Question 1

When prices of products are set below equilibrium,

Accepted Answer

A) society's resources are inefficiently allocated. 
B) firms expand output to increase profits. 
C) firms earn excessively high profits. 
D) consumers benefit from surpluses of cheap goods. 
A) society's resources are inefficiently allocated. 
B) firms expand output to increase profits. 
C) firms earn excessively high profits. 
D) consumers benefit from surpluses of cheap goods.

Question 2

In a market economy, which of the following will most likely cause a prolonged milk shortage?

Accepted Answer

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

Question 3

Suppose the federal excise tax rate on gasoline is increased by 50 percent. Which of the following is the most likely impact on the tax revenue derived from the federal gas tax?

Accepted Answer

A) Tax revenues will increase by less than 50 percent. 
B) Tax revenues will increase by 50 percent. 
C) Tax revenues will increase by more than 50 percent. 
D) The revenue from the gasoline tax will go to zero. 
A) Tax revenues will increase by less than 50 percent. 
B) Tax revenues will increase by 50 percent. 
C) Tax revenues will increase by more than 50 percent. 
D) The revenue from the gasoline tax will go to zero.

Question 4

The deadweight loss (or excess burden) resulting from levying a tax on an economic activity is the

Accepted Answer

A) tax revenue raised by the government as the result of the tax. 
B) loss of potential gains from trade from activities forgone because of the tax. 
C) increase in the price of an activity as the result of the tax levied on it. 
D) marginal benefits derived from the expansion in government activities made possible by the increase in tax revenues. 
A) tax revenue raised by the government as the result of the tax. 
B) loss of potential gains from trade from activities forgone because of the tax. 
C) increase in the price of an activity as the result of the tax levied on it. 
D) marginal benefits derived from the expansion in government activities made possible by the increase in tax revenues.

Question 5

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

Accepted Answer

A) an increase in quantity of unskilled labor demanded 
B) a decrease in the quantity of unskilled labor supplied 
C) a shortage of unskilled labor 
D) a surplus of unskilled labor (unemployment) 
A) an increase in quantity of unskilled labor demanded 
B) a decrease in the quantity of unskilled labor supplied 
C) a shortage of unskilled labor 
D) a surplus of unskilled labor (unemployment)

Question 6

A progressive tax

Accepted Answer

A) is one that taxes those with higher incomes at a higher rate than those with lower incomes. 
B) takes a similar percentage in the form of taxes from those with higher incomes as it does from those with lower incomes. 
C) takes a higher percentage of income in the form of taxes from those with lower incomes than from those with higher incomes. 
D) is any tax in which the dollar amount of taxes paid increases with income. 
A) is one that taxes those with higher incomes at a higher rate than those with lower incomes. 
B) takes a similar percentage in the form of taxes from those with higher incomes as it does from those with lower incomes. 
C) takes a higher percentage of income in the form of taxes from those with lower incomes than from those with higher incomes. 
D) is any tax in which the dollar amount of taxes paid increases with income.

Question 7

The actual benefit of a government subsidy is determined primarily by

Accepted Answer

A) the elasticities of demand and supply. 
B) the legal (or statutory) assignment of the subsidy 
C) the number of exchanges that are made possible as a result of the subsidy. 
D) whether the subsidy is paid by cash or check. 
A) the elasticities of demand and supply. 
B) the legal (or statutory) assignment of the subsidy 
C) the number of exchanges that are made possible as a result of the subsidy. 
D) whether the subsidy is paid by cash or check.

Question 8

Use the figure below to answer the following question(s).
Figure 4-13
  
-Refer to Figure 4-13. The exhibit illustrates the impact of granting a subsidy on a particular good. Which of the following is true for this subsidy given the information provided in the exhibit?

Accepted Answer

A) The subsidy has been statutorily (legally) paid to sellers. 
B) The subsidy results in a decrease in the market selling price of the good. 
C) Sellers will receive a larger proportion of the benefit from this subsidy than buyers. 
D) The subsidy results in a reduction in the quantity purchased. 
A) The subsidy has been statutorily (legally) paid to sellers. 
B) The subsidy results in a decrease in the market selling price of the good. 
C) Sellers will receive a larger proportion of the benefit from this subsidy than buyers. 
D) The subsidy results in a reduction in the quantity purchased.

Question 9

Ron works full time as a teacher making $50,000 while his wife Ellen stays at home taking care of their two children. Ron's income puts the family in a tax bracket with a 40 percent marginal tax rate. Ellen receives a full-time job offer as an administrative assistant making $30,000 per year, however to take the job would require the family to start paying $8,000 per year in child care expenses. If Ellen were to accept the job offer, after paying taxes and subtracting child care expenses, by how much would the family's net disposable income increase?

Accepted Answer

A) $8,000 
B) $10,000 
C) $20,000 
D) $30,000 
A) $8,000 
B) $10,000 
C) $20,000 
D) $30,000

Question 10

Use the figure below to answer the following question(s).
Figure 4-9
  
-Refer to Figure 4-9. The market for gasoline was initially in equilibrium at point b and a $.40 excise tax is illustrated. How much revenue would the $.40 gasoline tax raise?

Accepted Answer

A) $18 million 
B) $36 million 
C) $72 million 
D) $100 million 
A) $18 million 
B) $36 million 
C) $72 million 
D) $100 million

Question 11

A price floor that sets the price of a good above market equilibrium will cause

Accepted Answer

A) a decrease in quantity demanded of the good. 
B) an increase in quantity supplied of the good. 
C) a surplus of the good. 
D) all of the above. 
A) a decrease in quantity demanded of the good. 
B) an increase in quantity supplied of the good. 
C) a surplus of the good. 
D) all of the above.

Question 12

Suppose that the federal government levies a 50 cent excise tax on gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the burden of the tax

Accepted Answer

A) will fall primarily on producers. 
B) will fall primarily on consumers. 
C) will be split equally between consumers and producers. 
D) cannot be determined because the burden of a tax is not influenced by the elasticities of supply and demand. 
A) will fall primarily on producers. 
B) will fall primarily on consumers. 
C) will be split equally between consumers and producers. 
D) cannot be determined because the burden of a tax is not influenced by the elasticities of supply and demand.

Question 13

A regressive tax

Accepted Answer

A) taxes individuals with higher incomes at a higher rate than individuals with lower incomes. 
B) takes a similar percentage of income at all income levels. 
C) takes a higher percentage of the income of those with lower incomes than for those with higher incomes. 
D) taxes savings at a higher rate than consumption. 
A) taxes individuals with higher incomes at a higher rate than individuals with lower incomes. 
B) takes a similar percentage of income at all income levels. 
C) takes a higher percentage of the income of those with lower incomes than for those with higher incomes. 
D) taxes savings at a higher rate than consumption.

Question 14

The benefit of a subsidy will go primarily to buyers when the

Accepted Answer

A) demand for the product is highly inelastic and supply is relatively elastic. 
B) demand for the product is highly elastic and the supply is relatively inelastic. 
C) subsidy is legally (statutorily) granted to the seller of the product. 
D) subsidy is legally (statutorily) granted to the buyer of the product. 
A) demand for the product is highly inelastic and supply is relatively elastic. 
B) demand for the product is highly elastic and the supply is relatively inelastic. 
C) subsidy is legally (statutorily) granted to the seller of the product. 
D) subsidy is legally (statutorily) granted to the buyer of the product.

Question 15

When a shortage of a good is present due to a price ceiling,

Accepted Answer

A) the amount supplied will be greater than the amount demanded. 
B) the quality of the good will generally improve. 
C) non-price factors, such as discrimination or waiting in line, will play a greater role in the allocation of the good. 
D) the demand for the product will increase and, thereby, eliminate the shortage. 
A) the amount supplied will be greater than the amount demanded. 
B) the quality of the good will generally improve. 
C) non-price factors, such as discrimination or waiting in line, will play a greater role in the allocation of the good. 
D) the demand for the product will increase and, thereby, eliminate the shortage.

Question 16

The Laffer curve illustrates the relationship between

Accepted Answer

A) supply and demand. 
B) tax rates and tax revenues. 
C) opportunity cost and inflation. 
D) tax liability and taxable income. 
A) supply and demand. 
B) tax rates and tax revenues. 
C) opportunity cost and inflation. 
D) tax liability and taxable income.

Question 17

Use the figure below to answer the following question(s).
Figure 4-11
  
-Refer to Figure 4-11. On the Laffer curve shown, tax revenue could be increased by

Accepted Answer

A) decreasing the marginal tax rates if we were currently at point A. 
B) decreasing the marginal tax rates if we were currently at point C. 
C) increasing the marginal tax rates if we were currently at point B. 
D) increasing the marginal tax rates if we were currently at point C. 
A) decreasing the marginal tax rates if we were currently at point A. 
B) decreasing the marginal tax rates if we were currently at point C. 
C) increasing the marginal tax rates if we were currently at point B. 
D) increasing the marginal tax rates if we were currently at point C.

Question 18

The burden of a tax will fall primarily on buyers when the

Accepted Answer

A) demand for the product is highly inelastic and the supply is relatively elastic. 
B) demand for the product is highly elastic and the supply is relatively inelastic. 
C) tax is legally (statutorily) imposed on the seller of the product. 
D) tax is legally (statutorily) imposed on the buyer of the product. 
A) demand for the product is highly inelastic and the supply is relatively elastic. 
B) demand for the product is highly elastic and the supply is relatively inelastic. 
C) tax is legally (statutorily) imposed on the seller of the product. 
D) tax is legally (statutorily) imposed on the buyer of the product.

Question 19

Which of the following would tend to increase the price of lumber?

Accepted Answer

A) a technological advance that lowers the cost of cutting timber 
B) an increase in the demand for newly constructed homes 
C) a decrease in the demand for wooden rocking chairs 
D) a decrease in the tax imposed on firms who produce lumber 
A) a technological advance that lowers the cost of cutting timber 
B) an increase in the demand for newly constructed homes 
C) a decrease in the demand for wooden rocking chairs 
D) a decrease in the tax imposed on firms who produce lumber

Question 20

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 actual tax burden paid by consumers and producers is

Accepted Answer

A) $1.00 for consumers and $.50 for producers 
B) $1.00 for consumers and $1.00 for producers. 
C) $.25 for consumers and $.75 for producers. 
D) $.50 for consumers and $.50 for producers. 
A) $1.00 for consumers and $.50 for producers 
B) $1.00 for consumers and $1.00 for producers. 
C) $.25 for consumers and $.75 for producers. 
D) $.50 for consumers and $.50 for producers.

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

When prices of products are set below equilibrium,

In a market economy, which of the following will most likely cause a prolonged milk shortage?

Suppose the federal excise tax rate on gasoline is increased by 50 percent. Which of the following is the most likely impact on the tax revenue derived from the federal gas tax?

The deadweight loss (or excess burden) resulting from levying a tax on an economic activity is the

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

A progressive tax

The actual benefit of a government subsidy is determined primarily by

Use the figure below to answer the following question(s). Figure 4-13 -Refer to Figure 4-13. The exhibit illustrates the impact of granting a subsidy on a particular good. Which of the following is true for this subsidy given the information provided in the exhibit?

Use the figure below to answer the following question(s). Figure 4-9 -Refer to Figure 4-9. The market for gasoline was initially in equilibrium at point b and a $.40 excise tax is illustrated. How much revenue would the $.40 gasoline tax raise?

A price floor that sets the price of a good above market equilibrium will cause

Suppose that the federal government levies a 50 cent excise tax on gasoline and that the demand for gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the burden of the tax

A regressive tax

The benefit of a subsidy will go primarily to buyers when the

When a shortage of a good is present due to a price ceiling,

The Laffer curve illustrates the relationship between

Use the figure below to answer the following question(s). Figure 4-11 -Refer to Figure 4-11. On the Laffer curve shown, tax revenue could be increased by

The burden of a tax will fall primarily on buyers when the

Which of the following would tend to increase the price of lumber?

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 actual tax burden paid by consumers and producers is

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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