Practice Questions
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What is the primary purpose of government intervention in a market to achieve equilibrium?
The main goal of government action is to make sure prices are fair for everyone. Other options are incorrect because Some might think the government w...
How does an increase in the price of a substitute good affect the equilibrium price and quantity in a market with elastic demand?
When the price of a substitute good goes up, people want to buy more of the original good. Other options are incorrect because This answer suggests th...
What is the likely effect of a government-imposed price ceiling on a market in equilibrium?
A price ceiling is a limit on how high a price can go. Other options are incorrect because Some might think that lower prices mean producers will supp...
How does a price ceiling set by the government impact market equilibrium in a perfectly inelastic supply scenario?
A price ceiling stops prices from going too high. Other options are incorrect because Some might think a price ceiling causes extra goods to be availa...
In a competitive market, if the equilibrium price of a product increases, what is the likely effect on producer surplus?
When the price goes up, producers earn more money for each item sold. Other options are incorrect because Some might think that higher prices hurt pro...
What occurs at the market equilibrium point in a supply and demand graph?
At the market equilibrium point, the amount of goods that sellers want to sell matches the amount that buyers want to buy. Other options are incorrect...
In a market where the demand for a product increases while the supply remains constant, what will likely happen to the equilibrium price of the product?
When more people want to buy a product but there is the same amount available, the price usually goes up. Other options are incorrect because Some mig...
What is the equilibrium price in a market?
The equilibrium price is where the amount people want to buy matches what sellers want to sell. Other options are incorrect because This option sugges...
In a small town, the local government has noticed that more residents are using bicycles for transportation, leading to reduced traffic congestion and improved air quality. However, the market for bicycles has not adjusted to this positive externality. If the government wants to encourage more bicycle usage, which of the following interventions would best help achieve market equilibrium that reflects the social benefits of cycling?
Giving money back to people when they buy bikes makes them cheaper. Other options are incorrect because Raising gas taxes might make driving more expe...
A government decides to implement a subsidy for electric vehicles to encourage their consumption. Classify the impact of this subsidy on market equilibrium in terms of marginal private cost, marginal private benefit, and potential externalities. Which of the following categories best describes the outcome?
The subsidy lowers the cost for buyers, making electric vehicles cheaper. Other options are incorrect because This option suggests that the price goes...
If Market Equilibrium is to Supply:Demand as Social Optimality is to ?
Social Optimality happens when the benefits to society match the costs. Other options are incorrect because This option focuses only on individual gai...
If a positive externality in consumption exists, how might the market equilibrium price and quantity differ from the socially optimal outcome?
When there is a positive externality, like education, the benefits go beyond just the buyer. Other options are incorrect because This answer suggests ...
Arrange the following steps to analyze the effects of a positive externality on market equilibrium: A) Identify the marginal private benefit and marginal social benefit. B) Determine the initial equilibrium price and quantity. C) Assess the impact of the positive externality on demand. D) Propose government interventions to achieve a socially optimal outcome.
First, find the starting price and quantity. Other options are incorrect because This option suggests finding benefits before understanding the market...
How does the presence of a positive externality in consumption affect market equilibrium?
A positive externality means that when people consume a good, it benefits others too. Other options are incorrect because Some might think that a posi...
Which of the following statements accurately describe the implications of market equilibrium in the presence of externalities? Select all that apply.
Market equilibrium does not guarantee efficient resource use when externalities are present. Other options are incorrect because This suggests that re...
If a market experiences a surplus of goods, which underlying cause is most likely responsible for this condition?
When the price is too high, people buy less. Other options are incorrect because If demand goes up, people want more goods; Lower production costs can...
In a market, equilibrium occurs when the quantity demanded equals the quantity supplied, resulting in a stable market price. This balance is disrupted by _____, which can lead to market failures.
Externalities are effects on people not directly involved in a market. Other options are incorrect because Some think subsidies help everyone, but the...
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