Question 1

Figure 4-18   Refer to Figure 4-18. The price of the good would continue to serve as the rationing mechanism if

Accepted Answer

A)  a price ceiling of $4.00 were imposed. 
B)  a price ceiling of $5.00 were imposed. 
C)  a price floor of $3.00 were imposed. 
D)  All of the above are correct. 
A)  a price ceiling of $4.00 were imposed. 
B)  a price ceiling of $5.00 were imposed. 
C)  a price floor of $3.00 were imposed. 
D)  All of the above are correct.

Question 2

Which of the following is a major disadvantage of setting the price of a good below equilibrium and using waiting in line rather than price to ration the good?

Accepted Answer

A)  Compared to price rationing, waiting in line is unfair since it is easier for those with higher incomes to wait in line. 
B)  Waiting in line imposes a cost on the consumer; paying higher prices does not. 
C)  Both waiting in line and higher prices are costly to consumers, but unlike the payment of a higher price, waiting in line does not provide suppliers with an incentive to expand future output. 
D)  Waiting in line benefits consumers at the expense of producers. 
A)  Compared to price rationing, waiting in line is unfair since it is easier for those with higher incomes to wait in line. 
B)  Waiting in line imposes a cost on the consumer; paying higher prices does not. 
C)  Both waiting in line and higher prices are costly to consumers, but unlike the payment of a higher price, waiting in line does not provide suppliers with an incentive to expand future output. 
D)  Waiting in line benefits consumers at the expense of producers.

Question 3

Approximately 50,000 luxury boats (priced $100,000 or more) are currently produced each year. Using the economic way of thinking, how much revenue would the government actually generate with a $10,000 excise tax on luxury boats?

Accepted Answer

A)  $500 million 
B)  less than $500 million 
C)  more than $500 million 
D)  approximately $5 billion 
A)  $500 million 
B)  less than $500 million 
C)  more than $500 million 
D)  approximately $5 billion

Question 4

The Laffer curve indicates that

Accepted Answer

A)  when tax rates are low, a decrease in tax rates is likely to increase tax revenues. 
B)  when tax rates are high, an increase in tax rates is likely to a decrease in tax revenues. 
C)  tax revenue will always increase when tax rates are increased. 
D)  tax revenue will always decrease when tax rates are lowered. 
A)  when tax rates are low, a decrease in tax rates is likely to increase tax revenues. 
B)  when tax rates are high, an increase in tax rates is likely to a decrease in tax revenues. 
C)  tax revenue will always increase when tax rates are increased. 
D)  tax revenue will always decrease when tax rates are lowered.

Question 5

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 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

Figure 4-25   Refer to Figure 4-25. Producer surplus before the tax was levied is represented by area

Accepted Answer

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

Question 8

If the federal government placed a 50 cent per pack excise tax on cigarette manufacturers, and if as a result, the price to consumers of a pack of cigarettes went up by 40 cents, the

Accepted Answer

A)  actual burden of this tax falls mostly on consumers. 
B)  actual burden of this tax falls mostly on manufacturers. 
C)  actual burden of the tax would be shared equally by producers and consumers. 
D)  tax would clearly be a progressive tax. 
A)  actual burden of this tax falls mostly on consumers. 
B)  actual burden of this tax falls mostly on manufacturers. 
C)  actual burden of the tax would be shared equally by producers and consumers. 
D)  tax would clearly be a progressive tax.

Question 9

When a government subsidy is granted to the buyers of a product, sellers can end up capturing some of the benefit because

Accepted Answer

A)  the market price of the product will fall in response to the subsidy. 
B)  the market price of the product will rise in response to the subsidy. 
C)  the market price of the product will not change in response to the subsidy. 
D)  buyers will reduce their demand for the product. 
A)  the market price of the product will fall in response to the subsidy. 
B)  the market price of the product will rise in response to the subsidy. 
C)  the market price of the product will not change in response to the subsidy. 
D)  buyers will reduce their demand for the product.

Question 10

Figure 4-22   Refer to Figure 4-22. From this tax the government will collect a total of

Accepted Answer

A)  $125.00. 
B)  $175.00. 
C)  $200.00. 
D)  $250.00. 
A)  $125.00. 
B)  $175.00. 
C)  $200.00. 
D)  $250.00.

Question 11

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?

Accepted Answer

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

Question 12

Figure 4-25   Refer to Figure 4-25. The tax causes a reduction in consumer 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 13

Which of the following statements is true?

Accepted Answer

A)  The quality of products sold in black markets tends to be less reliable than the quality of products in legal markets. 
B)  For otherwise identical products, the price of products in black markets tends to be higher than in legal markets. 
C)  The rate of violence is higher in black markets than in legal markets. 
D)  All of the above are true. 
A)  The quality of products sold in black markets tends to be less reliable than the quality of products in legal markets. 
B)  For otherwise identical products, the price of products in black markets tends to be higher than in legal markets. 
C)  The rate of violence is higher in black markets than in legal markets. 
D)  All of the above are true.

Question 14

In a market economy, which of the following would most likely cause a prolonged grain surplus?

Accepted Answer

A)  a decrease in the demand for grain 
B)  an increase in the supply of grain 
C)  imposition of a price floor above the equilibrium price of grain 
D)  imposition of a price ceiling below the equilibrium price of grain 
A)  a decrease in the demand for grain 
B)  an increase in the supply of grain 
C)  imposition of a price floor above the equilibrium price of grain 
D)  imposition of a price ceiling below the equilibrium price of grain

Question 15

A tax imposed on the sellers of a good will

Accepted Answer

A)  raise the price paid by buyers and lower the equilibrium quantity. 
B)  raise the price paid by buyers and raise the equilibrium quantity. 
C)  raise the net price received by sellers and raise the equilibrium quantity. 
D)  raise the net price received by sellers and lower the equilibrium quantity. 
A)  raise the price paid by buyers and lower the equilibrium quantity. 
B)  raise the price paid by buyers and raise the equilibrium quantity. 
C)  raise the net price received by sellers and raise the equilibrium quantity. 
D)  raise the net price received by sellers and lower the equilibrium quantity.

Question 16

The imposition of price ceilings on a market often results in

Accepted Answer

A)  an increase in investment in the industry. 
B)  a persistent surplus in the market. 
C)  an increase in expenditures in the black market. 
D)  lower prices being offered on the black market. 
A)  an increase in investment in the industry. 
B)  a persistent surplus in the market. 
C)  an increase in expenditures in the black market. 
D)  lower prices being offered on the black market.

Question 17

Figure 4-25   Refer to Figure 4-25. The price that buyers pay 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 18

Use the figure below to answer the following question(s). Figure 4-10
  Figure 4-10 shows the market for a good before and after an excise tax is imposed. What does the triangular area C represent?

Accepted Answer

A)  the deadweight loss accompanying the tax 
B)  the tax revenue derived from sellers 
C)  the tax revenue derived from buyers 
D)  the total tax revenue generated by the tax 
A)  the deadweight loss accompanying the tax 
B)  the tax revenue derived from sellers 
C)  the tax revenue derived from buyers 
D)  the total tax revenue generated by the tax

Question 19

Which of the following is the most likely outcome of minimum wage laws?

Accepted Answer

A)  an increase in both the quantity of labor supplied by workers and the quantity of labor demanded by firms 
B)  an increase in the quantity of labor supplied by workers and a decrease in the quantity of labor demanded by firms 
C)  a decrease in the quantity of labor supplied by workers and an increase in the quantity of labor demanded by firms 
D)  a decrease in both the quantity of labor supplied by workers and the quantity of labor demanded by firms 
A)  an increase in both the quantity of labor supplied by workers and the quantity of labor demanded by firms 
B)  an increase in the quantity of labor supplied by workers and a decrease in the quantity of labor demanded by firms 
C)  a decrease in the quantity of labor supplied by workers and an increase in the quantity of labor demanded by firms 
D)  a decrease in both the quantity of labor supplied by workers and the quantity of labor demanded by firms

Question 20

The more elastic the supply of a product, the more likely it is that the

Accepted Answer

A)  burden of a tax on the product will fall on sellers. 
B)  burden of a tax on the product will fall on buyers. 
C)  burden of a tax on the product will fall equally on both buyers and sellers. 
D)  deadweight loss of the tax will be smaller. 
A)  burden of a tax on the product will fall on sellers. 
B)  burden of a tax on the product will fall on buyers. 
C)  burden of a tax on the product will fall equally on both buyers and sellers. 
D)  deadweight loss of the tax will be smaller.

Figure 4-18 Refer to Figure 4-18. The price of the good would continue to serve as the rationing mechanism if

Which of the following is a major disadvantage of setting the price of a good below equilibrium and using waiting in line rather than price to ration the good?

Approximately 50,000 luxury boats (priced $100,000 or more) are currently produced each year. Using the economic way of thinking, how much revenue would the government actually generate with a $10,000 excise tax on luxury boats?

The Laffer curve indicates that

Taxes create deadweight losses because they

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

Figure 4-25 Refer to Figure 4-25. Producer surplus before the tax was levied is represented by area

If the federal government placed a 50 cent per pack excise tax on cigarette manufacturers, and if as a result, the price to consumers of a pack of cigarettes went up by 40 cents, the

When a government subsidy is granted to the buyers of a product, sellers can end up capturing some of the benefit because

Figure 4-22 Refer to Figure 4-22. From this tax the government will collect a total of

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?

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

Which of the following statements is true?

In a market economy, which of the following would most likely cause a prolonged grain surplus?

A tax imposed on the sellers of a good will

The imposition of price ceilings on a market often results in

Figure 4-25 Refer to Figure 4-25. The price that buyers pay after the tax is imposed is

Use the figure below to answer the following question(s). Figure 4-10 Figure 4-10 shows the market for a good before and after an excise tax is imposed. What does the triangular area C represent?

Which of the following is the most likely outcome of minimum wage laws?

The more elastic the supply of a product, the more likely it is that the

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

Special Topics

Filters

Exam 4: Supply and Demand: Applications and Extensions

Figure 4-18 Refer to Figure 4-18. The price of the good would continue to serve as the rationing mechanism if

Which of the following is a major disadvantage of setting the price of a good below equilibrium and using waiting in line rather than price to ration the good?

Approximately 50,000 luxury boats (priced $100,000 or more) are currently produced each year. Using the economic way of thinking, how much revenue would the government actually generate with a $10,000 excise tax on luxury boats?

The Laffer curve indicates that

Taxes create deadweight losses because they

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

Figure 4-25 Refer to Figure 4-25. Producer surplus before the tax was levied is represented by area

If the federal government placed a 50 cent per pack excise tax on cigarette manufacturers, and if as a result, the price to consumers of a pack of cigarettes went up by 40 cents, the

When a government subsidy is granted to the buyers of a product, sellers can end up capturing some of the benefit because

Figure 4-22 Refer to Figure 4-22. From this tax the government will collect a total of

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?

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

Which of the following statements is true?

In a market economy, which of the following would most likely cause a prolonged grain surplus?

A tax imposed on the sellers of a good will

The imposition of price ceilings on a market often results in

Figure 4-25 Refer to Figure 4-25. The price that buyers pay after the tax is imposed is

Use the figure below to answer the following question(s). Figure 4-10 Figure 4-10 shows the market for a good before and after an excise tax is imposed. What does the triangular area C represent?

Which of the following is the most likely outcome of minimum wage laws?

The more elastic the supply of a product, the more likely it is that the

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

Special Topics

Filters