Question 1

Which of the following takes place when a tax is placed on a good?

Accepted Answer

A)  a decrease in the price buyers pay, an increase in the price sellers receive, and a decrease in the quantity sold 
B)  an increase in the price buyers pay, a decrease in the price sellers receive, and an increase in the quantity sold 
C)  a decrease in the price buyers pay, an increase in the price sellers receive, and an increase in the quantity sold 
D)  an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold 
A)  a decrease in the price buyers pay, an increase in the price sellers receive, and a decrease in the quantity sold 
B)  an increase in the price buyers pay, a decrease in the price sellers receive, and an increase in the quantity sold 
C)  a decrease in the price buyers pay, an increase in the price sellers receive, and an increase in the quantity sold 
D)  an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold D

Question 2

The surplus caused by a binding price floor will be greatest if

Accepted Answer

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

Question 3

Government-created price floors are typically imposed to

Accepted Answer

A)  help consumers. 
B)  help producers. 
C)  raise tax revenue. 
D)  shift the supply curve to the right. 
A)  help consumers. 
B)  help producers. 
C)  raise tax revenue. 
D)  shift the supply curve to the right. B

Question 4

The government is thinking about increasing the tax on petrol to raise additional revenue rather than to promote conservation. The tax will result in the greatest amount of tax revenue if the price elasticity of demand for petrol equals

Accepted Answer

A)  1.8 
B)  1.4 
C)  1.0 
D)  0.5 
A)  1.8 
B)  1.4 
C)  1.0 
D)  0.5

Question 5

The ultimate burden of a tax falls most heavily on the side of the market that is less elastic.

Accepted Answer

A) True 
 B)False

Question 6

Using the graph below, analyze the effect a €300 price ceiling would have on the market for ten-speed bicycles. Would this be a binding price ceiling?

Accepted Answer

For this example, a €300 price ceiling w

Question 7

A tax of €1.00 per litre on petrol

Accepted Answer

A)  places a tax wedge of €1.00 between the price the buyers pay and the price the sellers receive. 
B)  decreases the price the sellers receive by €1.00 per litre. 
C)  increases the price the buyers pay by €1.00 per litre. 
D)  increases the price the buyers pay by precisely €0.50 and reduces the price received by sellers by precisely €0.50. 
A)  places a tax wedge of €1.00 between the price the buyers pay and the price the sellers receive. 
B)  decreases the price the sellers receive by €1.00 per litre. 
C)  increases the price the buyers pay by €1.00 per litre. 
D)  increases the price the buyers pay by precisely €0.50 and reduces the price received by sellers by precisely €0.50.

Question 8

Rent controls typically end up

Accepted Answer

A)  increasing rents received by landlords. 
B)  raising property values. 
C)  encouraging landlords to overspend for maintenance. 
D)  discouraging new housing construction. 
A)  increasing rents received by landlords. 
B)  raising property values. 
C)  encouraging landlords to overspend for maintenance. 
D)  discouraging new housing construction.

Question 9

The burden of a tax falls more heavily on the buyers in a market when

Accepted Answer

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

Question 10

A price floor

Accepted Answer

A)  always determines the price at which a good must be sold. 
B)  sets a legal maximum on the price at which a good can be sold. 
C)  is not a binding constraint if it is set above the equilibrium price. 
D)  sets a legal minimum on the price at which a good can be sold. 
A)  always determines the price at which a good must be sold. 
B)  sets a legal maximum on the price at which a good can be sold. 
C)  is not a binding constraint if it is set above the equilibrium price. 
D)  sets a legal minimum on the price at which a good can be sold.

Question 11

What is the difference between a price ceiling and a price floor?

Accepted Answer

A price ceiling or a price cap is a lega

Question 12

Which of the following statements is true if the government places a price ceiling on petrol at €1.50 per litre and the equilibrium price is €1.00 per litre?

Accepted Answer

A)  A significant increase in the demand for petrol could cause the price ceiling to become a binding constraint. 
B)  A significant increase in the supply of petrol could cause the price ceiling to become a binding constraint. 
C)  There will be a shortage of petrol. 
D)  There will be a surplus of petrol. 
A)  A significant increase in the demand for petrol could cause the price ceiling to become a binding constraint. 
B)  A significant increase in the supply of petrol could cause the price ceiling to become a binding constraint. 
C)  There will be a shortage of petrol. 
D)  There will be a surplus of petrol.

Question 13

If the government imposes a binding price floor on sugar, it may also have to

Accepted Answer

A)  establish programs to expand supply in the private sector. 
B)  establish programs to reduce demand in the private sector. 
C)  produce some sugar itself. 
D)  purchase the surplus sugar. 
A)  establish programs to expand supply in the private sector. 
B)  establish programs to reduce demand in the private sector. 
C)  produce some sugar itself. 
D)  purchase the surplus sugar.

Question 14

Which of the following statements about the burden of a tax is correct?

Accepted Answer

A)  The tax burden generated from a tax placed on a good that consumers perceive to be a necessity will fall most heavily on the sellers of the good. 
B)  The burden of a tax falls on the side of the market (buyers or sellers) from which it is collected. 
C)  The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation. 
D)  The tax burden falls most heavily on the side of the market (buyers or sellers) that is most willing to leave the market when price movements are unfavourable to them. 
A)  The tax burden generated from a tax placed on a good that consumers perceive to be a necessity will fall most heavily on the sellers of the good. 
B)  The burden of a tax falls on the side of the market (buyers or sellers) from which it is collected. 
C)  The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation. 
D)  The tax burden falls most heavily on the side of the market (buyers or sellers) that is most willing to leave the market when price movements are unfavourable to them.

Question 15

A subsidy given to suppliers has the effect of shifting the demand curve outwards.

Accepted Answer

A) True 
 B)False

Question 16

For a price ceiling to be a binding constraint on the market, the government must set it

Accepted Answer

A)  above the equilibrium price. 
B)  below the equilibrium price. 
C)  precisely at the equilibrium price. 
D)  at any price because all price ceilings are binding constraints. 
A)  above the equilibrium price. 
B)  below the equilibrium price. 
C)  precisely at the equilibrium price. 
D)  at any price because all price ceilings are binding constraints.

Question 17

How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.

Accepted Answer

@#IMG-DLM& The tax burden fall

Question 18

A subsidy is the opposite of a tax. The government pays buyers a €0.50 subsidy for each bus ticket purchased.
a) What happens to the effective price paid by consumers buying bus tickets, the effective price received by bus companies and the quantity traded? Create a graph to justify your answer.
b) Who gains and who loses from this policy?

Accepted Answer

@#IMG-DLM& a) The effect of a €0.50 per bus ticket

Question 19

Refer to the graph below. Which of the following statements is correct?

Accepted Answer

A)  The amount of the tax per unit is €6. 
B)  The tax leaves the size of the market unchanged. 
C)  The tax is levied on buyers of the good, rather than on sellers. 
D)  All of the above are correct. 
A)  The amount of the tax per unit is €6. 
B)  The tax leaves the size of the market unchanged. 
C)  The tax is levied on buyers of the good, rather than on sellers. 
D)  All of the above are correct.

Question 20

The tax burden will fall most heavily on sellers of the good when the demand curve

Accepted Answer

A)  is relatively steep, and the supply curve is relatively flat. 
B)  is relatively flat, and the supply curve is relatively steep. 
C)  and the supply curve are both relatively flat. 
D)  and the supply curve are both relatively steep. 
A)  is relatively steep, and the supply curve is relatively flat. 
B)  is relatively flat, and the supply curve is relatively steep. 
C)  and the supply curve are both relatively flat. 
D)  and the supply curve are both relatively steep.

Exam 8: Supply, Demand and Government Policies

Which of the following takes place when a tax is placed on a good?

The surplus caused by a binding price floor will be greatest if

Government-created price floors are typically imposed to

The government is thinking about increasing the tax on petrol to raise additional revenue rather than to promote conservation. The tax will result in the greatest amount of tax revenue if the price elasticity of demand for petrol equals

The ultimate burden of a tax falls most heavily on the side of the market that is less elastic.

Using the graph below, analyze the effect a €300 price ceiling would have on the market for ten-speed bicycles. Would this be a binding price ceiling?

A tax of €1.00 per litre on petrol

Rent controls typically end up

The burden of a tax falls more heavily on the buyers in a market when

A price floor

What is the difference between a price ceiling and a price floor?

Which of the following statements is true if the government places a price ceiling on petrol at €1.50 per litre and the equilibrium price is €1.00 per litre?

If the government imposes a binding price floor on sugar, it may also have to

Which of the following statements about the burden of a tax is correct?

A subsidy given to suppliers has the effect of shifting the demand curve outwards.

For a price ceiling to be a binding constraint on the market, the government must set it

How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.

Refer to the graph below. Which of the following statements is correct?

The tax burden will fall most heavily on sellers of the good when the demand curve

What Is Economics

Thinking Like an Economist

The Market Forces of Supply and Demand

Elasticity and Its Applications

Background to Demand: Consumer Choices

Background to Supply: Firms in Competitive Markets

Consumers, Producers and the Efficiency of Markets

The Tax System

Public Goods, Common Resources and Merit Goods

Market Failure and Externalities

Information and Behavioural Economics

Firms Production Decisions

Market Structures I: Monopoly

Market Structures Ii: Monopolistic Competition

Market Structures Iii: Oligopoly

The Economics of Factor Markets

Income Inequality and Poverty

Interdependence and the Gains From Trade

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

Issues in Financial Markets

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Keynesian Economics and the Is-Lm Analysis

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Supply-Side Policies

Common Currency Areas and European Monetary Union

The Financial Crisis and Sovereign Debt

Filters