Question 1

The actual benefit of a government subsidy is determined primarily by

Accepted Answer

A)  the elasticities of demand and supply. 
B)  the legal (or statutory) assignment of the subsidy 
C)  the number of exchanges that are made possible as a result of the subsidy. 
D)  whether the subsidy is paid by cash or check. 
A)  the elasticities of demand and supply. 
B)  the legal (or statutory) assignment of the subsidy 
C)  the number of exchanges that are made possible as a result of the subsidy. 
D)  whether the subsidy is paid by cash or check.

Question 2

Figure 4-25  
Refer to Figure 4-25. The tax causes a reduction in producer surplus that is represented by area

Accepted Answer

A)  A. 
B)  B + C. 
C)  D + E. 
D)  F. 
A)  A. 
B)  B + C. 
C)  D + E. 
D)  F.

Question 3

If the government wants to generate large revenues from placing a tax on the consumption of a particular good, it should choose a good for which

Accepted Answer

A)  the demand is price elastic 
B)  the demand is unitary elastic 
C)  the demand is price inelastic 
D)  there are many good substitutes available for the good 
A)  the demand is price elastic 
B)  the demand is unitary elastic 
C)  the demand is price inelastic 
D)  there are many good substitutes available for the good

Question 4

Which of the following is correct?

Accepted Answer

A)  An increase in the number of students choosing to major in marketing would likely lead to an increase in the wage earned by marketing graduates. 
B)  A new law allowing nurses to offer patients some of the medical services that are currently only available through doctors would increase the wage rate earned by doctors. 
C)  An increase in the demand for newly constructed homes would lead to a reduction in the price of lumber. 
D)  New licensing requirements that substantially lowered the number of plumbers would likely lead to an increase in the wage rate of plumbers. 
A)  An increase in the number of students choosing to major in marketing would likely lead to an increase in the wage earned by marketing graduates. 
B)  A new law allowing nurses to offer patients some of the medical services that are currently only available through doctors would increase the wage rate earned by doctors. 
C)  An increase in the demand for newly constructed homes would lead to a reduction in the price of lumber. 
D)  New licensing requirements that substantially lowered the number of plumbers would likely lead to an increase in the wage rate of plumbers.

Question 5

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because

Accepted Answer

A)  with shortages and waiting lists, they have no incentive to maintain and improve their property. 
B)  they become resigned to the fact that many of their apartments are going to be vacant at any given time. 
C)  with rent control the government guarantees landlords a minimal level of profit. 
D)  with rent control it becomes the government's responsibility to maintain rental housing. 
A)  with shortages and waiting lists, they have no incentive to maintain and improve their property. 
B)  they become resigned to the fact that many of their apartments are going to be vacant at any given time. 
C)  with rent control the government guarantees landlords a minimal level of profit. 
D)  with rent control it becomes the government's responsibility to maintain rental housing.

Question 6

Use the figure below illustrating the impact of an excise tax to answer the following question(s).
Figure 4-6
 
Refer to Figure 4-6. The amount of the actual tax burden paid by consumers and producers is

Accepted Answer

A)  $1.00 for consumers and $.50 for producers 
B)  $1.00 for consumers and $1.00 for producers. 
C)  $.25 for consumers and $.75 for producers. 
D)  $.50 for consumers and $.50 for producers. 
A)  $1.00 for consumers and $.50 for producers 
B)  $1.00 for consumers and $1.00 for producers. 
C)  $.25 for consumers and $.75 for producers. 
D)  $.50 for consumers and $.50 for producers.

Question 7

Figure 4-19  
Refer to Figure 4-19. When the price ceiling applies in this market and the supply curve for gasoline shifts from S1 to S2, the resulting quantity of gasoline that is bought and sold is

Accepted Answer

A)  less than Q3. 
B)  Q3 
C)  between Q1 and Q3. 
D)  at least Q1. 
A)  less than Q3. 
B)  Q3 
C)  between Q1 and Q3. 
D)  at least Q1.

Question 8

Use the figure below to answer the following question(s).
Figure 4-8
 
Refer to Figure 4-8. Which of the following is true?

Accepted Answer

A)  The tax increases the price of soft coal by $40 per ton. 
B)  Since the demand for soft coal is more inelastic than the supply, consumers bear most of the burden of the tax. 
C)  Since the demand for soft coal is more elastic than the supply, suppliers of soft coal bear most of the burden of the tax. 
D)  Since the supply of soft coal is highly inelastic, the primary burden of the tax is imposed on the consumers of soft coal. 
A)  The tax increases the price of soft coal by $40 per ton. 
B)  Since the demand for soft coal is more inelastic than the supply, consumers bear most of the burden of the tax. 
C)  Since the demand for soft coal is more elastic than the supply, suppliers of soft coal bear most of the burden of the tax. 
D)  Since the supply of soft coal is highly inelastic, the primary burden of the tax is imposed on the consumers of soft coal.

Question 9

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

Accepted Answer

A)  an increase in demand for unskilled labor 
B)  a decrease in the supply of unskilled labor 
C)  a shortage of unskilled labor 
D)  a surplus of unskilled labor 
A)  an increase in demand for unskilled labor 
B)  a decrease in the supply of unskilled labor 
C)  a shortage of unskilled labor 
D)  a surplus of unskilled labor

Question 10

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,

Accepted Answer

A)  the demand curve for physicals shifts to the right. 
B)  the supply curve for physicals shifts to the left. 
C)  the quantity demanded of physicals increases and the quantity supplied of physicals decreases. 
D)  the number of physicals performed will increase. 
A)  the demand curve for physicals shifts to the right. 
B)  the supply curve for physicals shifts to the left. 
C)  the quantity demanded of physicals increases and the quantity supplied of physicals decreases. 
D)  the number of physicals performed will increase.

Question 11

The excess burden or deadweight loss of a tax refers to the

Accepted Answer

A)  increase in product price as a result of the tax. 
B)  growth in government funded programs as a result of the revenue generated by the tax. 
C)  loss of disposable income consumers suffer from the tax. 
D)  reduction in gains from mutually beneficial exchanges that are eliminated as a result of the tax. 
A)  increase in product price as a result of the tax. 
B)  growth in government funded programs as a result of the revenue generated by the tax. 
C)  loss of disposable income consumers suffer from the tax. 
D)  reduction in gains from mutually beneficial exchanges that are eliminated as a result of the tax.

Question 12

The Laffer Curve indicates that

Accepted Answer

A)  when tax rates are high, a rate reduction may lead to an increase in tax revenue. 
B)  when tax rates are low, an increase in tax rates will generally lead to a reduction in tax revenues. 
C)  an increase in tax rates will always lead to an increase in tax revenues. 
D)  the deadweight losses resulting from taxation are small at the tax rate that maximizes the revenues derived by the government. 
A)  when tax rates are high, a rate reduction may lead to an increase in tax revenue. 
B)  when tax rates are low, an increase in tax rates will generally lead to a reduction in tax revenues. 
C)  an increase in tax rates will always lead to an increase in tax revenues. 
D)  the deadweight losses resulting from taxation are small at the tax rate that maximizes the revenues derived by the government.

Question 13

Deadweight losses are associated with

Accepted Answer

A)  taxes that distort the incentives that people face. 
B)  taxes that target expenditures on survivor's benefits for Social Security. 
C)  taxes that have no efficiency losses. 
D)  lump-sum taxes. 
A)  taxes that distort the incentives that people face. 
B)  taxes that target expenditures on survivor's benefits for Social Security. 
C)  taxes that have no efficiency losses. 
D)  lump-sum taxes.

Question 14

If the demand for a good is highly inelastic, a tax on the good

Accepted Answer

A)  places the burden of the tax equally on buyers and sellers 
B)  permits sellers to pass most of the cost increase resulting from the tax on to the consumers of the product 
C)  reduces the profits earned by sellers since they must write the check to pay the tax 
D)  makes the demand more inelastic 
E)  makes the demand more elastic 
A)  places the burden of the tax equally on buyers and sellers 
B)  permits sellers to pass most of the cost increase resulting from the tax on to the consumers of the product 
C)  reduces the profits earned by sellers since they must write the check to pay the tax 
D)  makes the demand more inelastic 
E)  makes the demand more elastic

Question 15

Suppose that the federal government grants a 50 cent per gallon subsidy to buyers of gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the benefit of the subsidy

Accepted Answer

A)  will go primarily to producers. 
B)  will go primarily to consumers. 
C)  will be split equally between consumers and producers. 
D)  cannot be determined because the actual benefit of a subsidy is not influenced by the elasticities of supply and demand. 
A)  will go primarily to producers. 
B)  will go primarily to consumers. 
C)  will be split equally between consumers and producers. 
D)  cannot be determined because the actual benefit of a subsidy is not influenced by the elasticities of supply and demand.

Question 16

Studies indicate the demand for cigarettes is highly inelastic, while the demand for green peas tends to be elastic. Other things constant, how will this affect the incidence of an excise tax on these products?

Accepted Answer

A)  Consumers will tend to bear a greater share of the burden of an excise tax on cigarettes than of an excise tax on peas. 
B)  Consumers will tend to bear a greater share of the burden of an excise tax on peas than of an excise tax on cigarettes. 
C)  Producers will bear a greater share of the burden of an excise tax on cigarettes than of an excise tax on peas. 
D)  Uncertain; elasticity of demand exerts no impact on how the burden of an excise tax is distributed between consumers and producers. 
A)  Consumers will tend to bear a greater share of the burden of an excise tax on cigarettes than of an excise tax on peas. 
B)  Consumers will tend to bear a greater share of the burden of an excise tax on peas than of an excise tax on cigarettes. 
C)  Producers will bear a greater share of the burden of an excise tax on cigarettes than of an excise tax on peas. 
D)  Uncertain; elasticity of demand exerts no impact on how the burden of an excise tax is distributed between consumers and producers.

Question 17

Figure 4-1  
Figure 4-1 illustrates the market for compact discs. If the government imposes a price floor of $25 for compact discs, which of the following will be true?

Accepted Answer

A)  Consumers would wish to purchase 1,000 compact discs. 
B)  Producers would wish to sell 5,000 compact discs. 
C)  There would be a surplus of 4,000 compact discs. 
D)  All of the above are true. 
A)  Consumers would wish to purchase 1,000 compact discs. 
B)  Producers would wish to sell 5,000 compact discs. 
C)  There would be a surplus of 4,000 compact discs. 
D)  All of the above are true.

Question 18

The large amount of violence associated with the current drug trade is mostly caused by

Accepted Answer

A)  the fact that drug markets must operate outside the normal legal system. 
B)  buyers and sellers often being under the influence of drugs at the time of the transaction. 
C)  buyers and sellers who are often unfamiliar with conducting normal transactions within the legal system. 
D)  the lack of quantity supplied and quantity demand being in balance in black markets because there is no equilibrium price in these markets. 
A)  the fact that drug markets must operate outside the normal legal system. 
B)  buyers and sellers often being under the influence of drugs at the time of the transaction. 
C)  buyers and sellers who are often unfamiliar with conducting normal transactions within the legal system. 
D)  the lack of quantity supplied and quantity demand being in balance in black markets because there is no equilibrium price in these markets.

Question 19

Bill the butcher is upset because the government plans to tax beef $.10 a pound. "I hate paying taxes," he says. "Because of this, I'm raising all my beef prices by $.10 a pound. The consumers will bear this burden, not me." Do you see anything wrong with this way of thinking? Explain.

Accepted Answer

The demand for Bill's beef is probably l

Question 20

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action?

Accepted Answer

A)  There will be a shortage of corn. 
B)  There will be a surplus of corn. 
C)  There will be a decrease in the quantity of corn demanded as the result of the price ceiling. 
D)  There will be an increase in the quantity of corn supplied as the result of the price ceiling. 
A)  There will be a shortage of corn. 
B)  There will be a surplus of corn. 
C)  There will be a decrease in the quantity of corn demanded as the result of the price ceiling. 
D)  There will be an increase in the quantity of corn supplied as the result of the price ceiling.

The actual benefit of a government subsidy is determined primarily by

Figure 4-25 Refer to Figure 4-25. The tax causes a reduction in producer surplus that is represented by area

If the government wants to generate large revenues from placing a tax on the consumption of a particular good, it should choose a good for which

Which of the following is correct?

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because

Use the figure below illustrating the impact of an excise tax to answer the following question(s). Figure 4-6 Refer to Figure 4-6. The amount of the actual tax burden paid by consumers and producers is

Figure 4-19 Refer to Figure 4-19. When the price ceiling applies in this market and the supply curve for gasoline shifts from S₁ to S₂, the resulting quantity of gasoline that is bought and sold is

Use the figure below to answer the following question(s). Figure 4-8 Refer to Figure 4-8. Which of the following is true?

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,

The excess burden or deadweight loss of a tax refers to the

The Laffer Curve indicates that

Deadweight losses are associated with

If the demand for a good is highly inelastic, a tax on the good

Suppose that the federal government grants a 50 cent per gallon subsidy to buyers of gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the benefit of the subsidy

Studies indicate the demand for cigarettes is highly inelastic, while the demand for green peas tends to be elastic. Other things constant, how will this affect the incidence of an excise tax on these products?

Figure 4-1 Figure 4-1 illustrates the market for compact discs. If the government imposes a price floor of $25 for compact discs, which of the following will be true?

The large amount of violence associated with the current drug trade is mostly caused by

Bill the butcher is upset because the government plans to tax beef $.10 a pound. "I hate paying taxes," he says. "Because of this, I'm raising all my beef prices by $.10 a pound. The consumers will bear this burden, not me." Do you see anything wrong with this way of thinking? Explain.

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action?

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

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters

Exam 4: Supply and Demand: Applications and Extensions

The actual benefit of a government subsidy is determined primarily by

Figure 4-25 Refer to Figure 4-25. The tax causes a reduction in producer surplus that is represented by area

If the government wants to generate large revenues from placing a tax on the consumption of a particular good, it should choose a good for which

Which of the following is correct?

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because

Use the figure below illustrating the impact of an excise tax to answer the following question(s). Figure 4-6 Refer to Figure 4-6. The amount of the actual tax burden paid by consumers and producers is

Figure 4-19 Refer to Figure 4-19. When the price ceiling applies in this market and the supply curve for gasoline shifts from S1 to S2, the resulting quantity of gasoline that is bought and sold is

Use the figure below to answer the following question(s). Figure 4-8 Refer to Figure 4-8. Which of the following is true?

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,

The excess burden or deadweight loss of a tax refers to the

The Laffer Curve indicates that

Deadweight losses are associated with

If the demand for a good is highly inelastic, a tax on the good

Suppose that the federal government grants a 50 cent per gallon subsidy to buyers of gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the benefit of the subsidy

Studies indicate the demand for cigarettes is highly inelastic, while the demand for green peas tends to be elastic. Other things constant, how will this affect the incidence of an excise tax on these products?

Figure 4-1 Figure 4-1 illustrates the market for compact discs. If the government imposes a price floor of $25 for compact discs, which of the following will be true?

The large amount of violence associated with the current drug trade is mostly caused by

Bill the butcher is upset because the government plans to tax beef $.10 a pound. "I hate paying taxes," he says. "Because of this, I'm raising all my beef prices by $.10 a pound. The consumers will bear this burden, not me." Do you see anything wrong with this way of thinking? Explain.

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action?

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

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Applying the Basics: Special Topics in Economics

Filters

Figure 4-19 Refer to Figure 4-19. When the price ceiling applies in this market and the supply curve for gasoline shifts from S₁ to S₂, the resulting quantity of gasoline that is bought and sold is