1. Which of the following is not an example of a transaction cost?

A. The opportunity cost of time spent looking for stores selling the desired item.

B. The cost of returning a defective product.

C. The enjoyment of using the good.

D. The time and effort spent researching the product as well as its various sellers.

2. The government’s imposition of price control.

A. Increases gains from trade.

B. Benefits only poor consumers.

C. Harms producers and wealthy consumers.

D. Reduces gains from trade.

3. Black markets usually arise when there are

A. Price floors.

B. Price ceilings.

C. Price quotas.

D. Price subsidies

4. Economists assume that when there is a change in demand and/or supply, that prices reach a new equilibrium.

A. Slowly.

B. Quickly.

C. After an adjustment period that varies.

D. After a protracted negotiation process.

5. In a price system,

A. Relative prices do not signal information about changes in market conditions.

B. Relative prices change constantly to reflect changes in supply and demand.

C. Relative prices change infrequently due to transaction costs.

D. Relative prices are set by central planners based on projected supply and demand.

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