Exam 6: Government Actions in Markets

4 Production Quotas and Subsidies -Governments often intervene in agricultural markets by

Explain the relationship between the incidence of a tax and elasticity.

A rent ceiling results in a shortage. As a result, which of the following do you expect?

Which would be a better source of tax revenue for the government, a good with elastic or a good with an inelastic demand? Explain your reasoning.

One positive aspect of rent ceilings is that they help reduce the time and expense associated with apartment hunting.

The amount of a tax paid by the sellers will be smaller the more ________ the demand and the more ________ the supply.

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?

-To help pay for the cost of sport related injuries, the government imposes a tax on sellers of all sports equipment. Using the above figure, the area that equals the lost consumer surplus from this tax on sports equipment is

-In the above figure, a sales tax of $1 per unit imposed on sellers ________ the price buyers pay and ________ the price that suppliers keep for themselves.

A student wrote: "A subsidy raises marginal social benefit above marginal social cost and eliminates the deadweight loss from underproduction." If you were the instructor, how would you correct this statement?

Consider the market for purple magic markers. The demand for purple magic markers is perfectly elastic and the supply curve is upward sloping. If sellers of purple magic markers are taxed $1 per marker, how will the tax be divided between the buyer and seller?

When a tax is imposed on a good or service, buyers respond only to the price that ________ the tax, and sellers respond to the price that ________ the tax.

-The above figure shows the demand and supply curves for housing As a result of a rent ceiling at $500, the deadweight loss is represented by the area

When the government passes a law making a particular good illegal, does it matter for the black market price and quantity if the penalties for breaking the law are imposed on the buyers or on the sellers?

In a supply and demand diagram, illustrate a price floor that affects the market's price and quantity and a price floor that has no effect on the price and quantity.

-In the above figure, the price received by the seller before the tax is ________ per CD, and the price received and kept by the seller after the tax is ________ per CD.

-The above figure shows the labor market in an undeveloped nation. If the minimum wage is set at $5.00 per hour, what effect will it have on the market for low-skilled labor?

-The above figure shows the apartment rental market in Bigtown. If there is a shortage of 200,000 apartments in the Bigtown rental market, it might be because the Bigtown Housing Authority has imposed a rent

-The above figure shows the market for a prescription drug. What is the equilibrium price of the drug? How many doses are purchased? Suppose the government imposes a price ceiling of $1.50 a dose. How many doses are purchased after the price ceiling is imposed?

-In the figure above, the demand curve shifts rightward from D₀ to D₁ so that D₁ is the relevant demand curve. Suppose the government imposes a rent ceiling of $300 per month. In the short run there will be