Question 1

Figure 4-19  
Refer to Figure 4-19. When the price ceiling applies in this market and the supply curve for gasoline shifts from S1 to S2,

Accepted Answer

A)  the price will increase to P3. 
B)  a surplus will occur at the new market price of P2. 
C)  the market price will stay at P1 due to the price ceiling. 
D)  a shortage will occur at the price ceiling of P2. 
A)  the price will increase to P3. 
B)  a surplus will occur at the new market price of P2. 
C)  the market price will stay at P1 due to the price ceiling. 
D)  a shortage will occur at the price ceiling of P2.

Question 2

Figure 4-25  
Refer to Figure 4-25. Consumer surplus before the tax was levied is represented by area

Accepted Answer

A)  A. 
B)  A + B + C. 
C)  D + E + F. 
D)  F. 
A)  A. 
B)  A + B + C. 
C)  D + E + F. 
D)  F.

Question 3

A price floor set above an equilibrium price tends to cause persistent imbalances in the market because

Accepted Answer

A)  Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage. 
B)  Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus. 
C)  Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage. 
D)  Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus. 
A)  Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage. 
B)  Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus. 
C)  Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage. 
D)  Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.

Question 4

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

Accepted Answer

A)  an increase in quantity of unskilled labor demanded 
B)  a decrease in the quantity of unskilled labor supplied 
C)  a shortage of unskilled labor 
D)  a surplus of unskilled labor (unemployment) 
A)  an increase in quantity of unskilled labor demanded 
B)  a decrease in the quantity of unskilled labor supplied 
C)  a shortage of unskilled labor 
D)  a surplus of unskilled labor (unemployment)

Question 5

A tax for which the average tax rate decreases with income is defined as a

Accepted Answer

A)  regressive tax. 
B)  proportional tax. 
C)  neutral tax. 
D)  progressive tax. 
A)  regressive tax. 
B)  proportional tax. 
C)  neutral tax. 
D)  progressive tax.

Question 6

Use the figure below illustrating the impact of an excise tax to answer the following question(s).
Figure 4-6
 
The deadweight loss of the tax illustrated in Figure 4-6 is given by the area

Accepted Answer

A)  ABEH . 
B)  DFE . 
C)  EKG . 
D)  EFG . 
A)  ABEH . 
B)  DFE . 
C)  EKG . 
D)  EFG .

Question 7

The presence of price controls in a market usually is an indication that

Accepted Answer

A)  an insufficient quantity of a good or service was being produced in that market to meet the public's need. 
B)  the usual forces of supply and demand were not able to establish an equilibrium price in that market. 
C)  policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers. 
D)  policymakers correctly believed that, in that market, price controls would generate no inequities of their own. 
A)  an insufficient quantity of a good or service was being produced in that market to meet the public's need. 
B)  the usual forces of supply and demand were not able to establish an equilibrium price in that market. 
C)  policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers. 
D)  policymakers correctly believed that, in that market, price controls would generate no inequities of their own.

Question 8

Kathy works full time during the day as an economist and faces a 90 percent marginal tax rate. If Kathy were to get an offer to work a second job in the evenings doing consulting work for a local business for $10,000 per year, how much of this additional income would she be able to keep as net pay after taxes?

Accepted Answer

A)  $1,000 
B)  $4,000 
C)  $6,000 
D)  $10,000 
A)  $1,000 
B)  $4,000 
C)  $6,000 
D)  $10,000

Question 9

The actual incidence of a tax

Accepted Answer

A)  depends on the statutory incidence. 
B)  is entirely random. 
C)  depends on the elasticities of supply and demand. 
D)  falls entirely on buyers or entirely on sellers. 
A)  depends on the statutory incidence. 
B)  is entirely random. 
C)  depends on the elasticities of supply and demand. 
D)  falls entirely on buyers or entirely on sellers.

Question 10

With a price ceiling above the equilibrium price,

Accepted Answer

A)  quantity demanded would exceed quantity supplied. 
B)  quantity supplied would exceed quantity demanded. 
C)  the market would be in equilibrium. 
D)  the equilibrium price would be expected to fall over time. 
A)  quantity demanded would exceed quantity supplied. 
B)  quantity supplied would exceed quantity demanded. 
C)  the market would be in equilibrium. 
D)  the equilibrium price would be expected to fall over time.

Question 11

A tax on the buyers of coffee will

Accepted Answer

A)  increase the price of coffee paid by buyers, increase the net price of coffee received by sellers, and increase the equilibrium quantity of coffee. 
B)  decrease the price of coffee paid by buyers, increase the net price of coffee received by sellers, and decrease the equilibrium quantity of coffee. 
C)  increase the price of coffee paid by buyers, decrease the net price of coffee received by sellers, and decrease the equilibrium quantity of coffee. 
D)  increase the price of coffee paid by buyers, decrease the net price of coffee received by sellers, and increase the equilibrium quantity of coffee. 
A)  increase the price of coffee paid by buyers, increase the net price of coffee received by sellers, and increase the equilibrium quantity of coffee. 
B)  decrease the price of coffee paid by buyers, increase the net price of coffee received by sellers, and decrease the equilibrium quantity of coffee. 
C)  increase the price of coffee paid by buyers, decrease the net price of coffee received by sellers, and decrease the equilibrium quantity of coffee. 
D)  increase the price of coffee paid by buyers, decrease the net price of coffee received by sellers, and increase the equilibrium quantity of coffee.

Question 12

Use the table below to choose the correct answer.
 
The marginal tax rate on income in the $25,000 to $30,000 range is

Accepted Answer

A)  10 percent. 
B)  20 percent. 
C)  50 percent. 
D)  70 percent. 
A)  10 percent. 
B)  20 percent. 
C)  50 percent. 
D)  70 percent.

Question 13

Compared to legal markets, black markets have

Accepted Answer

A)  products of higher quality. 
B)  higher prices. 
C)  lower profit rates. 
D)  less violence. 
A)  products of higher quality. 
B)  higher prices. 
C)  lower profit rates. 
D)  less violence.

Question 14

If a household has $40,000 in taxable income and its tax liability is $4,000, the household's average tax rate is

Accepted Answer

A)  10 percent. 
B)  25 percent. 
C)  40 percent. 
D)  50 percent 
A)  10 percent. 
B)  25 percent. 
C)  40 percent. 
D)  50 percent

Question 15

Use the figure below to answer the following question(s).
Figure 4-13
 
Refer to Figure 4-13. The supply curve S and the demand curve D 1 indicate initial conditions in the market for flu shots. A new government program is implemented that grants buyers a $25 subsidy when they buy a flu shot, shifting the demand curve from D 1 to D 2. Which of the following is true for this subsidy given the information provided in the exhibit?

Accepted Answer

A)  Buyers of flu shots will receive an actual benefit of $10 from the subsidy, while sellers of flu shots will receive an actual benefit of $15 from the subsidy. 
B)  Buyers of flu shots will receive an actual benefit of $15 from the subsidy, while sellers of flu shots will receive an actual benefit of $10 from the subsidy. 
C)  Buyers of flu shots will receive the full $25 benefit from the subsidy. 
D)  Sellers of flu shots will receive the full $25 benefit from the subsidy. 
A)  Buyers of flu shots will receive an actual benefit of $10 from the subsidy, while sellers of flu shots will receive an actual benefit of $15 from the subsidy. 
B)  Buyers of flu shots will receive an actual benefit of $15 from the subsidy, while sellers of flu shots will receive an actual benefit of $10 from the subsidy. 
C)  Buyers of flu shots will receive the full $25 benefit from the subsidy. 
D)  Sellers of flu shots will receive the full $25 benefit from the subsidy.

Question 16

The burden of a tax will fall primarily on sellers when the

Accepted Answer

A)  demand for the product is highly inelastic and the supply is relatively elastic. 
B)  demand for the product is highly elastic and the supply is relatively inelastic. 
C)  tax is legally (statutorily) imposed on the seller of the product. 
D)  tax is legally (statutorily) imposed on the buyer of the product. 
A)  demand for the product is highly inelastic and the supply is relatively elastic. 
B)  demand for the product is highly elastic and the supply is relatively inelastic. 
C)  tax is legally (statutorily) imposed on the seller of the product. 
D)  tax is legally (statutorily) imposed on the buyer of the product.

Question 17

Which of the following examples illustrates a progressive income tax?

Accepted Answer

A)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes. 
B)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $50 in taxes. 
C)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $80 in taxes. 
D)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $125 in taxes. 
A)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes. 
B)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $50 in taxes. 
C)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $80 in taxes. 
D)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $125 in taxes.

Question 18

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because

Accepted Answer

A)  the market price of the product will fall in response to the subsidy. 
B)  the market price of the product will rise in response to the subsidy. 
C)  the market price of the product will not change in response to the subsidy. 
D)  producers will reduce the supply of the product. 
A)  the market price of the product will fall in response to the subsidy. 
B)  the market price of the product will rise in response to the subsidy. 
C)  the market price of the product will not change in response to the subsidy. 
D)  producers will reduce the supply of the product.

Question 19

An income tax is regressive if

Accepted Answer

A)  the tax liability of high-income recipients exceeds the tax liability of those with low incomes. 
B)  the tax liability of high-income recipients is less than the tax liability of those with low incomes. 
C)  high-income recipients pay a higher percentage of their incomes in taxes than those with low incomes. 
D)  high-income recipients pay a lower percentage of their incomes in taxes than those whose incomes are low. 
A)  the tax liability of high-income recipients exceeds the tax liability of those with low incomes. 
B)  the tax liability of high-income recipients is less than the tax liability of those with low incomes. 
C)  high-income recipients pay a higher percentage of their incomes in taxes than those with low incomes. 
D)  high-income recipients pay a lower percentage of their incomes in taxes than those whose incomes are low.

Question 20

When policymakers impose price controls, they

Accepted Answer

A)  are usually following the advice of mainstream economists. 
B)  usually improve the efficiency of economic activity. 
C)  distort the signals that normally guide the allocation of resources. 
D)  demonstrate a willingness to sacrifice equity in order to improve efficiency. 
A)  are usually following the advice of mainstream economists. 
B)  usually improve the efficiency of economic activity. 
C)  distort the signals that normally guide the allocation of resources. 
D)  demonstrate a willingness to sacrifice equity in order to improve efficiency.

Figure 4-19 Refer to Figure 4-19. When the price ceiling applies in this market and the supply curve for gasoline shifts from S₁ to S₂,

Figure 4-25 Refer to Figure 4-25. Consumer surplus before the tax was levied is represented by area

A price floor set above an equilibrium price tends to cause persistent imbalances in the market because

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

A tax for which the average tax rate decreases with income is defined as a

Use the figure below illustrating the impact of an excise tax to answer the following question(s). Figure 4-6 The deadweight loss of the tax illustrated in Figure 4-6 is given by the area

The presence of price controls in a market usually is an indication that

The actual incidence of a tax

With a price ceiling above the equilibrium price,

A tax on the buyers of coffee will

Use the table below to choose the correct answer. The marginal tax rate on income in the $25,000 to $30,000 range is

Compared to legal markets, black markets have

If a household has $40,000 in taxable income and its tax liability is $4,000, the household's average tax rate is

The burden of a tax will fall primarily on sellers when the

Which of the following examples illustrates a progressive income tax?

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because

An income tax is regressive if

When policymakers impose price controls, they

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters

Exam 4: Supply and Demand: Applications and Extensions

Figure 4-19 Refer to Figure 4-19. When the price ceiling applies in this market and the supply curve for gasoline shifts from S1 to S2,

Figure 4-25 Refer to Figure 4-25. Consumer surplus before the tax was levied is represented by area

A price floor set above an equilibrium price tends to cause persistent imbalances in the market because

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

A tax for which the average tax rate decreases with income is defined as a

Use the figure below illustrating the impact of an excise tax to answer the following question(s). Figure 4-6 The deadweight loss of the tax illustrated in Figure 4-6 is given by the area

The presence of price controls in a market usually is an indication that

The actual incidence of a tax

With a price ceiling above the equilibrium price,

A tax on the buyers of coffee will

Use the table below to choose the correct answer. The marginal tax rate on income in the $25,000 to $30,000 range is

Compared to legal markets, black markets have

If a household has $40,000 in taxable income and its tax liability is $4,000, the household's average tax rate is

The burden of a tax will fall primarily on sellers when the

Which of the following examples illustrates a progressive income tax?

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because

An income tax is regressive if

When policymakers impose price controls, they

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters

Figure 4-19 Refer to Figure 4-19. When the price ceiling applies in this market and the supply curve for gasoline shifts from S₁ to S₂,