Question 1

Which of the following examples illustrates a regressive income tax?

Accepted Answer

A) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $90 in taxes. 
B) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes. 
C) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $110 in taxes. 
D) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $125 in taxes. 
A) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $90 in taxes. 
B) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes. 
C) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $110 in taxes. 
D) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $125 in taxes.

Question 2

Use the figure below to answer the following question(s).
Figure 4-8  
-Refer to Figure 4-8. The supply curve S1 and the demand curve D indicate initial conditions in the market for soft coal. A $40-per-ton tax on soft coal is levied, shifting the supply curve from S1 to S2. Which of the following states the actual burden of the tax?

Accepted Answer

A) $10 for buyers and $30 for sellers 
B) $30 for buyers and $10 for sellers 
C) The entire $40 falls on sellers. 
D) The entire $40 falls on buyers. 
A) $10 for buyers and $30 for sellers 
B) $30 for buyers and $10 for sellers 
C) The entire $40 falls on sellers. 
D) The entire $40 falls on buyers.

Question 3

When the price of a good is legally set below the equilibrium level, a shortage often results. This shortage

Accepted Answer

A) is a temporary failure of the market mechanism. 
B) is the result of a shift in demand. 
C) is the result of a shift in supply. 
D) occurs because the price ceiling prevents the market mechanism from establishing an equilibrium price. 
A) is a temporary failure of the market mechanism. 
B) is the result of a shift in demand. 
C) is the result of a shift in supply. 
D) occurs because the price ceiling prevents the market mechanism from establishing an equilibrium price.

Question 4

Figure 4-24  
-Refer to Figure 4-24. The equilibrium price before the tax is imposed is

Accepted Answer

A) P1. 
B) P2. 
C) P3. 
D) None of the above is correct. 
A) P1. 
B) P2. 
C) P3. 
D) None of the above is correct.

Question 5

A payment the government makes to either the buyer or seller, usually on a per-unit basis, when a good or service is purchased or sold is called a

Accepted Answer

A) black market. 
B) interest rate. 
C) subsidy. 
D) tax. 
A) black market. 
B) interest rate. 
C) subsidy. 
D) tax.

Question 6

If the demand for a good is very price elastic, the imposition of a tax on that good

Accepted Answer

A) places the largest portion of the burden on the sellers of that product 
B) places the burden of the tax equally on buyers and sellers 
C) places the largest portion of the tax on consumers 
D) will make demand more elastic than it was before the tax 
E) will make demand more inelastic than it was before the tax 
A) places the largest portion of the burden on the sellers of that product 
B) places the burden of the tax equally on buyers and sellers 
C) places the largest portion of the tax on consumers 
D) will make demand more elastic than it was before the tax 
E) will make demand more inelastic than it was before the tax

Question 7

Black markets that operate outside the legal system are often characterized by

Accepted Answer

A) low profits for suppliers. 
B) lower opportunity costs for suppliers and buyers. 
C) decreased prices. 
D) the use of violence as a means of settling disputes. 
A) low profits for suppliers. 
B) lower opportunity costs for suppliers and buyers. 
C) decreased prices. 
D) the use of violence as a means of settling disputes.

Question 8

Which one of the following will most likely be harmed by legislation exempting teenagers from the minimum wage?

Accepted Answer

A) a high school student seeking a part-time job 
B) a high-skilled, 30-year-old worker who is unlikely to compete with low-skilled teenagers in the employment market 
C) a large family that often employs the services of low-skilled, part-time workers 
D) an illiterate 40-year-old worker with few labor skills 
A) a high school student seeking a part-time job 
B) a high-skilled, 30-year-old worker who is unlikely to compete with low-skilled teenagers in the employment market 
C) a large family that often employs the services of low-skilled, part-time workers 
D) an illiterate 40-year-old worker with few labor skills

Question 9

Use the figure below to answer the following question(s).
Figure 4-7  
-Refer to Figure 4-7. The supply curve S1 and the demand curve D indicate initial conditions in the market for gasoline. A $.60-per-gallon excise tax on gasoline is levied, which shifts the supply curve from S1 to S2. Which of the following states the actual burden of the tax?

Accepted Answer

A) $.50 for buyers and $.10 for sellers 
B) $.50 for sellers and $.10 for buyers 
C) The entire $.60 falls on sellers. 
D) The entire $.60 falls on buyers. 
A) $.50 for buyers and $.10 for sellers 
B) $.50 for sellers and $.10 for buyers 
C) The entire $.60 falls on sellers. 
D) The entire $.60 falls on buyers.

Question 10

A proportional tax is defined as a tax for which the

Accepted Answer

A) average tax rate rises as income increases. 
B) average tax rate falls as income increases. 
C) average tax rate remains constant at all levels of income. 
D) dollar tax liability of those with higher income is the same as the dollar tax liability of those with lower income. 
A) average tax rate rises as income increases. 
B) average tax rate falls as income increases. 
C) average tax rate remains constant at all levels of income. 
D) dollar tax liability of those with higher income is the same as the dollar tax liability of those with lower income.

Question 11

Figure 4-20  
-Refer to Figure 4-20. The price that sellers receive after the tax is imposed is

Accepted Answer

A) $8. 
B) $6. 
C) $5. 
D) $3. 
A) $8. 
B) $6. 
C) $5. 
D) $3.

Question 12

Figure 4-22  
-Refer to Figure 4-22. The equilibrium price in the market before the tax is imposed is

Accepted Answer

A) $1.00. 
B) $3.50. 
C) $5.00. 
D) $6.00. 
A) $1.00. 
B) $3.50. 
C) $5.00. 
D) $6.00.

Question 13

If the Federal government enacts a new excise tax of $1.50 per case of soda. Which of the following is most likely to occur?

Accepted Answer

A) Consumers of soda will pay a higher price and buy a larger quantity. 
B) Consumers of soda will pay a higher price, which will increase the profits of soda companies, inducing them to sell a larger quantity. 
C) Consumers of soda will pay a higher price and buy a smaller quantity. 
D) Consumers of soda will buy less bottled water. 
A) Consumers of soda will pay a higher price and buy a larger quantity. 
B) Consumers of soda will pay a higher price, which will increase the profits of soda companies, inducing them to sell a larger quantity. 
C) Consumers of soda will pay a higher price and buy a smaller quantity. 
D) Consumers of soda will buy less bottled water.

Question 14

Taxes create deadweight losses because they

Accepted Answer

A) reduce profits of firms. 
B) distort incentives. 
C) cause prices to rise. 
D) create revenue for the government. 
A) reduce profits of firms. 
B) distort incentives. 
C) cause prices to rise. 
D) create revenue for the government.

Question 15

Figure 4-24  
-Refer to Figure 4-24. The price that sellers receive after the tax is imposed is

Accepted Answer

A) P1. 
B) P2. 
C) P3. 
D) impossible to determine from the figure. 
A) P1. 
B) P2. 
C) P3. 
D) impossible to determine from the figure.

Question 16

Figure 4-25  
-Refer to Figure 4-25. The price that sellers receive after the tax is imposed is

Accepted Answer

A) P1. 
B) P2. 
C) P3. 
D) impossible to determine from the figure. 
A) P1. 
B) P2. 
C) P3. 
D) impossible to determine from the figure.

Question 17

Suppose that the federal government levies a 50 cent excise tax on gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the burden of the tax

Accepted Answer

A) will fall primarily on producers. 
B) will fall primarily on consumers. 
C) will be split equally between consumers and producers. 
D) cannot be determined because the burden of a tax is not influenced by the elasticities of supply and demand. 
A) will fall primarily on producers. 
B) will fall primarily on consumers. 
C) will be split equally between consumers and producers. 
D) cannot be determined because the burden of a tax is not influenced by the elasticities of supply and demand.

Question 18

Figure 4-17  
-Refer to Figure 4-17. Which of the following price controls would cause a shortage of 10 units of the good?

Accepted Answer

A) a price ceiling of $5.50 
B) a price floor of $5.50 
C) a price ceiling of $6.50 
D) a price floor of $6.50 
A) a price ceiling of $5.50 
B) a price floor of $5.50 
C) a price ceiling of $6.50 
D) a price floor of $6.50

Question 19

If political officials want to minimize the excess burden accompanying a tax, they should set the tax at a rate

Accepted Answer

A) that will maximize the revenue derived from the tax. 
B) slightly above the rate that will maximize the revenue derived from the tax. 
C) well below the rate that will maximize the revenue derived from the tax. 
D) that is the highest that could possibly be imposed. 
A) that will maximize the revenue derived from the tax. 
B) slightly above the rate that will maximize the revenue derived from the tax. 
C) well below the rate that will maximize the revenue derived from the tax. 
D) that is the highest that could possibly be imposed.

Question 20

An excise tax levied on a product will impose a larger relative burden on consumers (and a smaller relative burden on sellers) when

Accepted Answer

A) the supply of the product is relatively inelastic. 
B) the supply of the product is relatively elastic. 
C) the demand for the product is relatively inelastic. 
D) either b or c is true 
A) the supply of the product is relatively inelastic. 
B) the supply of the product is relatively elastic. 
C) the demand for the product is relatively inelastic. 
D) either b or c is true

Which of the following examples illustrates a regressive income tax?

When the price of a good is legally set below the equilibrium level, a shortage often results. This shortage

Figure 4-24 -Refer to Figure 4-24. The equilibrium price before the tax is imposed is

A payment the government makes to either the buyer or seller, usually on a per-unit basis, when a good or service is purchased or sold is called a

If the demand for a good is very price elastic, the imposition of a tax on that good

Black markets that operate outside the legal system are often characterized by

Which one of the following will most likely be harmed by legislation exempting teenagers from the minimum wage?

A proportional tax is defined as a tax for which the

Figure 4-20 -Refer to Figure 4-20. The price that sellers receive after the tax is imposed is

Figure 4-22 -Refer to Figure 4-22. The equilibrium price in the market before the tax is imposed is

If the Federal government enacts a new excise tax of $1.50 per case of soda. Which of the following is most likely to occur?

Taxes create deadweight losses because they

Figure 4-24 -Refer to Figure 4-24. The price that sellers receive after the tax is imposed is

Figure 4-25 -Refer to Figure 4-25. The price that sellers receive after the tax is imposed is

Suppose that the federal government levies a 50 cent excise tax on gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the burden of the tax

Figure 4-17 -Refer to Figure 4-17. Which of the following price controls would cause a shortage of 10 units of the good?

If political officials want to minimize the excess burden accompanying a tax, they should set the tax at a rate

An excise tax levied on a product will impose a larger relative burden on consumers (and a smaller relative burden on sellers) when

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 4: Supply and Demand: Applications and Extensions

Which of the following examples illustrates a regressive income tax?

When the price of a good is legally set below the equilibrium level, a shortage often results. This shortage

Figure 4-24 -Refer to Figure 4-24. The equilibrium price before the tax is imposed is

A payment the government makes to either the buyer or seller, usually on a per-unit basis, when a good or service is purchased or sold is called a

If the demand for a good is very price elastic, the imposition of a tax on that good

Black markets that operate outside the legal system are often characterized by

Which one of the following will most likely be harmed by legislation exempting teenagers from the minimum wage?

A proportional tax is defined as a tax for which the

Figure 4-20 -Refer to Figure 4-20. The price that sellers receive after the tax is imposed is

Figure 4-22 -Refer to Figure 4-22. The equilibrium price in the market before the tax is imposed is

If the Federal government enacts a new excise tax of $1.50 per case of soda. Which of the following is most likely to occur?

Taxes create deadweight losses because they

Figure 4-24 -Refer to Figure 4-24. The price that sellers receive after the tax is imposed is

Figure 4-25 -Refer to Figure 4-25. The price that sellers receive after the tax is imposed is

Suppose that the federal government levies a 50 cent excise tax on gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the burden of the tax

Figure 4-17 -Refer to Figure 4-17. Which of the following price controls would cause a shortage of 10 units of the good?

If political officials want to minimize the excess burden accompanying a tax, they should set the tax at a rate

An excise tax levied on a product will impose a larger relative burden on consumers (and a smaller relative burden on sellers) when

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters