Question 1

How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.

Accepted Answer

The answer of How does elasticity affect the burden of...

Question 2

A price floor is not binding if

Accepted Answer

A) the price floor is higher than the equilibrium price of the good. 
B) the quantity of the good demanded with the price floor is less than the quantity demanded of the good without the price floor. 
C) the quantity of the good supplied with the price floor is less than the quantity supplied of the good without the price floor. 
D) All of the above are correct. 
A) the price floor is higher than the equilibrium price of the good. 
B) the quantity of the good demanded with the price floor is less than the quantity demanded of the good without the price floor. 
C) the quantity of the good supplied with the price floor is less than the quantity supplied of the good without the price floor. 
D) All of the above are correct.

Question 3

The housing shortages caused by rent controls are larger in the long run than in the short run because both the supply of housing and the demand for housing are more elastic in the long run.

Accepted Answer

A) True 
 B)False

Question 4

Suppose the equilibrium price of a physical examination ("physical")by a doctor is $200,and the government imposes a price ceiling of $150 per physical.As a result of the price ceiling,

Accepted Answer

A) the demand curve for physicals shifts to the right. 
B) the supply curve for physicals shifts to the left. 
C) the quantity demanded of physicals increases and the quantity supplied of physicals decreases. 
D) the number of physicals performed will increase. 
A) the demand curve for physicals shifts to the right. 
B) the supply curve for physicals shifts to the left. 
C) the quantity demanded of physicals increases and the quantity supplied of physicals decreases. 
D) the number of physicals performed will increase.

Question 5

Most of the burden of a luxury tax falls on the middle class workers who produce luxury goods rather than on the rich who buy them.

Accepted Answer

A) True 
 B)False

Question 6

Figure 6-1
  
-Refer to Figure 6-1.The situation in panel (a)may be described as one in which

Accepted Answer

A) the price ceiling is not binding. 
B) the price "ceiling" really functions as a price floor. 
C) a surplus of the good will be observed. 
D) All of the above are correct. 
A) the price ceiling is not binding. 
B) the price "ceiling" really functions as a price floor. 
C) a surplus of the good will be observed. 
D) All of the above are correct.

Question 7

The goal of a rent-control policy is to

Accepted Answer

A) facilitate controlled economic experiments in urban areas. 
B) help landlords by assuring them a low vacancy rate for their apartments. 
C) help the poor by assuring them an adequate supply of apartments. 
D) help the poor by making housing more affordable. 
A) facilitate controlled economic experiments in urban areas. 
B) help landlords by assuring them a low vacancy rate for their apartments. 
C) help the poor by assuring them an adequate supply of apartments. 
D) help the poor by making housing more affordable.

Question 8

Figure 6-8
  
-Refer to Figure 6-8.The equilibrium price in the market before the tax is imposed is

Accepted Answer

A) $8. 
B) $6. 
C) $5. 
D) $3. 
A) $8. 
B) $6. 
C) $5. 
D) $3.

Question 9

Figure 6-4
  
-Refer to Figure 6-4.Suppose a price ceiling of $4.50 is imposed.As a result,

Accepted Answer

A) there is a shortage of 15 units of the good. 
B) the demand curve will shift to the left so as to now pass through the point (Q = 35, P = $4.50). 
C) the situation is very much like the one created by a binding minimum wage. 
D) the quantity of the good that is bought and sold is the same as it would have been had a price floor of $7.50 been imposed. 
A) there is a shortage of 15 units of the good. 
B) the demand curve will shift to the left so as to now pass through the point (Q = 35, P = $4.50). 
C) the situation is very much like the one created by a binding minimum wage. 
D) the quantity of the good that is bought and sold is the same as it would have been had a price floor of $7.50 been imposed.

Question 10

Suppose the demand curve for a good is very flat and the supply curve for the good is very steep.If the government taxes this good,

Accepted Answer

A) buyers and sellers will each share 50 percent of the burden, regardless of the slopes of the demand and supply curves. 
B) sellers will bear a larger share of the tax burden and buyers will bear a smaller share of the burden. 
C) the distribution of the burden will depend upon whether the buyers or the sellers are required to send the tax to the government. 
D) the amount of tax revenue collected by the government will depend upon whether the buyers or the sellers are required to send the tax to the government. 
A) buyers and sellers will each share 50 percent of the burden, regardless of the slopes of the demand and supply curves. 
B) sellers will bear a larger share of the tax burden and buyers will bear a smaller share of the burden. 
C) the distribution of the burden will depend upon whether the buyers or the sellers are required to send the tax to the government. 
D) the amount of tax revenue collected by the government will depend upon whether the buyers or the sellers are required to send the tax to the government.

Question 11

Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell.Further,suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle.Which of the following statements is correct?

Accepted Answer

A) This tax causes the demand curve for liquor to shift downward by $0.80 at each quantity of liquor. 
B) The incidence of the tax is summarized by the fact that sellers send the tax payments to the government. 
C) Eighty percent of the burden of the tax falls on buyers. 
D) All of the above are correct. 
A) This tax causes the demand curve for liquor to shift downward by $0.80 at each quantity of liquor. 
B) The incidence of the tax is summarized by the fact that sellers send the tax payments to the government. 
C) Eighty percent of the burden of the tax falls on buyers. 
D) All of the above are correct.

Question 12

The U.S.Congress first instituted a minimum wage in

Accepted Answer

A) 1890. 
B) 1914. 
C) 1938. 
D) 1974. 
A) 1890. 
B) 1914. 
C) 1938. 
D) 1974.

Question 13

Figure 6-13
  
-Refer to Figure 6-13.The per-unit burden of the tax on buyers is

Accepted Answer

A) P₂ minus P₀. 
B) P₂ minus P₁. 
C) P₁ minus P₀. 
D) Q₁ minus Q₀. 
A) P₂ minus P₀. 
B) P₂ minus P₁. 
C) P₁ minus P₀. 
D) Q₁ minus Q₀.

Question 14

A binding price floor causes

Accepted Answer

A) excess demand. 
B) a shortage. 
C) a surplus. 
D) quantity demanded to exceed quantity supplied. 
A) excess demand. 
B) a shortage. 
C) a surplus. 
D) quantity demanded to exceed quantity supplied.

Question 15

When OPEC raised the price of crude oil in the 1970s,it caused the

Accepted Answer

A) supply of gasoline to decrease. 
B) quantity of gasoline demanded to decrease. 
C) equilibrium price of gasoline to increase. 
D) All of the above are correct. 
A) supply of gasoline to decrease. 
B) quantity of gasoline demanded to decrease. 
C) equilibrium price of gasoline to increase. 
D) All of the above are correct.

Question 16

The incidence of a tax depends on whether the tax is levied on buyers or sellers.

Accepted Answer

A) True 
 B)False

Question 17

The federal government uses the revenue from the FICA (Federal Insurance Contribution Act)tax to pay for

Accepted Answer

A) unemployment compensation. 
B) flood insurance. 
C) Social Security and Medicare. 
D) housing subsidies for low-income people. 
A) unemployment compensation. 
B) flood insurance. 
C) Social Security and Medicare. 
D) housing subsidies for low-income people.

Question 18

Suppose the demand curve for motorcycles slopes downward and the supply curve for motorcycles slopes upward.If the government passes a law requiring buyers of motorcycles to send $500 to the government for every motorcycle they buy,then

Accepted Answer

A) the demand curve for motorcycles shifts downward by $500. 
B) buyers of motorcycles pay $500 more per motorcycle than they were paying before the tax. 
C) sellers of motorcycles are unaffected by the tax. 
D) All of the above are correct. 
A) the demand curve for motorcycles shifts downward by $500. 
B) buyers of motorcycles pay $500 more per motorcycle than they were paying before the tax. 
C) sellers of motorcycles are unaffected by the tax. 
D) All of the above are correct.

Question 19

A tax imposed on the sellers of a good

Accepted Answer

A) raises both the price buyers pay and the effective price for sellers. 
B) raises the price buyers pay and lowers the effective price for sellers. 
C) lowers the price buyers pay and raises the effective price for sellers. 
D) lowers both the price buyers pay and the effective price for sellers. 
A) raises both the price buyers pay and the effective price for sellers. 
B) raises the price buyers pay and lowers the effective price for sellers. 
C) lowers the price buyers pay and raises the effective price for sellers. 
D) lowers both the price buyers pay and the effective price for sellers.

Question 20

Figure 6-10
  
-Suppose the same S and D curves apply, and a tax of the same amount per unit as shown here is imposed. Now, however, the buyers of the good, rather than the sellers, are required to pay the tax to the government. Now,

Accepted Answer

A) 	the burden on buyers will be larger than in the case illustrated in Figure 6-10. 
B) 	the burden on sellers will be smaller than in the case illustrated in Figure 6-10. 
C) 	a downward shift of the demand curve replaces the upward shift of the supply curve. 
D) 	All of the above are correct. 
A) 	the burden on buyers will be larger than in the case illustrated in Figure 6-10. 
B) 	the burden on sellers will be smaller than in the case illustrated in Figure 6-10. 
C) 	a downward shift of the demand curve replaces the upward shift of the supply curve. 
D) 	All of the above are correct.

Exam 6: Supply, demand, and Government Policies

How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.

A price floor is not binding if

The housing shortages caused by rent controls are larger in the long run than in the short run because both the supply of housing and the demand for housing are more elastic in the long run.

Suppose the equilibrium price of a physical examination ("physical")by a doctor is $200,and the government imposes a price ceiling of $150 per physical.As a result of the price ceiling,

Most of the burden of a luxury tax falls on the middle class workers who produce luxury goods rather than on the rich who buy them.

Figure 6-1 -Refer to Figure 6-1.The situation in panel (a)may be described as one in which

The goal of a rent-control policy is to

Figure 6-8 -Refer to Figure 6-8.The equilibrium price in the market before the tax is imposed is

Figure 6-4 -Refer to Figure 6-4.Suppose a price ceiling of $4.50 is imposed.As a result,

Suppose the demand curve for a good is very flat and the supply curve for the good is very steep.If the government taxes this good,

Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell.Further,suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle.Which of the following statements is correct?

The U.S.Congress first instituted a minimum wage in

Figure 6-13 -Refer to Figure 6-13.The per-unit burden of the tax on buyers is

A binding price floor causes

When OPEC raised the price of crude oil in the 1970s,it caused the

The incidence of a tax depends on whether the tax is levied on buyers or sellers.

The federal government uses the revenue from the FICA (Federal Insurance Contribution Act)tax to pay for

Suppose the demand curve for motorcycles slopes downward and the supply curve for motorcycles slopes upward.If the government passes a law requiring buyers of motorcycles to send $500 to the government for every motorcycle they buy,then

A tax imposed on the sellers of a good

Figure 6-10 -Suppose the same S and D curves apply, and a tax of the same amount per unit as shown here is imposed. Now, however, the buyers of the good, rather than the sellers, are required to pay the tax to the government. Now,

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Consumers, producers, and the Efficiency of Markets

Application: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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