fall. | c. | surplus will occur and the price will
fall. | d. | shortage will occur and the price will increase. |
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12.
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The theory of competitive pricing
a. | is an imperfect model of market performance. | b. | is a set of ideal
conditions and outcomes. | c. | is ineffective when large swings in price
occur. | d. | demonstrates the need for subsidies and price
ceilings. |
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13.
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Deficiency payments are part of a federal program to assist
a. | farmers. | c. | consumers. | b. | senior citizens. | d. | college
students. |
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14.
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Which of the following is NOT a reason why prices effectively perform the
allocation function?
a. | Competitive markets find their own prices without interference. | b. | Prices favor neither
the producer nor the consumer. | c. | Prices remain surprisingly stable despite
unexpected events. | d. | Prices are easily
understood. |
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15.
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When economic or political conditions are unstable,
a. | the price of gold rises to $850 per ounce. | b. | the supply of gold
decreases. | c. | the price of gold decreases. | d. | the demand for gold
increases. |
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Completion Complete each
sentence or statement.
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16.
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____________________ serve as signals to both producers and consumers.
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17.
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____________________ prices are signals for businesses to produce more and for
consumers to buy less.
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18.
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Problems with ____________________ include fairness, high administrative costs,
and diminished incentives to work and produce.
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19.
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In the 1930s the U.S. government sought to solve the problem of agricultural
surpluses by giving farmers a ____________________ to cover the difference between the market price
and target price.
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20.
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Governments interfere in the market economy to help achieve the social goals of
____________________ and security.
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21.
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During times of emergency, the government may establish ____________________ in
order to ensure the fair distribution of certain products.
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22.
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A shortage or surplus signals producers to adjust their output until the
____________________ is reached, the point at which the quantity supplied equals the quantity
demanded.
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23.
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Sometimes governments impose a ____________________ to artificially control how
high prices will go.
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24.
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Producers do not like to see a ____________________ in the market because that
means they could have sold more product if they had supplied more.
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25.
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The minimum wage is the ____________________ for wages in the United
States.
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Matching
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Match each statement with the correct item below. a. | quantity demanded is greater than quantity supplied | b. | prices are
relatively stable, and quantity supplied is equal to quantity demanded | c. | check sent to
producers that makes up the difference between the actual market price and the target
price | d. | monetary value of a product | e. | quantity supplied is greater than quantity
demanded at a given price | f. | price that produces neither a surplus nor a
shortage | g. | set of assumptions and/or relationships that can be used to help analyze behavior and
predict outcomes | h. | ticket that entitles the holder to a certain amount of a product | i. | a socially desirable
price determined by factors other than the market | j. | maximum legal price that can be charged for a
product |
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26.
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price
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27.
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price ceiling
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28.
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ration coupon
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29.
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market equilibrium
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30.
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equilibrium price
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31.
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target price
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32.
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economic model
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33.
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deficiency payment
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34.
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shortage
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35.
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surplus
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Match each statement with the correct item below. a. | system under which the government or another agency decides everyone's fair
share of a product | b. | the minimum wage, the lowest legal price that
can be paid to most workers, is an example of this | c. | partial refund of the original price of a
product | d. | where these occur, resources slowly shift to other markets where equilibrium prices
prevail | e. | price that “clears the market” | f. | unsold product that
causes suppliers to reduce their prices | g. | serves as an allocation signal when established
by supply and demand | h. | loan that has neither a penalty nor an
obligation to repay if not paid back | i. | condition that leaves suppliers wishing they
had more product to sell |
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36.
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surplus
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37.
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shortage
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38.
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rebate
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39.
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price ceiling
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40.
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nonrecourse loan
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41.
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price
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42.
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rationing
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43.
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price floor
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44.
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equilibrium price
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Short Answer - (5 points each)
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45.
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Drawing Inferences and Conclusions How do price ceilings, price floors,
deficiency payments, and other artificial controls over price undermine the effectiveness of the
price system?
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46.
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Recognizing Ideologies What does the implementation of price controls,
such as deficiency payments and price floors, demonstrate about our society?
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APPLYING SKILLS Using Tables: Study the table and answer
the questions below.
Annual Supply and Demand for VCRs | (in Thousands) | Price | Quantity Demanded | Quantity Supplied | $100 | 23 | 3 | $110 | 22 | 4 | $120 | 20 | 5 | $130 | 18 | 10 | $140 | 16 | 12 | $150 | 14 | 14 | $160 | 10 | 18 | $170 | 6 | 26 | $180 | 3 | 30 | $190 | 2 | 34 | | | |
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47.
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What is the equilibrium price for VCRs?
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48.
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If only one firm supplied all VCRs and that firm decided to produce 16,000 of
them at $160, what would be the result?
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49.
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What would be the result of a $110 price ceiling on VCRs?
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Essay - Choose ONE (10 points)
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50.
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Determining Cause and Effect What are two examples of how the government
has set prices? Describe the results of each.
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51.
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Synthesizing Information List and explain three advantages of the
allocation of goods through prices.
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