Question 1

Who bears most of the burden of a mandate requiring employers to provide health insurance?

Accepted Answer

A)  workers, since labor supply is less elastic than labor demand 
B)  employers, since labor demand is less elastic than labor supply 
C)  capital owners, since labor supply and demand elasticities are equal 
D)  the federal government, since the requirement is a federal mandate 
A)  workers, since labor supply is less elastic than labor demand 
B)  employers, since labor demand is less elastic than labor supply 
C)  capital owners, since labor supply and demand elasticities are equal 
D)  the federal government, since the requirement is a federal mandate

Question 2

With a subsidy to producers, supply:

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains the same. 
D)  shifts unpredictably. 
A)  increases. 
B)  decreases. 
C)  remains the same. 
D)  shifts unpredictably.

Question 3

Consider the market for gasoline, a good with a relatively low elasticity of demand. Who will bear the majority of a tax imposed on gasoline?

Accepted Answer

A)  It depends on the tax rate at the time the gasoline is sold. 
B)  Sellers will bear the majority of the tax, as long as supply is more elastic than demand. 
C)  Buyers will bear the majority of the tax, as long as demand is less elastic than supply. 
D)  No one will bear the majority of the tax; the tax burden will be borne equally by both buyers and sellers 
A)  It depends on the tax rate at the time the gasoline is sold. 
B)  Sellers will bear the majority of the tax, as long as supply is more elastic than demand. 
C)  Buyers will bear the majority of the tax, as long as demand is less elastic than supply. 
D)  No one will bear the majority of the tax; the tax burden will be borne equally by both buyers and sellers

Question 4

Which of the following statements is correct?

Accepted Answer

A)  If the elasticity of demand is greater than the elasticity of supply, sellers will receive more of the subsidy. 
B)  If the elasticity of demand is greater than the elasticity of supply, sellers will receive less of the subsidy. 
C)  If the elasticity of demand is less than the elasticity of supply, sellers will receive more of the subsidy. 
D)  If the elasticity of demand is greater than the elasticity of supply, buyers will receive more of the subsidy. 
A)  If the elasticity of demand is greater than the elasticity of supply, sellers will receive more of the subsidy. 
B)  If the elasticity of demand is greater than the elasticity of supply, sellers will receive less of the subsidy. 
C)  If the elasticity of demand is less than the elasticity of supply, sellers will receive more of the subsidy. 
D)  If the elasticity of demand is greater than the elasticity of supply, buyers will receive more of the subsidy.

Question 5

If the demand and supply curves have equal slopes in absolute value, the burden of a commodity tax will be split equally regardless of on whom the tax is placed.

Accepted Answer

A) True 
 B)False

Question 6

Explain in your own words why the imposition of a tax results in a deadweight loss. Given this, should we eliminate all taxes on goods/services because they result in deadweight losses? Explain why or why not.

Accepted Answer

Since imposing a tax increases the price

Question 7

Use the following to answer questions:
Figure: Supply and Demand with Subsidy  
-(Figure: Supply and Demand with Subsidy) Refer to the figure. With a $2-per-unit subsidy, the price received by sellers is ________ and the price paid by consumers is ________.

Accepted Answer

A)  $3; $2 
B)  $2; $4 
C)  $4; $2 
D)  $3; $4 
A)  $3; $2 
B)  $2; $4 
C)  $4; $2 
D)  $3; $4

Question 8

When the federal government provided a subsidy to first-time homebuyers, we expect that it helped first-time homebuyers and home sellers.

Accepted Answer

A) True 
 B)False

Question 9

Assume you are a critic of subsidies for water used in agriculture. Create an argument (using economic theory) that outlines WHY you believe these subsidies to be inefficient.

Accepted Answer

The critique is based on the premise tha

Question 10

The question of who pays the greater amount of a commodity tax is determined by:

Accepted Answer

A)  Congress. 
B)  the President of the United States. 
C)  the relative elasticities of demand and supply. 
D)  the individual who writes the check for the tax. 
A)  Congress. 
B)  the President of the United States. 
C)  the relative elasticities of demand and supply. 
D)  the individual who writes the check for the tax.

Question 11

Which of the following statements is NOT true for a case in which the demand for labor is more elastic than the supply of labor?

Accepted Answer

A)  Firms can substitute capital for labor if the health insurance on labor gets too costly. 
B)  Most workers would continue to work even if their wages were lower because of the cost of health insurance. 
C)  Firms cannot escape the cost of health insurance for labor by employing fewer workers. 
D)  Firms can move overseas if the tax on labor gets too high. 
A)  Firms can substitute capital for labor if the health insurance on labor gets too costly. 
B)  Most workers would continue to work even if their wages were lower because of the cost of health insurance. 
C)  Firms cannot escape the cost of health insurance for labor by employing fewer workers. 
D)  Firms can move overseas if the tax on labor gets too high.

Question 12

Nobel Prize-winning economist Edmund Phelps's plan to institute wage subsidies would:

Accepted Answer

A)  increase employment. 
B)  decrease employment. 
C)  not cost very much. 
D)  help only high-skilled workers. 
A)  increase employment. 
B)  decrease employment. 
C)  not cost very much. 
D)  help only high-skilled workers.

Question 13

As demand becomes more elastic, ceteris paribus, the deadweight loss from a tax:

Accepted Answer

A)  increases. 
B)  remains the same. 
C)  decreases. 
D)  changes unpredictably. 
A)  increases. 
B)  remains the same. 
C)  decreases. 
D)  changes unpredictably.

Question 14

Why are there more births in the United States in late December than in early January?

Accepted Answer

A)  People don't like having babies at Christmas. 
B)  Health risks are higher for babies delivered in January. 
C)  Parents get a tax deduction if babies are born before the year end. 
D)  The exuberance of Christmas causes many pregnant women to go into labor. 
A)  People don't like having babies at Christmas. 
B)  Health risks are higher for babies delivered in January. 
C)  Parents get a tax deduction if babies are born before the year end. 
D)  The exuberance of Christmas causes many pregnant women to go into labor.

Question 15

Ceteris paribus, the total subsidy is largest when:

Accepted Answer

A)  both demand and supply are elastic. 
B)  demand is inelastic and supply is elastic. 
C)  demand is elastic and supply is inelastic. 
D)  both demand and supply are inelastic. 
A)  both demand and supply are elastic. 
B)  demand is inelastic and supply is elastic. 
C)  demand is elastic and supply is inelastic. 
D)  both demand and supply are inelastic.

Question 16

A wage subsidy would:

Accepted Answer

A)  decrease the demand for labor, lowering wages. 
B)  increase the demand for labor, increase the wages received by workers, and lower the wages paid by firms. 
C)  decrease employment by raising the wages paid by firms. 
D)  decrease the supply of labor, driving wages up and employment down. 
A)  decrease the demand for labor, lowering wages. 
B)  increase the demand for labor, increase the wages received by workers, and lower the wages paid by firms. 
C)  decrease employment by raising the wages paid by firms. 
D)  decrease the supply of labor, driving wages up and employment down.

Question 17

For a given set of supply and demand curves, the horizontal location of the tax wedge depends on:

Accepted Answer

A)  whether the tax is imposed on buyers or sellers. 
B)  the amount of the tax. 
C)  whether the tax is a short-run or a long-run tax. 
D)  the number of sellers. 
A)  whether the tax is imposed on buyers or sellers. 
B)  the amount of the tax. 
C)  whether the tax is a short-run or a long-run tax. 
D)  the number of sellers.

Question 18

A commodity tax increases gains from trade.

Accepted Answer

A) True 
 B)False

Question 19

When a tax is imposed on consumers the demand curve will:

Accepted Answer

A)  shift downward by the amount of the tax. 
B)  shift upward by the amount of the tax. 
C)  shift downward by less than the amount of the tax. 
D)  not shift since sellers collect per-unit taxes. 
A)  shift downward by the amount of the tax. 
B)  shift upward by the amount of the tax. 
C)  shift downward by less than the amount of the tax. 
D)  not shift since sellers collect per-unit taxes.

Question 20

Figure: Commodity Tax with Elastic Demand   According to the figure, who bears the greater burden of a commodity tax?

Accepted Answer

A)  The buyer will bear the greater burden of the tax. 
B)  The seller will bear the greater burden of the tax. 
C)  The buyer and the seller will split the tax burden equally. 
D)  The government will bear the full burden of the tax. 
A)  The buyer will bear the greater burden of the tax. 
B)  The seller will bear the greater burden of the tax. 
C)  The buyer and the seller will split the tax burden equally. 
D)  The government will bear the full burden of the tax.

Exam 6: Taxes and Subsidies

Who bears most of the burden of a mandate requiring employers to provide health insurance?

With a subsidy to producers, supply:

Consider the market for gasoline, a good with a relatively low elasticity of demand. Who will bear the majority of a tax imposed on gasoline?

Which of the following statements is correct?

If the demand and supply curves have equal slopes in absolute value, the burden of a commodity tax will be split equally regardless of on whom the tax is placed.

Explain in your own words why the imposition of a tax results in a deadweight loss. Given this, should we eliminate all taxes on goods/services because they result in deadweight losses? Explain why or why not.

Use the following to answer questions: Figure: Supply and Demand with Subsidy -(Figure: Supply and Demand with Subsidy) Refer to the figure. With a $2-per-unit subsidy, the price received by sellers is ________ and the price paid by consumers is ________.

When the federal government provided a subsidy to first-time homebuyers, we expect that it helped first-time homebuyers and home sellers.

Assume you are a critic of subsidies for water used in agriculture. Create an argument (using economic theory) that outlines WHY you believe these subsidies to be inefficient.

The question of who pays the greater amount of a commodity tax is determined by:

Which of the following statements is NOT true for a case in which the demand for labor is more elastic than the supply of labor?

Nobel Prize-winning economist Edmund Phelps's plan to institute wage subsidies would:

As demand becomes more elastic, ceteris paribus, the deadweight loss from a tax:

Why are there more births in the United States in late December than in early January?

Ceteris paribus, the total subsidy is largest when:

A wage subsidy would:

For a given set of supply and demand curves, the horizontal location of the tax wedge depends on:

A commodity tax increases gains from trade.

When a tax is imposed on consumers the demand curve will:

Figure: Commodity Tax with Elastic Demand According to the figure, who bears the greater burden of a commodity tax?

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

Use the following to answer questions: Figure: Supply and Demand with Subsidy -(Figure: Supply and Demand with Subsidy) Refer to the figure. With a $2-per-unit subsidy, the price received by sellers is and the price paid by consumers is .