Quiz # 3-1

1. In an unregulated, competitive market consumer surplus exists because some
a. sellers are willing to take a lower price than the equilibrium price.
b. consumers are willing to pay more than the equilibrium price.
c. sellers will only sell at prices above equilibrium price (or actual price).
d. consumers are willing to make purchases only if the price is below the actual price.

2. In an unregulated, competitive market producer surplus exists because some
a. consumers are willing to pay more than the equilibrium price.
b. producers are willing to take more than the equilibrium price.
c. producers are willing to sell at less than the equilibrium price.
d. consumers are willing to purchase, but only at prices below equilibrium price.

3. When government intervenes in a competitive market by imposing an effective price ceiling, we would expect the quantity supplied to _______ and the quantity demanded to ________.
a. fall; rise
b. fall; fall
c. rise; rise
d. rise; fall

4. Price ceilings can result in a net loss in consumer surplus when the ______ curve is ________.
a. demand; very elastic
b. demand; very inelastic
c. supply; very inelastic
d. none of the above; price ceilings always increase consumer surplus.

5. Consider the following statements when answering this question
I. Overall, the sick will always gain from a price ceiling on prescription drugs.
II. The reduction of supply caused by the imposition of a price ceiling is greater the more inelastic the market supply curve.

a. I and II are true.
b. I is true, and II is false.
c. I is false, and II is true.
d. I and II are false.

6. Eliminating price supports for all US agricultural producers will hurt the farmers who cultivate products that have
a. a high own price elasticity of demand and a high price elasticity of market supply.
b. a high own price elasticity of demand and a low price elasticity of market supply.
c. a low own price elasticity of demand and a high price elasticity of market supply.
d. a low own price elasticity of demand and a low price elasticity of market supply.

7. What is the difference between a price support and a price floor?
a. A price support is below equilibrium; a price floor is above it.
b. A price support is above equilibrium; a price floor is below it.
c. Government buys the excess supply to maintain a price floor, but not a price support.
d. Government buys the excess supply to maintain a price support, but not for a price floor.
e. There is no difference between the two.

8. A price support may be pictured by
a. shifting the demand curve to the right by the amount of the government purchase.
b. shifting the demand curve to the left by the amount of the government purchase.
c. shifting the supply curve to the right by the amount of the government purchase.
d. shifting the supply curve to the left by the amount of the government purchase.
e. Drawing a horizontal line below equilibrium price at the supported price.