Question 1

To say that a price ceiling is nonbinding is to say that the price ceiling

Accepted Answer

A)  results in a surplus. 
B)  is set above the equilibrium price. 
C)  causes quantity demanded to exceed quantity supplied. 
D)  All of the above are correct. 
A)  results in a surplus. 
B)  is set above the equilibrium price. 
C)  causes quantity demanded to exceed quantity supplied. 
D)  All of the above are correct.

Question 2

In the United States, before OPEC increased the price of crude oil in 1973, there was

Accepted Answer

A)  no price ceiling on gasoline. 
B)  a nonbinding price ceiling on gasoline. 
C)  a binding price ceiling on gasoline. 
D)  a nonbinding price floor on gasoline. 
A)  no price ceiling on gasoline. 
B)  a nonbinding price ceiling on gasoline. 
C)  a binding price ceiling on gasoline. 
D)  a nonbinding price floor on gasoline.

Question 3

Which of the following is not a function of prices in a market system?

Accepted Answer

A)  Prices have the crucial job of balancing supply and demand. 
B)  Prices send signals to buyers and sellers to help them make rational economic decisions. 
C)  Prices coordinate economic activity. 
D)  Prices ensure an equal distribution of goods and services among consumers. 
A)  Prices have the crucial job of balancing supply and demand. 
B)  Prices send signals to buyers and sellers to help them make rational economic decisions. 
C)  Prices coordinate economic activity. 
D)  Prices ensure an equal distribution of goods and services among consumers.

Question 4

Figure 6-32  
-Refer to Figure 6-32. If the government set a price floor at $70, would there be a shortage or surplus, and how large would be the shortage/surplus?

Accepted Answer

A price floor set at

Question 5

When government imposes a price ceiling or a price floor on a market,

Accepted Answer

A)  price no longer serves as a rationing device. 
B)  efficiency in the market is enhanced. 
C)  shortages and surpluses are eliminated. 
D)  both buyers and sellers become better off. 
A)  price no longer serves as a rationing device. 
B)  efficiency in the market is enhanced. 
C)  shortages and surpluses are eliminated. 
D)  both buyers and sellers become better off.

Question 6

Buyers and sellers always share the burden of a tax equally.

Accepted Answer

A) True 
 B)False

Question 7

When policymakers set prices by legal decree, they obscure the signals that normally guide the allocation of society's resources.

Accepted Answer

A) True 
 B)False

Question 8

Price controls often hurt those they are trying to help.

Accepted Answer

A) True 
 B)False

Question 9

Figure 6-17
This figure shows the market demand and market supply curves for good Y  
-Refer to Figure 6-17. A government-imposed price of $24 in this market is an example of a

Accepted Answer

A)  binding price ceiling that creates a shortage. 
B)  non-binding price ceiling that creates a shortage. 
C)  binding price floor that creates a surplus. 
D)  non-binding price floor that creates a surplus. 
A)  binding price ceiling that creates a shortage. 
B)  non-binding price ceiling that creates a shortage. 
C)  binding price floor that creates a surplus. 
D)  non-binding price floor that creates a surplus.

Question 10

The minimum wage, if it is binding, raises the incomes of

Accepted Answer

A)  no workers. 
B)  only those workers who cannot find jobs. 
C)  only those workers whose jobs would pay less than the minimum wage if it didn't exist. 
D)  all workers. 
A)  no workers. 
B)  only those workers who cannot find jobs. 
C)  only those workers whose jobs would pay less than the minimum wage if it didn't exist. 
D)  all workers.

Question 11

If a tax is imposed on a market with inelastic demand and elastic supply, then

Accepted Answer

A)  buyers will bear most of the burden of the tax. 
B)  sellers will bear most of the burden of the tax. 
C)  the burden of the tax will be shared equally between buyers and sellers. 
D)  it is impossible to determine how the burden of the tax will be shared. 
A)  buyers will bear most of the burden of the tax. 
B)  sellers will bear most of the burden of the tax. 
C)  the burden of the tax will be shared equally between buyers and sellers. 
D)  it is impossible to determine how the burden of the tax will be shared.

Question 12

Scenario 6-2
Suppose demand for a product is given by the equation   and supply for the product is given by the equation  
-Refer to Scenario 6-2. Suppose the government sets a price ceiling at $12 for this product. Is this price ceiling binding, and what will be the size of the shortage/surplus in this market?

Accepted Answer

The price ceiling wi

Question 13

Figure 6-6  
-Refer to Figure 6-6. If the government imposes a price ceiling of $6 on this market, then there will be

Accepted Answer

A)  no shortage. 
B)  a shortage of 10 units. 
C)  a shortage of 20 units. 
D)  a shortage of 30 units. 
A)  no shortage. 
B)  a shortage of 10 units. 
C)  a shortage of 20 units. 
D)  a shortage of 30 units.

Question 14

Using the graph shown, in which the vertical distance between points A and B represents the tax in the market, answer the following questions.
a. What was the equilibrium price and quantity in this market before the tax?
b. What is the amount of the tax?
c. How much of the tax will the buyers pay?
d. How much of the tax will the sellers pay?
e. How much will the buyer pay for the product after the tax is imposed?
f. How much will the seller receive after the tax is imposed?
g. As a result of the tax, what has happened to the level of market activity?

Accepted Answer

a. $8; 8,000 units
b. $5
c. $3

Question 15

When a free market for a good reaches equilibrium, anyone who is willing and able to sell at the market price can sell the good.

Accepted Answer

A) True 
 B)False

Question 16

After a binding price floor becomes effective, a

Accepted Answer

A)  smaller quantity of the good is bought and sold. 
B)  a larger quantity of the good is demanded. 
C)  a smaller quantity of the good is supplied. 
D)  All of the above are correct. 
A)  smaller quantity of the good is bought and sold. 
B)  a larger quantity of the good is demanded. 
C)  a smaller quantity of the good is supplied. 
D)  All of the above are correct.

Question 17

When policymakers set prices by legal decree, they

Accepted Answer

A)  are usually following the advice of mainstream economists. 
B)  improve the organization of economic activity. 
C)  obscure the signals that normally guide the allocation of society's resources. 
D)  are demonstrating a willingness to sacrifice fairness for the sake of a gain in efficiency. 
A)  are usually following the advice of mainstream economists. 
B)  improve the organization of economic activity. 
C)  obscure the signals that normally guide the allocation of society's resources. 
D)  are demonstrating a willingness to sacrifice fairness for the sake of a gain in efficiency.

Question 18

A tax on buyers shifts the demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is correct? A tax burden

Accepted Answer

A)  falls more heavily on the side of the market that is more elastic. 
B)  falls more heavily on the side of the market that is less elastic. 
C)  falls more heavily on the side of the market that is closest to unit elastic. 
D)  is distributed independently of the relative elasticities of supply and demand. 
A)  falls more heavily on the side of the market that is more elastic. 
B)  falls more heavily on the side of the market that is less elastic. 
C)  falls more heavily on the side of the market that is closest to unit elastic. 
D)  is distributed independently of the relative elasticities of supply and demand.

Question 20

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?

Accepted Answer

A)  The effective price received by sellers is $0.40 per bottle less than it was before the tax. 
B)  Sixty percent of the burden of the tax falls on sellers. 
C)  This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume. 
D)  All of the above are correct. 
A)  The effective price received by sellers is $0.40 per bottle less than it was before the tax. 
B)  Sixty percent of the burden of the tax falls on sellers. 
C)  This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume. 
D)  All of the above are correct.

Exam 6: Supply, Demand, and Government Policies

To say that a price ceiling is nonbinding is to say that the price ceiling

In the United States, before OPEC increased the price of crude oil in 1973, there was

Which of the following is not a function of prices in a market system?

Figure 6-32 -Refer to Figure 6-32. If the government set a price floor at $70, would there be a shortage or surplus, and how large would be the shortage/surplus?

When government imposes a price ceiling or a price floor on a market,

Buyers and sellers always share the burden of a tax equally.

When policymakers set prices by legal decree, they obscure the signals that normally guide the allocation of society's resources.

Price controls often hurt those they are trying to help.

Figure 6-17 This figure shows the market demand and market supply curves for good Y -Refer to Figure 6-17. A government-imposed price of $24 in this market is an example of a

The minimum wage, if it is binding, raises the incomes of

If a tax is imposed on a market with inelastic demand and elastic supply, then

Figure 6-6 -Refer to Figure 6-6. If the government imposes a price ceiling of $6 on this market, then there will be

When a free market for a good reaches equilibrium, anyone who is willing and able to sell at the market price can sell the good.

After a binding price floor becomes effective, a

When policymakers set prices by legal decree, they

A tax on buyers shifts the demand curve to the right.

Which of the following is correct? A tax burden

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Consumers, Producers, and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

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

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

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