1. As a result of increased environmental concern by the public, the government requires all firms in the paper industry to install expensive pollution abatement systems. Other things remaining the same, we can expect that:

a. The paper industry supply curve will shift to the left and that the equilibrium price will increase

b. The paper industry supply curve will shift to the left and that the equilibrium price will decrease

c. The paper industry supply curve will shift to the right and that the equilibrium price will increase

d. The paper industry supply curve will shift to the right and that the equilibrium price will decrease

e. There will be no change in the paper industry supply.

2. An example of an externality is:

a. Sending semi-trailers on railroad flat cars

b. Containerized shipments of freight

c. Excessive noise produced by a large jet

d. Individual purchases of television sets

e. The multiplier effect.

3. The government imposes a price ceiling of $2.00 for product Y, which is below its market price of $3.00. Because of this action, we can predict that, all other things constant:

a. Customers will be able to purchase all they want at $2.00

b. Producers will not be able to sell all they would like at $2.00

c. There will be a surplus of product Y

d. There will be a shortage of product Y

e. Equilibrium will be restored to the market

4. As the result of poor grape harvest, grape prices jumped dramatically and the profits of grape farmers (the industry has 1,000 farmers) soared. Two senators proposed legislation to reduce grape prices to prior levels and, simultaneously, called for an investigation into the industry. If the senators are successful in lowering prices:

a. The price system is working successfully

b. The grape consumer’s demand for grapes will diminish

c. More producers will be lured into grape farming

d. Grape prices will be lower, but there will b e a shortage of grapes

e. There is no impact on the grape consumer

5. If total revenue rises in response to a decrease in a product’s price, demand elasticity is:

a. Inelastic

b. Unitary

c. Elastic

d. Perfectly inelastic

e. None of the above

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1 a The paper industry supply curve will shift to ... View the full answer