Question 1

How are price ceilings similar to taxes on producers? How are price floors similar to taxes on consumers? How are both price ceilings and price floors different from taxes?

Accepted Answer

The answer of How are price ceilings similar to taxes...

Question 2

Refer to the graph shown. In equilibrium, consumer surplus is equal to:

Accepted Answer

A) 600. 
B) 1,200. 
C) 1,400. 
D) 2,000.

Question 3

A general rule of political economy in a democracy is that when small groups are helped by a government action and large groups are hurt by that action by an equal and offsetting amount, policies tend to reflect:

Accepted Answer

A) the large group's interest. 
B) the small group's interest. 
C) neither group's interest over the other. 
D) the interest of a free market.

Question 4

Refer to the graphs shown. The most tax revenue collected by a given per-unit tax on producers is shown by graphs:

Accepted Answer

A) A and D. 
B) B and C. 
C) C and D. 
D) B and D.

Question 5

Refer to the graph shown. With an effective price floor at Pf, total surplus is reduced by:

Accepted Answer

A) rectangles B and C. 
B) rectangles A and D. 
C) triangles E and F. 
D) rectangle B and triangle E.

Question 6

Refer to the graph shown. When market supply shifts from S0 to S1, the revenue gain to suppliers resulting from increased quantity demanded is shown by area:

Accepted Answer

A) A. 
B) B. 
C) C. 
D) D.

Question 7

As a result of advances in productivity, farmers can produce more at a lower cost. The effect of these changes has been to:

Accepted Answer

A) increase the demand for farm output. 
B) reduce total revenue for farmers as a group. 
C) increase total revenue for farmers as a group. 
D) increase profits for farmers as a group.

Question 8

Refer to the graph shown. With an effective price ceiling at $3, total surplus is reduced by:

Accepted Answer

A) 20. 
B) 30. 
C) 50. 
D) 100.

Question 9

Explain why the person who physically pays the tax is not necessarily the person who bears the tax.Who is most likely to bear the greater proportion of the tax burden? How does this apply to Social Security taxes?

Accepted Answer

The answer of Explain why the person who physically pays...

Question 10

Refer to the graph shown. An effective price ceiling at $3 causes consumer surplus to:

Accepted Answer

A) increase from 80 to 120. 
B) fall from 110 to 80. 
C) increase from 120 to 130. 
D) fall from 130 to 120.

Question 11

Refer to the graph shown. Initially, the market is in equilibrium with price equal to $3 and quantity equal to 100. Government imposes a tax on suppliers of $1 per unit. The effect of the tax is to:

Accepted Answer

A) give government tax revenues of $100. 
B) give government tax revenues of $400. 
C) reduce producer surplus by $100. 
D) reduce producer surplus by $400.

Question 12

Refer to the graph shown. When the market is in equilibrium, consumer surplus is equal to:

Accepted Answer

A) 1,125. 
B) 1,500. 
C) 2,250. 
D) 2,500.

Question 13

Refer to the graph shown. Assume the market is initially in equilibrium at point b in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S0 to S1. The lost producer surplus of this tax is equal to the area:

Accepted Answer

A) P1(P2 − t)ab. 
B) P1P2cb. 
C) abc. 
D) bcd.

Question 14

Taxes:

Accepted Answer

A) cause market shortages. 
B) cause the equilibrium quantity to increase. 
C) create a wedge between the price consumers pay and the price suppliers receive. 
D) cause the price consumers pay to equal the price suppliers receive.

Question 15

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, it will collect tax revenue in the amount of:

Accepted Answer

A) $60. 
B) $80. 
C) $100. 
D) $120.

Question 16

If demand is perfectly inelastic, the burden of a tax on suppliers is borne:

Accepted Answer

A) entirely by the suppliers. 
B) entirely by the consumers. 
C) mostly by the suppliers and partly by the consumers if the demand curve is inelastic. 
D) partly by the suppliers and mostly by the consumers if the demand curve is elastic.

Question 17

If the demand curve is perfectly elastic, the burden of a tax on suppliers is borne:

Accepted Answer

A) entirely by the suppliers. 
B) entirely by the consumers. 
C) mostly by the suppliers and partly by the consumers if the supply curve is inelastic. 
D) partly by the suppliers and mostly by the consumers if the supply curve is elastic.

Question 18

Suppose elasticity of demand is 0.2, elasticity of supply is 0.7, and a 10 percent excise tax is levied on producers. Which of the following changes will reduce the share of the tax paid by consumers?

Accepted Answer

A) Elasticity of supply falls to 0.3. 
B) Elasticity of demand falls to 0.1. 
C) The tax is increased to 20 percent. 
D) Nothing will change the burden of the tax.

Question 19

Suppose the equilibrium price of textbooks is $40 a textbook. At that price, the quantity of textbooks demanded and supplied is 20,000. If a $5 tax per textbook paid by consumers increases the price paid by consumers to $42 a textbook and reduces the equilibrium quantity sold to 18,000, elasticity of:

Accepted Answer

A) demand is 1.3 and elasticity of supply is 2.0. Consumers pay a larger portion of the tax. 
B) demand is 0.7 and elasticity of supply is 0.5. Consumers pay a smaller portion of the tax. 
C) supply is 1.3 and elasticity of demand is 2.0. Suppliers pay a larger portion of the tax. 
D) supply is 0.7 and elasticity of demand is 0.5. Suppliers pay a smaller portion of the tax.

Question 20

Refer to the graph shown. Initially, the market is in equilibrium where the demand curve intersects S0. In the initial equilibrium, producer surplus is equal to:

Accepted Answer

A) 900. 
B) 1,800. 
C) 4,500. 
D) 6,000.

Exam 7: Taxation and Government Intervention