Question 1

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 2

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.

Question 3

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

Accepted Answer

A) fall on sellers. 
B) fall on buyers. 
C) fall equally on both buyers and sellers. 
D) be borne by the public sector,and not by market participants. 
A) fall on sellers. 
B) fall on buyers. 
C) fall equally on both buyers and sellers. 
D) be borne by the public sector,and not by market participants.

Question 4

A tax on the buyers of coffee will

Accepted Answer

A) increase the price of coffee paid by buyers,increase the net price of coffee received by sellers,and increase the equilibrium quantity of coffee. 
B) decrease the price of coffee paid by buyers,increase the net price of coffee received by sellers,and decrease the equilibrium quantity of coffee. 
C) increase the price of coffee paid by buyers,decrease the net price of coffee received by sellers,and decrease the equilibrium quantity of coffee. 
D) increase the price of coffee paid by buyers,decrease the net price of coffee received by sellers,and increase the equilibrium quantity of coffee. 
A) increase the price of coffee paid by buyers,increase the net price of coffee received by sellers,and increase the equilibrium quantity of coffee. 
B) decrease the price of coffee paid by buyers,increase the net price of coffee received by sellers,and decrease the equilibrium quantity of coffee. 
C) increase the price of coffee paid by buyers,decrease the net price of coffee received by sellers,and decrease the equilibrium quantity of coffee. 
D) increase the price of coffee paid by buyers,decrease the net price of coffee received by sellers,and increase the equilibrium quantity of coffee.

Question 5

Compared to legal markets,black markets have

Accepted Answer

A) products of higher quality. 
B) higher prices. 
C) lower profit rates. 
D) less violence. 
A) products of higher quality. 
B) higher prices. 
C) lower profit rates. 
D) less violence.

Question 6

A subsidy is defined as

Accepted Answer

A) a payment that must be made to the government whenever a good or service is sold. 
B) the number of trades that are eliminated from a market when a tax is imposed. 
C) the difference between total revenue and total cost for a business firm. 
D) a payment to either the buyer or seller of a good or service,usually on a per-unit basis,when a good or service is purchased. 
A) a payment that must be made to the government whenever a good or service is sold. 
B) the number of trades that are eliminated from a market when a tax is imposed. 
C) the difference between total revenue and total cost for a business firm. 
D) a payment to either the buyer or seller of a good or service,usually on a per-unit basis,when a good or service is purchased.

Question 7

Because of price controls in the former Soviet Union,people often waited in long lines for food and other necessities.Modern economic theory would indicate that,relative to price rationing,waiting in line is

Accepted Answer

A) just as efficient. 
B) less efficient because the time spent waiting in line imposes an opportunity cost on the buyer that does not generate revenue for the seller. 
C) more efficient since waiting in line reduces the transaction costs of purchasing goods. 
D) more efficient since waiting in line reduces the cost of the goods to the consumer. 
A) just as efficient. 
B) less efficient because the time spent waiting in line imposes an opportunity cost on the buyer that does not generate revenue for the seller. 
C) more efficient since waiting in line reduces the transaction costs of purchasing goods. 
D) more efficient since waiting in line reduces the cost of the goods to the consumer.

Question 8

If Lex's income increases from $30,000 to $40,000 and his tax liability increases from $6,000 to $10,000,which of the following is true?

Accepted Answer

A) His marginal tax rate is 20 percent in this range. 
B) His average tax rate is 40 percent at his new income level of $40,000. 
C) He faces a regressive tax in this income range. 
D) He faces a progressive tax in this income range. 
A) His marginal tax rate is 20 percent in this range. 
B) His average tax rate is 40 percent at his new income level of $40,000. 
C) He faces a regressive tax in this income range. 
D) He faces a progressive tax in this income range.

Question 9

Use the figure below to answer the following question(s).
Figure 4-13
  
-Refer to Figure 4-13.The supply curve S and the demand curve D₁ indicate initial conditions in the market for flu shots.A new government program is implemented that grants buyers a $25 subsidy when they buy a flu shot,shifting the demand curve from D₁ to D₂.Which of the following is true for this subsidy given the information provided in the exhibit?

Accepted Answer

A) Buyers of flu shots will receive an actual benefit of $10 from the subsidy,while sellers of flu shots will receive an actual benefit of $15 from the subsidy. 
B) Buyers of flu shots will receive an actual benefit of $15 from the subsidy,while sellers of flu shots will receive an actual benefit of $10 from the subsidy. 
C) Buyers of flu shots will receive the full $25 benefit from the subsidy. 
D) Sellers of flu shots will receive the full $25 benefit from the subsidy. 
A) Buyers of flu shots will receive an actual benefit of $10 from the subsidy,while sellers of flu shots will receive an actual benefit of $15 from the subsidy. 
B) Buyers of flu shots will receive an actual benefit of $15 from the subsidy,while sellers of flu shots will receive an actual benefit of $10 from the subsidy. 
C) Buyers of flu shots will receive the full $25 benefit from the subsidy. 
D) Sellers of flu shots will receive the full $25 benefit from the subsidy.

Question 10

Figure 4-24
  
-Refer to Figure 4-24.The amount of the tax on each unit of the good is

Accepted Answer

A) P₃ - P₁. 
B) P₃ - P₂. 
C) P₂ - P₁. 
D) Q₂ - Q₁. 
A) P₃ - P₁. 
B) P₃ - P₂. 
C) P₂ - P₁. 
D) Q₂ - Q₁.

Question 11

Suppose the U.S.Government banned the sale and production of cigarettes.What are likely effects of this action on the market for cigarettes?

Accepted Answer

Several changes are likely to happen in

Question 12

Other things constant,an increase in the demand for motorcycles will

Accepted Answer

A) decrease the price of motorcycles. 
B) decrease the quantity of motorcycles bought and sold. 
C) decrease the demand for motorcycle workers and lower their wages. 
D) increase the demand for motorcycle workers and increase their wages. 
A) decrease the price of motorcycles. 
B) decrease the quantity of motorcycles bought and sold. 
C) decrease the demand for motorcycle workers and lower their wages. 
D) increase the demand for motorcycle workers and increase their wages.

Question 13

Figure 4-20
  
-Refer to Figure 4-20.The burden of the tax on sellers is

Accepted Answer

A) $1.00 per unit. 
B) $1.50 per unit. 
C) $2.00 per unit. 
D) $3.00 per unit. 
A) $1.00 per unit. 
B) $1.50 per unit. 
C) $2.00 per unit. 
D) $3.00 per unit.

Question 14

A tax imposed on the sellers of a good

Accepted Answer

A) raises both the price buyers pay and the net price received by sellers. 
B) raises the price buyers pay and lowers the net price received by sellers. 
C) lowers the price buyers pay and raises the net price received by sellers. 
D) lowers both the price buyers pay and the price received by sellers. 
A) raises both the price buyers pay and the net price received by sellers. 
B) raises the price buyers pay and lowers the net price received by sellers. 
C) lowers the price buyers pay and raises the net price received by sellers. 
D) lowers both the price buyers pay and the price received by sellers.

Question 15

Compared to legal markets,black markets have

Accepted Answer

A) products of higher quality. 
B) similar prices. 
C) lower profit rates. 
D) more violence. 
A) products of higher quality. 
B) similar prices. 
C) lower profit rates. 
D) more violence.

Question 16

Figure 4-20
  
-Refer to Figure 4-20.Suppose the same S and D curves apply,and a tax of the same amount per unit as shown here is imposed.Now,however,the sellers of the good,rather than the buyers,are required to pay the tax to the government.Now,relative to the case depicted in the figure,

Accepted Answer

A) the burden on buyers will be larger and the burden on sellers will be smaller. 
B) the burden on buyers will be smaller and the burden on sellers will be larger. 
C) the burden on buyers will be the same and the burden on sellers will be the same. 
D) The relative burdens in the two cases cannot be determined without further information. 
A) the burden on buyers will be larger and the burden on sellers will be smaller. 
B) the burden on buyers will be smaller and the burden on sellers will be larger. 
C) the burden on buyers will be the same and the burden on sellers will be the same. 
D) The relative burdens in the two cases cannot be determined without further information.

Question 17

Which of the following statements regarding black markets is true?

Accepted Answer

A) The reliability of products sold in black markets is generally higher than the reliability of products sold in legal markets. 
B) The prices of goods in black markets are generally lower than the prices of similar products in legal markets. 
C) The laws of supply and demand do not affect the prices of goods exchanged in black markets. 
D) The rate of violence is higher in black markets than in legal markets. 
A) The reliability of products sold in black markets is generally higher than the reliability of products sold in legal markets. 
B) The prices of goods in black markets are generally lower than the prices of similar products in legal markets. 
C) The laws of supply and demand do not affect the prices of goods exchanged in black markets. 
D) The rate of violence is higher in black markets than in legal markets.

Question 18

Figure 4-16
  
-Refer to Figure 4-16.Some policymakers have argued that the government should establish a "living wage." A living wage would provide workers a reasonable standard of living in their city or region.If a living wage of $10 per hour is established in the market pictured here,we would expect

Accepted Answer

A) employment will increase to 14 million. 
B) employment will decrease to 8 million. 
C) the wage will actually rise to $20 per hour. 
D) there will be a surplus of 14 million workers. 
A) employment will increase to 14 million. 
B) employment will decrease to 8 million. 
C) the wage will actually rise to $20 per hour. 
D) there will be a surplus of 14 million workers.

Question 19

Figure 4-25
  
-Refer to Figure 4-25.The benefit to the government is

Accepted Answer

A) measured by tax revenue and is represented by area A + B. 
B) measured by tax revenue and is represented by area B + D. 
C) measured by the net gain in total surplus and is represented by area B + D. 
D) measured by the net gain in total surplus and is represented by area D + E. 
A) measured by tax revenue and is represented by area A + B. 
B) measured by tax revenue and is represented by area B + D. 
C) measured by the net gain in total surplus and is represented by area B + D. 
D) measured by the net gain in total surplus and is represented by area D + E.

Question 20

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.

Exam 4: Asupply and Demand: Applications and Extensions

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 more elastic the supply of a product,the more likely it is that the burden of a tax will

A tax on the buyers of coffee will

Compared to legal markets,black markets have

A subsidy is defined as

Because of price controls in the former Soviet Union,people often waited in long lines for food and other necessities.Modern economic theory would indicate that,relative to price rationing,waiting in line is

If Lex's income increases from $30,000 to $40,000 and his tax liability increases from $6,000 to $10,000,which of the following is true?

Figure 4-24 -Refer to Figure 4-24.The amount of the tax on each unit of the good is

Suppose the U.S.Government banned the sale and production of cigarettes.What are likely effects of this action on the market for cigarettes?

Other things constant,an increase in the demand for motorcycles will

Figure 4-20 -Refer to Figure 4-20.The burden of the tax on sellers is

A tax imposed on the sellers of a good

Compared to legal markets,black markets have

Figure 4-20 -Refer to Figure 4-20.Suppose the same S and D curves apply,and a tax of the same amount per unit as shown here is imposed.Now,however,the sellers of the good,rather than the buyers,are required to pay the tax to the government.Now,relative to the case depicted in the figure,

Which of the following statements regarding black markets is true?

Figure 4-25 -Refer to Figure 4-25.The benefit to the government is

Taxes create deadweight losses because they

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

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

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney 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

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-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

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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