Question 1

A tax for which the average tax rate decreases with income is defined as a

Accepted Answer

A) regressive tax. 
B) proportional tax. 
C) neutral tax. 
D) progressive tax. 
A) regressive tax. 
B) proportional tax. 
C) neutral tax. 
D) progressive tax.

Question 2

Use the figure below to answer the following question(s).
Figure 4-7
  
-Refer to Figure 4-7. The supply curve S₁ and the demand curve D indicate initial conditions in the market for gasoline. A $.60-per-gallon excise tax on gasoline is levied, which shifts the supply curve from S₁ to S₂. Which of the following states the actual burden of the tax?

Accepted Answer

A) $.50 for buyers and $.10 for sellers 
B) $.50 for sellers and $.10 for buyers 
C) The entire $.60 falls on sellers. 
D) The entire $.60 falls on buyers. 
A) $.50 for buyers and $.10 for sellers 
B) $.50 for sellers and $.10 for buyers 
C) The entire $.60 falls on sellers. 
D) The entire $.60 falls on buyers.

Question 3

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 4

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 5

When a price ceiling is imposed below the equilibrium price of a commodity,

Accepted Answer

A) quantity supplied will be greater than quantity demanded for the good. 
B) the problem of scarcity will be solved. 
C) a shortage of the good will develop. 
D) a surplus of the good will develop. 
A) quantity supplied will be greater than quantity demanded for the good. 
B) the problem of scarcity will be solved. 
C) a shortage of the good will develop. 
D) a surplus of the good will develop.

Question 6

According to the Laffer curve,

Accepted Answer

A) an increase in tax rates will always cause tax revenues to increase. 
B) when marginal tax rates are high, an increase in tax rates is likely to cause tax revenues to increase. 
C) when marginal taxes are low, an increase in tax rates will probably cause tax revenues to decline. 
D) when marginal tax rates are high, a reduction in tax rates may increase tax revenue. 
A) an increase in tax rates will always cause tax revenues to increase. 
B) when marginal tax rates are high, an increase in tax rates is likely to cause tax revenues to increase. 
C) when marginal taxes are low, an increase in tax rates will probably cause tax revenues to decline. 
D) when marginal tax rates are high, a reduction in tax rates may increase tax revenue.

Question 7

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 8

Which of the following examples illustrates a progressive income tax?

Accepted Answer

A) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes. 
B) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $50 in taxes. 
C) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $80 in taxes. 
D) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $125 in taxes. 
A) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes. 
B) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $50 in taxes. 
C) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $80 in taxes. 
D) I earn $500 and pay $50 in taxes; you earn $1,000 and pay $125 in taxes.

Question 9

A tax for which the average tax rate remains constant at all levels of income is defined as a

Accepted Answer

A) regressive tax. 
B) proportional tax. 
C) neutral tax. 
D) progressive tax. 
A) regressive tax. 
B) proportional tax. 
C) neutral tax. 
D) progressive tax.

Question 10

When a price floor is above the equilibrium price,

Accepted Answer

A) quantity demanded will exceed quantity supplied, so there will be a shortage. 
B) quantity supplied will exceed quantity demanded, so there will be a surplus. 
C) the market will be in equilibrium. 
D) This is a trick question because price floors are generally set below the equilibrium price. 
A) quantity demanded will exceed quantity supplied, so there will be a shortage. 
B) quantity supplied will exceed quantity demanded, so there will be a surplus. 
C) the market will be in equilibrium. 
D) This is a trick question because price floors are generally set below the equilibrium price.

Question 11

Use the figure below to answer the following question(s).
Figure 4-11
  
-Refer to Figure 4-11. On the Laffer curve shown, which of the following is true?

Accepted Answer

A) Tax revenue would increase if marginal tax rates were lowered from point C. 
B) Tax revenue would decrease if marginal tax rates were lowered from point A. 
C) Tax revenues are maximized at a tax rate corresponding to point B. 
D) All of the above are true. 
A) Tax revenue would increase if marginal tax rates were lowered from point C. 
B) Tax revenue would decrease if marginal tax rates were lowered from point A. 
C) Tax revenues are maximized at a tax rate corresponding to point B. 
D) All of the above are true.

Question 12

If a $50 subsidy is legally (statutorily) granted to the sellers of exercise equipment and as a result the price of exercise equipment to consumers falls by $30, the actual benefit of the subsidy

Accepted Answer

A) goes completely to buyers of exercise equipment. 
B) goes completely to sellers of exercise equipment. 
C) is $30 to buyers and $20 to sellers. 
D) is $20 to buyers and $30 to sellers. 
A) goes completely to buyers of exercise equipment. 
B) goes completely to sellers of exercise equipment. 
C) is $30 to buyers and $20 to sellers. 
D) is $20 to buyers and $30 to sellers.

Question 13

If the federal government began granting a subsidy of 10 cents per apple to apple growers and as a result the price of apples to consumers falls by 8 cents,

Accepted Answer

A) the actual benefit of this subsidy goes mostly to consumers. 
B) the actual benefit of this subsidy goes mostly to producers. 
C) the actual benefit of this subsidy would be shared equally by producers and consumers. 
D) nobody would benefit from the subsidy. 
A) the actual benefit of this subsidy goes mostly to consumers. 
B) the actual benefit of this subsidy goes mostly to producers. 
C) the actual benefit of this subsidy would be shared equally by producers and consumers. 
D) nobody would benefit from the subsidy.

Question 14

Rent controls tend to cause persistent imbalances in the market for housing because

Accepted Answer

A) Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage. 
B) Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus. 
C) Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage. 
D) Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus. 
A) Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage. 
B) Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus. 
C) Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage. 
D) Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.

Question 15

Use the figure below to answer the following question(s).
Figure 4-12
  
-Refer to Figure 4-12. The supply curve S and the demand curve D₁ indicate initial conditions in the market for college textbooks. A new government program is implemented that grants students a $30 per textbook subsidy on every textbook they purchase, 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) The original average selling price of textbooks was $100, and after the subsidy it rises to $120. 
B) $90 represents the net price a buyer must pay for a textbook after taking into account the subsidy payment. 
C) Textbook buyers will receive an actual benefit of $10 from the subsidy, while textbook sellers will receive an actual benefit of $20 from the subsidy. 
D) All of the above are true. 
A) The original average selling price of textbooks was $100, and after the subsidy it rises to $120. 
B) $90 represents the net price a buyer must pay for a textbook after taking into account the subsidy payment. 
C) Textbook buyers will receive an actual benefit of $10 from the subsidy, while textbook sellers will receive an actual benefit of $20 from the subsidy. 
D) All of the above are true.

Question 16

A tax is levied on products A and B, both of which have the same price elasticity of supply. The demand for A is more inelastic than is the demand for B. Other things constant, how will this affect the incidence of an excise tax on these products?

Accepted Answer

A) Producers will bear a smaller share (and consumers a larger share) of the tax burden on A than B. 
B) Consumers will bear a smaller share (and producers a larger share) of the tax burden on A than B. 
C) The deadweight loss (or excess burden) will be larger for good A than B. 
D) All of the above are true. 
A) Producers will bear a smaller share (and consumers a larger share) of the tax burden on A than B. 
B) Consumers will bear a smaller share (and producers a larger share) of the tax burden on A than B. 
C) The deadweight loss (or excess burden) will be larger for good A than B. 
D) All of the above are true.

Question 17

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 18

When the purchase of a good is subsidized, economic analysis indicates that

Accepted Answer

A) the buyers of the product will gain at the expense of the sellers. 
B) the sellers of the product will gain at the expense of the buyers. 
C) the buyers and sellers will benefit equally. 
D) the more inelastic the supply of the good relative to its elasticity of demand, the larger the share of benefits that will accrue to the sellers of the product. 
A) the buyers of the product will gain at the expense of the sellers. 
B) the sellers of the product will gain at the expense of the buyers. 
C) the buyers and sellers will benefit equally. 
D) the more inelastic the supply of the good relative to its elasticity of demand, the larger the share of benefits that will accrue to the sellers of the product.

Question 19

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 20

When government gives a subsidy to buyers of good X, the benefits of the subsidy flow to

Accepted Answer

A) the buyers of good X only. 
B) the sellers of good X only. 
C) the buyers and sellers of good x equally. 
D) both the buyers and sellers of good x, and the distribution of the benefits will be dependent on the elasticity of demand and the elasticity of supply. 
A) the buyers of good X only. 
B) the sellers of good X only. 
C) the buyers and sellers of good x equally. 
D) both the buyers and sellers of good x, and the distribution of the benefits will be dependent on the elasticity of demand and the elasticity of supply.

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

A tax for which the average tax rate decreases with income is defined as a

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

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

When a price ceiling is imposed below the equilibrium price of a commodity,

According to the Laffer curve,

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

Which of the following examples illustrates a progressive income tax?

A tax for which the average tax rate remains constant at all levels of income is defined as a

When a price floor is above the equilibrium price,

Use the figure below to answer the following question(s). Figure 4-11 -Refer to Figure 4-11. On the Laffer curve shown, which of the following is true?

If a $50 subsidy is legally (statutorily) granted to the sellers of exercise equipment and as a result the price of exercise equipment to consumers falls by $30, the actual benefit of the subsidy

If the federal government began granting a subsidy of 10 cents per apple to apple growers and as a result the price of apples to consumers falls by 8 cents,

Rent controls tend to cause persistent imbalances in the market for housing because

A tax is levied on products A and B, both of which have the same price elasticity of supply. The demand for A is more inelastic than is the demand for B. Other things constant, how will this affect the incidence of an excise tax on these products?

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

When the purchase of a good is subsidized, economic analysis indicates that

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?

When government gives a subsidy to buyers of good X, the benefits of the subsidy flow to

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

Filters