Exam 6: Supply, Demand, and Government Policies

You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. George, who is one of your advisors, says that the best way to avoid a shortage of oranges is to take no action at all. Charles, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Otto, a third advisor, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Which of your three advisors is most likely to have studied economics?

Long lines and discrimination are examples of rationing methods that may naturally develop in response to a binding price ceiling.

The rationing mechanisms that develop under binding price floors are usually efficient.

Economists blame the long lines at gasoline stations in the U.S. in the 1970s on

Figure 6-5 -Refer to Figure 6-5. If the horizontal line on the graph represents a price floor, then the price floor is

Figure 6-21 -Refer to Figure 6-21. Suppose buyers, rather than sellers, were required to pay this tax in the same amount per unit as shown in the graph). Relative to the tax on sellers, the tax on buyers would result in

If a tax is levied on the sellers of a product, then the demand curve will

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?

Suppose that in a particular market, the demand curve is highly elastic, and the supply curve is highly inelastic. If a tax is imposed in this market, then the

Figure 6-4 -Refer to Figure 6-4. A government-imposed price of $6 in this market could be an example of a i) binding price ceiling. Ii) non-binding price ceiling. Iii) binding price floor. Iv) non-binding price floor.

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

Figure 6-23 -Refer to Figure 6-23. How much tax revenue does this tax produce for the government?

Figure 6-11 -Refer to Figure 6-11. If the government imposes a price floor at $10, it would be

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

Figure 6-24 -Refer to Figure 6-24. What is the amount of the tax per unit?

Figure 6-25 -Refer to Figure 6-25. The amount of the tax per unit is

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

Which of the following causes the price paid by buyers to be different than the price received by sellers?

Table 6-2 -Refer to Table 6-2. A price ceiling set at $5 will

If a tax is levied on the sellers of a product, then the supply curve will