Exam 6: Government Actions in Markets

-The figure above shows the market for gasoline. The government has imposed a tax on gasoline. a) What is the amount of the tax per gallon of gasoline? b) How much of the tax is paid by consumers? How much is paid by producers? Which is more elastic, the supply or demand for gasoline?

-The figure above shows the market for cotton in Georgestan. The government regulates the market with a production quota set at 8 million pounds per year. The introduction of the quota has

-The figure above shows the demand for and supply of labor of students in Smallville. If the minimum wage is set at $8 per hour, how many hours do students work?

-The figure above shows the market for low-skilled labor in Midland city. The government sets a minimum wage at $6 per hour. With the minimum wage law enacted, the potential loss from job search in Midland city is

-The figure above shows the market for cotton in Georgestan. The government regulates the market with a production quota set at 8 million pounds per year. With the quota in place, the amount of cotton produced in Georgestan is ________ because the marginal social cost of a pound of cotton is ________ the marginal social benefit of a pound of cotton.

-You are in the business of producing and selling hamburgers, french fries, pizza, and ice cream. The mayor plans to impose a tax on one of these products. Based on the elasticities in the above table, on which of these goods would your customers most prefer to be taxed?

-The above figure shows the market for anti-freeze. The government imposes the sales tax shown in the figure on sellers. Automobile owners would pay a larger part of this tax than what is shown in the figure if the

If the demand is perfectly elastic, buyers pay the entire tax.

In the recent years, prices of basic food commodities such as corn, rice, and wheat have increased sharply. A recent article in the Wall Street Journal states that Chinese authorities are concerned that escalating prices will cause inflation and be followed by civil unrest. (Source: Wall Street Journal, February 20, 2011) -Suppose the Chinese government regulates the price of food and forbids firms from setting a higher price. In this case the government is setting a

Which of the following is a correct statement about markets for prohibited goods?

A student wrote: "A production quota is inefficient because it results in overproduction. At the quota quantity, marginal social cost is equal to the market price and marginal social benefit is less than the market price, so marginal social cost exceeds marginal social benefit." If you were the instructor, how would you correct this statement?

A rent ceiling ________.

-In the figure above, originally the apartment rental market is in short-run and long-run equilibrium with a rent of $600 per month. Then the government imposes a rent ceiling of $500 per month. If the law is strictly enforced, the maximum for which an apartment will rent on the black market is

What occurs if a price floor is set above the equilibrium price? What occurs if a price ceiling is set below the equilibrium price?

-The market for unskilled labor is illustrated in the figure above. The market is in equilibrium and then a minimum wage of $5 per hour is imposed. Employment will fall by

-The figure above shows the housing market in the city of Appleville. A rent ceiling of $650 per month is imposed. With the rent ceiling, the quantity of housing rented in Appleville is

How does the elasticity of demand for labor affect the deadweight loss from an increase in the minimum wage? Why?

-In the above figure, the equilibrium price of a paperback book is $6 per book and the equilibrium quantity is 3 million books. The National Literature Board convinces the government to impose a price ceiling of $3 per book. At this price, the quantity of books supplied to the market will be

-The figure above illustrates the market for antifreeze. Suppose the government decides to implement an $8 sales tax on the sellers for every gallon of antifreeze sold. a) In the figure, illustrate the effect the tax has on the market for antifreeze. b) What is the equilibrium price of a gallon of antifreeze before the tax? What is the price paid by buyers after the tax? c) What is the equilibrium quantity of antifreeze before the tax? What is the equilibrium quantity after the tax? d) What is the revenue collected by the government from this tax? e) Do buyers or sellers bear the largest incidence of the tax? f) Illustrate the deadweight loss created by the tax.

-In the above figure, who pays the larger share of the tax?