Question 1

The price paid by buyers in a market will increase if the government i) increases a binding price floor in that market.
Ii) increases a binding price ceiling in that market.
Iii) decreases a tax on the good sold in that market.

Accepted Answer

A)  ii) only 
B)  iii) only 
C)  i) and ii) only 
D)  i), ii), and iii)

Question 2

Tax incidence

Accepted Answer

A)  depends on the legislated burden. 
B)  is entirely random. 
C)  depends on the elasticities of supply and demand. 
D)  falls entirely on buyers or entirely on sellers.

Question 3

Figure 6-6 
-Refer to Figure 6-6. Which of the following price ceilings would be binding in this market?

Accepted Answer

A)  $8 
B)  $6 
C)  $12 
D)  $10

Question 4

Binding price floors benefit sellers because they allow sellers to sell all the goods they want at a higher price.

Accepted Answer

A) True 
 B)False

Question 5

When a tax is placed on the buyers of a product, buyers pay

Accepted Answer

A)  more and sellers receive more than they did before the tax. 
B)  more and sellers receive less than they did before the tax. 
C)  less and sellers receive more than they did before the tax. 
D)  less and sellers receive less than they did before the tax.

Question 6

Table 6-3
The following table contains the demand schedule and supply schedule for a market for a particular good. Suppose sellers of the good successfully lobby Congress to impose a price floor $2 above the equilibrium price in this market.
 
-Refer to Table 6-3. Following the imposition of a price floor $2 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting market price is

Accepted Answer

A)  $2. 
B)  $3. 
C)  $4. 
D)  $5.

Question 7

A minimum wage that is set above a market's equilibrium wage will result in an excess

Accepted Answer

A)  demand for labor, that is, unemployment. 
B)  demand for labor, that is, a shortage of workers. 
C)  supply of labor, that is, unemployment. 
D)  supply of labor, that is, a shortage of workers.

Question 8

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 floor at $13 for this product. Initially, is this price floor binding? Suppose that for some reason demand were to decrease to  Would the $13 price floor be binding after the shift in the demand curve? If so, what is the size of the resulting shortage/surplus?

Accepted Answer

The answer of Scenario 6-2
Suppose demand for a product is...

Question 9

Consider the market for gasoline. Buyers

Accepted Answer

A)  and sellers would lobby for a price ceiling. 
B)  and sellers would lobby for a price floor. 
C)  would lobby for a price ceiling, whereas sellers would lobby for a price floor. 
D)  would lobby for a price floor, whereas sellers would lobby for a price ceiling.

Question 10

One disadvantage of government subsidies over price controls is that subsidies

Accepted Answer

A)  prevent the attainment of equilibrium in the markets in which they are imposed. 
B)  make higher taxes necessary. 
C)  are always unfair to those with low incomes. 
D)  cause unemployment.

Question 11

Which of the following causes a shortage of a good?

Accepted Answer

A)  a binding price floor 
B)  a binding price ceiling 
C)  a tax on the good 
D)  None of the above is correct.

Question 12

Figure 6-13
This figure shows the market demand and market supply curves for good X. 
-Refer to Figure 6-13. Which of the following price floors would be binding in this market?

Accepted Answer

A)  $3 
B)  $4 
C)  $5 
D)  $6

Question 13

Figure 6-18
The vertical distance between points A and B represents the tax in the market. 
-Refer to Figure 6-18. The amount of the tax per unit is

Accepted Answer

A)  $6. 
B)  $8. 
C)  $14. 
D)  $18.

Question 14

If the demand curve is more price elastic than the supply curve in a particular market, will the buyers or the sellers bear a larger burden of a per-unit tax imposed on the market?

Accepted Answer

The answer of If the demand curve is more price...

Question 15

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.

Question 16

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the

Accepted Answer

A)  demand curve will shift upward by $20, and the price paid by buyers will decrease by less than $20. 
B)  demand curve will shift upward by $20, and the price paid by buyers will decrease by $20. 
C)  supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20. 
D)  supply curve will shift downward by $20, and the effective price received by sellers will increase by $20.

Question 17

The minimum wage is an example of a

Accepted Answer

A)  price ceiling. 
B)  price floor. 
C)  wage subsidy. 
D)  tax.

Question 18

If a price ceiling is not binding, then

Accepted Answer

A)  there will be a surplus in the market. 
B)  there will be a shortage in the market. 
C)  the market will be less efficient than it would be without the price ceiling. 
D)  there will be no effect on the market price or quantity sold.

Question 19

Figure 6-16 
-Refer to Figure 6-16. In this market, a minimum wage of $2.75 is

Accepted Answer

A)  binding and creates a labor shortage. 
B)  binding and creates unemployment. 
C)  nonbinding and creates a labor shortage. 
D)  nonbinding and creates neither a labor shortage nor unemployment.

Question 20

Figure 6-28 
-Refer to Figure 6-28. Suppose a tax of $4 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed?

Accepted Answer

A)  $4 
B)  between $4 and $7 
C)  between $7 and $10 
D)  $10

Exam 6: Supply, Demand, and Government Policies

The price paid by buyers in a market will increase if the government i) increases a binding price floor in that market. Ii) increases a binding price ceiling in that market. Iii) decreases a tax on the good sold in that market.