Question 1

An excise tax levied on a product will impose a smaller relative burden on consumers (and a larger 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 elastic. 
D) either a 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 elastic. 
D) either a or c is true.

Question 2

How would an increase in the price of paper influence the market for college textbooks?

Accepted Answer

A) The supply of textbooks would increase causing the price of textbooks to fall. 
B) The supply of textbooks would increase causing the price of textbooks to rise. 
C) The supply of textbooks would decrease causing the price of textbooks to fall. 
D) The supply of textbooks would decrease causing the price of textbooks to rise. 
A) The supply of textbooks would increase causing the price of textbooks to fall. 
B) The supply of textbooks would increase causing the price of textbooks to rise. 
C) The supply of textbooks would decrease causing the price of textbooks to fall. 
D) The supply of textbooks would decrease causing the price of textbooks to rise.

Question 3

Susan works as an advertising executive for a small business making $40,000 per year and is in a tax bracket with a 30 percent marginal rate. She currently purchases a $5,000 health insurance plan outside of her employer from her net pay. Her employer offers her the option to purchase the same health insurance plan on a pretax basis through the company (in other words, the cost of the health insurance is subtracted out of her gross pay before her taxes are computed). If she decides to do so, the purchase of the $5,000 health insurance plan through her employer would now only cost her how much in terms of a reduction in her net pay?

Accepted Answer

A) $1,000 
B) $1,500 
C) $3,500 
D) $5,000 
A) $1,000 
B) $1,500 
C) $3,500 
D) $5,000

Question 4

Which of the following would occur following the imposition of a price ceiling that sets the price of a good (for example, rental housing) below the market equilibrium?

Accepted Answer

A) an improvement in the quality of the good 
B) an increase in the amount of the good available 
C) a shortage of the good 
D) a surplus of the good 
A) an improvement in the quality of the good 
B) an increase in the amount of the good available 
C) a shortage of the good 
D) a surplus of the good

Question 5

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 6

An increase in the demand for a product will cause the

Accepted Answer

A) demand for and prices of the resources used to produce the product to increase. 
B) demand for and prices of the resources used to produce the product to decrease. 
C) demand for and prices of the resources used to produce the product to remain unchanged. 
D) price of the product to decrease. 
A) demand for and prices of the resources used to produce the product to increase. 
B) demand for and prices of the resources used to produce the product to decrease. 
C) demand for and prices of the resources used to produce the product to remain unchanged. 
D) price of the product to decrease.

Question 7

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 8

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 9

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 10

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 11

If a household has $40,000 in taxable income and its tax liability is $10,000, 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 12

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 13

Use the table below to choose the correct answer.  
The marginal tax rate on income in the $20,000 to $25,000 range is

Accepted Answer

A) 10 percent. 
B) 12 percent. 
C) 20 percent. 
D) 30 percent. 
A) 10 percent. 
B) 12 percent. 
C) 20 percent. 
D) 30 percent.

Question 14

When a supply and demand model is used to analyze the market for labor,

Accepted Answer

A) demand is generally no longer downward sloping. 
B) the wage rate is used on the vertical axis as the market price. 
C) employment is used on the horizontal axis as the market quantity. 
D) both b andc. 
A) demand is generally no longer downward sloping. 
B) the wage rate is used on the vertical axis as the market price. 
C) employment is used on the horizontal axis as the market quantity. 
D) both b andc.

Question 15

The average tax rate is defined as

Accepted Answer

A) the average number of times a circulating dollar is taxed during a year. 
B) the change in the tax rate as income increases. 
C) the change in the tax rate as income decreases. 
D) tax liability divided by taxable income. 
A) the average number of times a circulating dollar is taxed during a year. 
B) the change in the tax rate as income increases. 
C) the change in the tax rate as income decreases. 
D) tax liability divided by taxable income.

Question 16

A minimum wage that is set above a market's equilibrium wage will result in

Accepted Answer

A) an excess demand for labor, that is, unemployment. 
B) an excess demand for labor, that is, a shortage of workers. 
C) an excess supply of labor, that is, unemployment. 
D) an excess supply of labor, that is, a shortage of workers. 
A) an excess demand for labor, that is, unemployment. 
B) an excess demand for labor, that is, a shortage of workers. 
C) an excess supply of labor, that is, unemployment. 
D) an excess supply of labor, that is, a shortage of workers.

Question 17

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 18

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 excise tax I is

Accepted Answer

A) $.50. 
B) $1.50. 
C) $1.00. 
D) $2.00. 
A) $.50. 
B) $1.50. 
C) $1.00. 
D) $2.00.

Question 19

If a $300 subsidy is legally (statutorily) granted to the buyers of computers and as a result the selling price of computers rises by $200, the actual benefit of the subsidy

Accepted Answer

A) goes completely to the buyers of computers. 
B) goes completely to the sellers of computers. 
C) is $100 to computer buyers and $200 to computer sellers. 
D) is $200 to computer buyers and $100 to computer sellers. 
A) goes completely to the buyers of computers. 
B) goes completely to the sellers of computers. 
C) is $100 to computer buyers and $200 to computer sellers. 
D) is $200 to computer buyers and $100 to computer sellers.

Question 20

Whenever a shortage occurs (for example, in parking spaces), and the price does not rise or is not permitted to rise, some method of non-price rationing must occur (for example, driving around looking for a parking space). Which of the following is an advantage of price rationing relative to non-price rationing methods?

Accepted Answer

A) Economic theory indicates that price rationing leads to a less economically efficient allocation of goods. 
B) Non-price rationing techniques redistribute income from consumers to producers; price rationing does not. 
C) The demand for goods will be more elastic if price rationing is used to allocate goods. 
D) When higher prices are used to resolve shortages, the higher prices will encourage suppliers to increase the quantity available. 
A) Economic theory indicates that price rationing leads to a less economically efficient allocation of goods. 
B) Non-price rationing techniques redistribute income from consumers to producers; price rationing does not. 
C) The demand for goods will be more elastic if price rationing is used to allocate goods. 
D) When higher prices are used to resolve shortages, the higher prices will encourage suppliers to increase the quantity available.

Exam 4: A: Supply and Demand: Applications and Extensions

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

How would an increase in the price of paper influence the market for college textbooks?

Which of the following would occur following the imposition of a price ceiling that sets the price of a good (for example, rental housing) below the market equilibrium?

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?

An increase in the demand for a product will cause the

When policymakers impose price controls, they

The Laffer curve indicates that

Compared to legal markets, black markets have

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 a household has $40,000 in taxable income and its tax liability is $10,000, the household's average tax rate is

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

Use the table below to choose the correct answer. The marginal tax rate on income in the $20,000 to $25,000 range is

When a supply and demand model is used to analyze the market for labor,

The average tax rate is defined as

A minimum wage that is set above a market's equilibrium wage will result in

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

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 excise tax I is

If a $300 subsidy is legally (statutorily) granted to the buyers of computers and as a result the selling price of computers rises by $200, the actual benefit of the subsidy

The Economic Approach

A: Some Tools of the Economist

B: Some Tools of the Economist

A: Supply, Demand, and the Market Process

B: Supply, Demand, and the Market Process

B: Supply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Consumer Choice and Elasticity

A: Costs and the Supply of Goods

B: Costs and the Supply of Goods

A: Price Takers and the Competitive Process

B: Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

A: Price-Searcher Markets With High Entry Barriers

B: 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

Appendix: Government Spending and Taxation

Appendix: the Economics of Social Security

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

Appendix: Great Debates in Economics: Keynes Versus Hayek

Appendix: the Crisis of 2008: Causes and Lessons for the Future

Appendix: Lessons From the Great Depression

Appendix: the Economics of Healthcare

Appendix:education: Problems and Performance

Appendix: Earnings Differences Between Men and Women

Appendix: the Question of Resource Exhaustion

Appendix: Do Labor Unions Increase the Wages of Workers

Appendix: Difficult Environmental Cases and the Role of Government

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