Question 1

Figure 4-24
  
-Refer to Figure 4-24.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 2

If drugs such as marijuana and cocaine were legalized,it would be likely that

Accepted Answer

A) their prices would decrease. 
B) there would be a reduction in tainted or poor quality drugs. 
C) there would be less violence occurring in drug transactions. 
D) all of the above. 
A) their prices would decrease. 
B) there would be a reduction in tainted or poor quality drugs. 
C) there would be less violence occurring in drug transactions. 
D) all of the above.

Question 3

When policymakers impose price controls,they

Accepted Answer

A) are usually following the advice of mainstream economists. 
B) usually improve the efficiency of economic activity. 
C) distort the signals that normally guide the allocation of resources. 
D) demonstrate a willingness to sacrifice equity in order to improve efficiency. 
A) are usually following the advice of mainstream economists. 
B) usually improve the efficiency of economic activity. 
C) distort the signals that normally guide the allocation of resources. 
D) demonstrate a willingness to sacrifice equity in order to improve efficiency.

Question 4

If a household has $40,000 in taxable income and its tax liability is $4,000,the household's average tax rate is

Accepted Answer

A) 10 percent. 
B) 25 percent. 
C) 40 percent. 
D) 50 percent 
A) 10 percent. 
B) 25 percent. 
C) 40 percent. 
D) 50 percent

Question 5

If a household has $40,000 in taxable income and its tax liability is $20,000,the household's average tax rate is

Accepted Answer

A) 10 percent. 
B) 25 percent. 
C) 40 percent. 
D) 50 percent 
A) 10 percent. 
B) 25 percent. 
C) 40 percent. 
D) 50 percent

Question 6

The Laffer curve illustrates the principle that

Accepted Answer

A) when tax rates are quite high,reducing tax rates will increase tax revenue. 
B) when tax rates are quite low,reducing tax rates will increase tax revenue. 
C) when tax rates are quite high,reducing tax rates will decrease tax revenue. 
D) increasing tax rates always increases tax revenue. 
A) when tax rates are quite high,reducing tax rates will increase tax revenue. 
B) when tax rates are quite low,reducing tax rates will increase tax revenue. 
C) when tax rates are quite high,reducing tax rates will decrease tax revenue. 
D) increasing tax rates always increases tax revenue.

Question 7

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 8

Government programs such as Medicare substantially subsidize health care purchases by some consumers in the U.S.economy.Who benefits from these subsidies? How do they affect the price of health care? If you are not a recipient of this program,are you made better or worse off by the subsidy? Explain.

Accepted Answer

The subsidy will increase the price of h

Question 9

Figure 4-17
  
-Refer to Figure 4-17.Suppose a price floor of $7.00 is imposed.As a result,

Accepted Answer

A) buyers' total expenditure on the good decreases by $20.00. 
B) the supply curve will shift to the left so as to now pass through the point (Q = 40,P = $7.00). 
C) the quantity of the good demanded decreases by 20 units. 
D) the price of the good continues to serve as the rationing mechanism. 
A) buyers' total expenditure on the good decreases by $20.00. 
B) the supply curve will shift to the left so as to now pass through the point (Q = 40,P = $7.00). 
C) the quantity of the good demanded decreases by 20 units. 
D) the price of the good continues to serve as the rationing mechanism.

Question 10

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 11

Use the table below to choose the correct answer.
 
The tax schedule shown here is

Accepted Answer

A) regressive. 
B) proportional. 
C) progressive. 
D) proportional up to $20,000 and regressive beyond that. 
A) regressive. 
B) proportional. 
C) progressive. 
D) proportional up to $20,000 and regressive beyond that.

Question 12

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 13

The more inelastic the demand for a product,the more likely that the actual benefit of a subsidy granted on the product will

Accepted Answer

A) go to sellers. 
B) go to buyers. 
C) go equally to both buyers and sellers. 
D) do none of the above. 
A) go to sellers. 
B) go to buyers. 
C) go equally to both buyers and sellers. 
D) do none of the above.

Question 14

Which of the following generalizations about the burden of an excise tax is correct?

Accepted Answer

A) The more inelastic the supply of a product,the larger the portion of an excise tax will be paid by buyers. 
B) The more inelastic the demand for a product,the larger the portion of an excise tax will be paid by buyers. 
C) The more elastic the supply of a product,the smaller the portion of an excise tax will be paid by buyers. 
D) The burden of an excise tax on a product is independent of the elasticity of the supply and demand for the product on which the tax is levied. 
A) The more inelastic the supply of a product,the larger the portion of an excise tax will be paid by buyers. 
B) The more inelastic the demand for a product,the larger the portion of an excise tax will be paid by buyers. 
C) The more elastic the supply of a product,the smaller the portion of an excise tax will be paid by buyers. 
D) The burden of an excise tax on a product is independent of the elasticity of the supply and demand for the product on which the tax is levied.

Question 15

Suppose that a tax is placed on DVDs.If the sellers end up bearing most of the tax burden,this indicates that the

Accepted Answer

A) demand is more inelastic than supply. 
B) supply is more inelastic than demand. 
C) government has required that buyers remit the tax payments. 
D) government has required that sellers remit the tax payments. 
A) demand is more inelastic than supply. 
B) supply is more inelastic than demand. 
C) government has required that buyers remit the tax payments. 
D) government has required that sellers remit the tax payments.

Question 16

During the imposition of price controls in the 1970s,long gasoline lines were common.In the absence of price controls,markets would have eliminated such excess demand by

Accepted Answer

A) allowing the price to rise,so gas was rationed to those willing to pay the most for it. 
B) increasing the gap between supply and demand. 
C) allowing price to decline,so the poor could afford to buy more gas. 
D) mandating a 50-mile-per-hour speed limit to reduce consumption. 
A) allowing the price to rise,so gas was rationed to those willing to pay the most for it. 
B) increasing the gap between supply and demand. 
C) allowing price to decline,so the poor could afford to buy more gas. 
D) mandating a 50-mile-per-hour speed limit to reduce consumption.

Question 17

An income tax is proportional if

Accepted Answer

A) the tax liability of high-income earners exceeds the tax liability of those with low incomes. 
B) the tax liability of high-income earners is less than the tax liability of those with low incomes. 
C) high-income earners pay a higher percentage of their incomes in taxes than those with low incomes. 
D) everyone pays the same percentage of their income in the form of income taxes. 
A) the tax liability of high-income earners exceeds the tax liability of those with low incomes. 
B) the tax liability of high-income earners is less than the tax liability of those with low incomes. 
C) high-income earners pay a higher percentage of their incomes in taxes than those with low incomes. 
D) everyone pays the same percentage of their income in the form of income taxes.

Question 18

In the supply and demand model,a subsidy granted to sellers is illustrated by

Accepted Answer

A) a downward shift in the demand curve,by the per unit amount of the subsidy. 
B) an upward shift in the demand curve,by the per unit amount of the subsidy. 
C) a downward shift in the supply curve,by the per unit amount of the subsidy. 
D) an upward shift in the supply curve,by the per unit amount of the subsidy. 
A) a downward shift in the demand curve,by the per unit amount of the subsidy. 
B) an upward shift in the demand curve,by the per unit amount of the subsidy. 
C) a downward shift in the supply curve,by the per unit amount of the subsidy. 
D) an upward shift in the supply curve,by the per unit amount of the subsidy.

Question 19

Suppose the U.S.government banned the sale and production of cigarettes.Which of the following would be most likely to occur?

Accepted Answer

A) No one would smoke anymore. 
B) The amount of violence involved in the buying and selling of cigarettes would increase. 
C) The price of cigarettes would decrease. 
D) The supply for cigarettes would become elastic. 
A) No one would smoke anymore. 
B) The amount of violence involved in the buying and selling of cigarettes would increase. 
C) The price of cigarettes would decrease. 
D) The supply for cigarettes would become elastic.

Question 20

An increase in the number of students attending college would tend to

Accepted Answer

A) reduce the demand for college professors. 
B) decrease the number of college professors employed. 
C) increase the demand for college professors. 
D) reduce the wage for college professors. 
A) reduce the demand for college professors. 
B) decrease the number of college professors employed. 
C) increase the demand for college professors. 
D) reduce the wage for college professors.

Exam 4: Asupply and Demand: Applications and Extensions

Figure 4-24 -Refer to Figure 4-24.The price that buyers pay after the tax is imposed is

If drugs such as marijuana and cocaine were legalized,it would be likely that

When policymakers impose price controls,they

If a household has $40,000 in taxable income and its tax liability is $4,000,the household's average tax rate is

If a household has $40,000 in taxable income and its tax liability is $20,000,the household's average tax rate is

The Laffer curve illustrates the principle that

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

Figure 4-17 -Refer to Figure 4-17.Suppose a price floor of $7.00 is imposed.As a result,

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.

Use the table below to choose the correct answer. The tax schedule shown here is

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

The more inelastic the demand for a product,the more likely that the actual benefit of a subsidy granted on the product will

Which of the following generalizations about the burden of an excise tax is correct?

Suppose that a tax is placed on DVDs.If the sellers end up bearing most of the tax burden,this indicates that the

During the imposition of price controls in the 1970s,long gasoline lines were common.In the absence of price controls,markets would have eliminated such excess demand by

An income tax is proportional if

In the supply and demand model,a subsidy granted to sellers is illustrated by

Suppose the U.S.government banned the sale and production of cigarettes.Which of the following would be most likely to occur?

An increase in the number of students attending college would tend to

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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