Macroeconomics: Definition & Principles Quiz
This is to test your knowledge on material covered in chapter 5. Good Luck.
Questions and Answers
- 1.
Macroeconomics deals with:
- A.
Bits and pieces of the economy.
- B.
The question of how a business unit should operate profitably.
- C.
The working of the entire economy or large sectors of it.
- D.
How individuals make decisions.
Correct Answer
C. The working of the entire economy or large sectors of it.Explanation
Macroeconomics is a branch of economics that focuses on the overall functioning of the entire economy or significant sectors of it. It examines factors such as national income, unemployment, inflation, and economic growth. Unlike microeconomics, which analyzes individual economic units like households and firms, macroeconomics looks at the broader picture and aims to understand how different sectors of the economy interact and influence each other. Therefore, the correct answer is "the working of the entire economy or large sectors of it."Rate this question:
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- 2.
Which of the following would be a part of macroeconomics?
- A.
A study of the change in automobile sales due to a change in the price of automobiles
- B.
A study of the impact of a tax reduction on the profits of a business
- C.
A study of recessions
- D.
A study of the unemployment of workers displaced by technological change in the typesetting industry
Correct Answer
C. A study of recessionsExplanation
Macroeconomics is the branch of economics that deals with the overall performance and behavior of an economy as a whole. It focuses on studying aggregate variables such as GDP, inflation, unemployment, and economic growth. Recessions, which refer to periods of significant economic decline characterized by a contraction in economic activity, are an important aspect of macroeconomics. Understanding the causes, effects, and policy responses to recessions is crucial in analyzing and managing the overall health and stability of an economy. Therefore, studying recessions is a part of macroeconomics.Rate this question:
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- 3.
A price control is:
- A.
When a firm controls the price of the good it produces.
- B.
A legal restriction on how high or low a price in a market may go.
- C.
An upper limit on the quantity of some good that can be bought or sold.
- D.
A tax placed on the sale of a good which controls the market price.
Correct Answer
B. A legal restriction on how high or low a price in a market may go.Explanation
A price control refers to a legal restriction imposed on the range within which prices of goods or services can fluctuate in a market. It is not about a firm controlling the price of its own product, setting a limit on the quantity of goods traded, or implementing a tax to regulate market prices. Instead, it involves government intervention to prevent prices from going too high or too low, aiming to maintain stability and protect consumers from potential exploitation or market failures.Rate this question:
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- 4.
Rapidly increasing health costs have been a major political concern since at least 1992. Suppose that to control rising health costs the government sets the maximum price for a normal doctor's visit at $20, but the current market price is $40. Then:
- A.
More people will try to visit the doctor, but the doctor will see fewer patients.
- B.
The same number of people will try to visit the doctor, and the doctor will see the same number of patients.
- C.
More people will be able to see the doctor, since the price is lower.
- D.
Fewer people will try to see the doctor, and the doctors will see fewer patients.
Correct Answer
A. More people will try to visit the doctor, but the doctor will see fewer patients.Explanation
If the government sets the maximum price for a normal doctor's visit at $20, which is lower than the current market price of $40, more people will try to visit the doctor because it is more affordable. However, since the government is controlling the price, the doctor will see fewer patients because they will not be able to charge the higher market price. This is because the lower price may not be sufficient to cover the costs or incentivize doctors to see as many patients.Rate this question:
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- 5.
The government decides to impose a price ceiling on a good, because it thinks the market-determined price is “too high.” If the government imposes the price ceiling below the equilibrium price:
- A.
Consumers will respond to the lower price and therefore wish to purchase more of the good than at the equilibrium price.
- B.
Producers will respond to the lower price and therefore offer more units for sale.
- C.
Consumers will be able to purchase more of the good after the price ceiling is imposed.
- D.
It will not be binding.
Correct Answer
A. Consumers will respond to the lower price and therefore wish to purchase more of the good than at the equilibrium price.Explanation
When the government imposes a price ceiling below the equilibrium price, it means that the maximum price at which the good can be sold is lower than the market-determined price. This lower price will incentivize consumers to purchase more of the good because it becomes more affordable. As a result, the demand for the good will increase. However, since the price ceiling is below the equilibrium price, producers will not be willing to supply the increased quantity demanded at that price. This can lead to shortages in the market. Therefore, consumers will respond to the lower price and wish to purchase more of the good than at the equilibrium price.Rate this question:
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- 6.
The government imposes a price ceiling below the equilibrium price. The price ceiling will cause:
- A.
Quantity demanded to decrease.
- B.
Quantity supplied to increase.
- C.
A shortage of the good.
- D.
An increase in the quality of the good.
Correct Answer
C. A shortage of the good.Explanation
When the government imposes a price ceiling below the equilibrium price, it means that the price cannot go above a certain level. This artificially low price leads to an increase in demand for the good, as consumers are willing to buy more at the lower price. However, producers are not willing to supply as much at this lower price, leading to a decrease in the quantity supplied. As a result, there is an imbalance between the quantity demanded and the quantity supplied, creating a shortage of the good.Rate this question:
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- 7.
The NFL wants to give the “common fan” the opportunity to attend the Super Bowl, so it sets Super Bowl prices “low”—tickets for a regular seat at Super Bowl XXXVII cost just $400. Scalpers, however, were selling tickets for $1,500 or more. The true cost to the “common fan” of a regular ticket to Super Bowl XXXVII was:
- A.
$400.
- B.
$1,500.
- C.
The monetary price paid to obtain the ticket.
- D.
$1,100 less than the opportunity cost of a ticket.
Correct Answer
B. $1,500.Explanation
The correct answer is $1,500. This is because the question asks for the "true cost" to the "common fan" of a regular ticket to Super Bowl XXXVII. Although the NFL set the ticket prices at $400, scalpers were selling tickets for $1,500 or more. This means that the "common fan" would have to pay $1,500 in order to obtain a ticket, which is the true cost for them.Rate this question:
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- 8.
One of the ways rent control is inefficient is that it leads to:
- A.
Higher-quality apartments.
- B.
High opportunity costs associated with wasted time.
- C.
Markets that maximize total surplus.
- D.
The construction of more apartments.
Correct Answer
B. High opportunity costs associated with wasted time.Explanation
Rent control is a government policy that sets limits on how much landlords can charge for rent. This creates a situation where the demand for apartments exceeds the supply, leading to shortages and inefficiencies in the housing market. One of the consequences of rent control is that it creates high opportunity costs associated with wasted time. This means that potential tenants have to spend a significant amount of time searching for available apartments and dealing with long waiting lists. This wasted time could have been used for more productive activities, resulting in a loss of economic efficiency.Rate this question:
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- 9.
Suppose the government of the oil-rich country of Oiland sets gasoline prices at $0.25 per gallon, when the market price is $1.50. The Oiland government's actions will:
- A.
Improve efficiency since the low prices will force producers to find cheaper production methods.
- B.
Result in gasoline surpluses even in an oil-rich country.
- C.
Cause gasoline shortages even in an oil-rich country.
- D.
Improve equality between rich and poor since the poor can now afford gasoline.
Correct Answer
C. Cause gasoline shortages even in an oil-rich country.Explanation
The government of Oiland setting gasoline prices at $0.25 per gallon, when the market price is $1.50, will cause gasoline shortages even in an oil-rich country. This is because the low prices set by the government will create an increased demand for gasoline, leading to a shortage of supply. Producers will not be able to keep up with the high demand at such low prices, resulting in shortages.Rate this question:
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- 10.
Table: Market for Fried TwinkiesPrice Quantity Demanded Quantity Supplied1.10 9000 30001.2 8000 50001.3 7000 70001.4 6000 9000 1.5 5000 1100(Table: Market for Fried Twinkies) In response to popular anger over the high price of fried Twinkies and the extreme wealth of fried Twinkie producers, the government imposes a price ceiling of $1.20 per fried Twinkie. From this table, the price ceiling causes:
- A.
A shortage of 3,000 fried Twinkies.
- B.
A shortage of 5,000 fried Twinkies.
- C.
A surplus of 8,000 fried Twinkies.
- D.
A surplus of 3,000 fried Twinkies.
Correct Answer
A. A shortage of 3,000 fried Twinkies.Explanation
The price ceiling of $1.20 per fried Twinkie is below the equilibrium price of $1.30. This means that suppliers are not able to charge the higher price and are only willing to supply 5,000 fried Twinkies instead of the previous quantity of 7,000. On the other hand, consumers are willing to purchase 8,000 fried Twinkies at the lower price. This creates a shortage of 3,000 fried Twinkies, as the quantity demanded exceeds the quantity supplied.Rate this question:
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- 11.
Suppose the government of Coffeeland sets coffee prices at $1 per pound, when the market price is $10. The government's actions will:
- A.
Improve efficiency since the low prices will force producers to find cheaper production methods.
- B.
Result in coffee surpluses even in a coffee-rich country.
- C.
Cause coffee shortages even in a coffee-rich country.
- D.
Improve equality between rich and poor since the poor can now afford coffee.
Correct Answer
C. Cause coffee shortages even in a coffee-rich country.Explanation
The government setting coffee prices at $1 per pound, when the market price is $10, will cause coffee shortages even in a coffee-rich country. This is because the low price set by the government will discourage producers from supplying coffee, as they will not be able to cover their production costs and make a profit. As a result, there will be a decrease in the supply of coffee, leading to shortages in the market.Rate this question:
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- 12.
The government decides to impose a price ceiling on a good because it thinks the market-determined price is “too high.” If it imposes the price ceiling above the equilibrium price:
- A.
Consumers will respond to the higher price and therefore wish to purchase less of the good than at the equilibrium price.
- B.
Producers will respond to the higher price and therefore offer fewer units for sale.
- C.
Consumers will purchase less of the good after the price ceiling is imposed.
- D.
There will be no change to either the price or quantity in the market.
Correct Answer
D. There will be no change to either the price or quantity in the market.Explanation
If the government imposes a price ceiling above the equilibrium price, it means that the price ceiling is set at a level that is higher than what the market would naturally determine. In this case, the price ceiling becomes ineffective because it does not impact the market price. Since the market price is already lower than the price ceiling, there is no need for producers to reduce their prices or for consumers to reduce their purchases. Therefore, there will be no change to either the price or quantity in the market.Rate this question:
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- 13.
If New York City had no medallion system for taxicabs, the price of a taxicab ride would:
- A.
Increase because of the higher safety hazards.
- B.
Not change from its current level.
- C.
Decrease.
- D.
Increase, but only slightly.
Correct Answer
C. Decrease.Explanation
Without a medallion system for taxicabs in New York City, the price of a taxicab ride would decrease. The medallion system currently limits the number of taxicabs allowed to operate, creating a limited supply. This limited supply allows taxi drivers to charge higher fares. However, without the medallion system, there would be more competition among taxicab drivers, leading to a greater supply of taxicabs and ultimately driving down the price of a taxicab ride.Rate this question:
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- 14.
If the government imposes rationing and price controls on the item being offered, which of the five points shown is the most likely resulting position of the market?
- A.
A
- B.
B
- C.
C
- D.
D
- E.
E
Correct Answer
D. DExplanation
If the government imposes rationing and price controls on the item being offered, the most likely resulting position of the market would be point d. This is because rationing and price controls would limit the availability of the item and potentially lower its price, leading to a decrease in both supply and demand. As a result, the market equilibrium would shift to a lower quantity and lower price, represented by point d on the graph.Rate this question:
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- 15.
Consider the diagram, if the government artificially limits the price of the item offered so that it cannot rise above .75, it will result in
- A.
An excess supply
- B.
The market clearing
- C.
A consumer surplus of 1.00
- D.
An excess surplus of 240 units
- E.
An excess demand of 240 units
Correct Answer
E. An excess demand of 240 unitsExplanation
If the government artificially limits the price of the item to .75, it means that the price cannot go higher than .75. This creates a situation where the price is lower than the equilibrium price, causing an excess demand for the item. In other words, there are more buyers willing to purchase the item at the lower price than there are sellers willing to sell it. The excess demand is quantified as 240 units, indicating that there are 240 more units of the item demanded than supplied at the given price.Rate this question:
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- 16.
A legal maximum price at which a good can be sold is a a. price floor. b. price stabilization. c. price support. d. price ceiling.
- A.
A
- B.
B
- C.
C
- D.
D
Correct Answer
D. DExplanation
A legal maximum price at which a good can be sold is known as a price ceiling. This means that the price cannot go above a certain level set by the government. Price ceilings are often implemented to protect consumers from high prices and to ensure affordability of essential goods and services.Rate this question:
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- 17.
A taxi medallion system is a form of
Correct Answer
quantity control
quotaExplanation
The correct answer is quantity control, quota. A taxi medallion system is a mechanism used to control the number of taxis operating in a city. It involves issuing a limited number of medallions or permits that allow individuals or companies to operate taxis. By setting a quota on the number of medallions, the city can regulate the supply of taxis and ensure that there is not an oversaturation of vehicles. This helps maintain a balance between supply and demand, preventing excessive competition and ensuring a fair and sustainable taxi industry.Rate this question:
- 18.
Typically, the government limits quantity in a market by issuing
Correct Answer
licenses
licenseExplanation
The government typically limits quantity in a market by issuing licenses. These licenses act as permits or authorizations that allow individuals or businesses to engage in certain activities or provide specific goods or services. By controlling the number of licenses issued, the government can regulate the quantity of goods or services available in the market, ensuring that supply does not exceed demand. This helps prevent oversupply, maintain market stability, and potentially protect consumers from low-quality or unsafe products or services.Rate this question:
- 19.
The wedge, has a special name known as
Correct Answer
quota rentExplanation
The term "quota rent" refers to the additional profit or income earned by individuals or firms who hold a quota for a specific product or resource. This rent is generated due to the scarcity created by the quota system, which restricts the supply of the product or resource. It allows the quota holders to charge higher prices and earn extra income. Therefore, the term "quota rent" is used to describe this special name for the wedge between the market price and the price received by quota holders.Rate this question:
- 20.
The most well known example of a price floor is
Correct Answer
minimum wageExplanation
A price floor is a government-imposed minimum price that is set above the equilibrium price in a market. It prevents the price from falling below a certain level. The minimum wage is a perfect example of a price floor because it sets a minimum hourly wage that employers must pay to their employees. By setting a minimum wage, the government ensures that workers receive a certain level of income and are protected from exploitation. This can lead to higher wages for workers but may also result in unintended consequences such as reduced employment opportunities.Rate this question:
- 21.
A place where illegal activity is performed due to price controls is known as
Correct Answer
black markets
black marketExplanation
A place where illegal activity is performed due to price controls is known as a black market or black markets. Price controls set by the government can create a situation where the demand for certain goods or services exceeds the supply, leading to higher prices. In order to circumvent these controls and meet the demand, illegal markets emerge where goods or services are bought and sold at higher prices than the regulated ones. These black markets operate outside the legal framework and are often associated with activities such as smuggling, counterfeiting, and illegal trade.Rate this question:
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