Question 1

A tax tends to

Accepted Answer

A)  increase formal market activity because it decreases prices 
B)  reduce formal market activity because it increases work incentives 
C)  reduce formal market activity because it lowers the return on such activity 
D)  reduce activity in the underground economy because people are afraid of being connected with tax fraud 
A)  increase formal market activity because it decreases prices 
B)  reduce formal market activity because it increases work incentives 
C)  reduce formal market activity because it lowers the return on such activity 
D)  reduce activity in the underground economy because people are afraid of being connected with tax fraud

Question 2

A price ceiling set below an equilibrium price tends to cause persistent imbalances in the market 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 3

If Neleh's income increases from $60,000 to $80,000 and her tax liability increases from $12,000 to $16,000, which of the following is true?

Accepted Answer

A)  Her marginal tax rate is 20 percent in this income range. 
B)  Her average tax rate is 30 percent at her new income level of $80,000. 
C)  She faces a regressive tax in this income range. 
D)  She faces a progressive tax in this income range. 
A)  Her marginal tax rate is 20 percent in this income range. 
B)  Her average tax rate is 30 percent at her new income level of $80,000. 
C)  She faces a regressive tax in this income range. 
D)  She faces a progressive tax in this income range.

Question 4

If a local government enacts rent control legislation that sets the price of rental housing below equilibrium, which of the following will most likely happen in the local rental housing market?

Accepted Answer

A)  Discrimination in the rental housing market will be less likely. 
B)  The quality of rental housing will improve. 
C)  A surplus of rental housing will develop. 
D)  A shortage of rental housing will develop. 
A)  Discrimination in the rental housing market will be less likely. 
B)  The quality of rental housing will improve. 
C)  A surplus of rental housing will develop. 
D)  A shortage of rental housing will develop.

Question 5

Which of the following generalizations about the benefit of a subsidy is correct?

Accepted Answer

A)  The more inelastic the supply of a product, the larger the portion of the benefit will be to buyers. 
B)  The more inelastic the demand for a product, the larger the portion of the benefit will be to buyers. 
C)  The more elastic the supply of a product, the smaller the portion of the benefit will be to buyers. 
D)  The distribution of the benefit of a subsidy is not affected by the elasticity of the supply and demand for the product for which the subsidy is granted. 
A)  The more inelastic the supply of a product, the larger the portion of the benefit will be to buyers. 
B)  The more inelastic the demand for a product, the larger the portion of the benefit will be to buyers. 
C)  The more elastic the supply of a product, the smaller the portion of the benefit will be to buyers. 
D)  The distribution of the benefit of a subsidy is not affected by the elasticity of the supply and demand for the product for which the subsidy is granted.

Question 6

Use the table below to choose the correct answer.  
The marginal tax rate on income in the $25,000 to $30,000 range is

Accepted Answer

A)  10 percent. 
B)  20 percent. 
C)  50 percent. 
D)  70 percent. 
A)  10 percent. 
B)  20 percent. 
C)  50 percent. 
D)  70 percent.

Question 7

Other things constant, if a labor union is able to successfully increase the wages of autoworkers, there will be

Accepted Answer

A)  an increase in the supply of automobiles causing the price of automobiles to fall. 
B)  an increase in the supply of automobiles causing the price of automobiles to rise. 
C)  a decrease in the supply of automobiles causing the price of automobiles to fall. 
D)  a decrease in the supply of automobiles causing the price of automobiles to rise. 
A)  an increase in the supply of automobiles causing the price of automobiles to fall. 
B)  an increase in the supply of automobiles causing the price of automobiles to rise. 
C)  a decrease in the supply of automobiles causing the price of automobiles to fall. 
D)  a decrease in the supply of automobiles causing the price of automobiles to rise.

Question 8

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 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 figure?

Accepted Answer

A)  The original price of a flu shot was $75, and after the subsidy, it rises to $90. 
B)  $65 represents the net price a buyer must pay for a flu shot after taking into account the subsidy payment. 
C)  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. 
D)  All of the above are true. 
A)  The original price of a flu shot was $75, and after the subsidy, it rises to $90. 
B)  $65 represents the net price a buyer must pay for a flu shot after taking into account the subsidy payment. 
C)  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. 
D)  All of the above are true.

Question 10

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 11

A legally mandated minimum wage is an example of

Accepted Answer

A)  the invisible hand principle. 
B)  a price floor. 
C)  a price ceiling. 
D)  a fringe benefit. 
A)  the invisible hand principle. 
B)  a price floor. 
C)  a price ceiling. 
D)  a fringe benefit.

Question 12

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because

Accepted Answer

A)  the market price of the product will fall in response to the subsidy. 
B)  the market price of the product will rise in response to the subsidy. 
C)  the market price of the product will not change in response to the subsidy. 
D)  producers will reduce the supply of the product. 
A)  the market price of the product will fall in response to the subsidy. 
B)  the market price of the product will rise in response to the subsidy. 
C)  the market price of the product will not change in response to the subsidy. 
D)  producers will reduce the supply of the product.

Question 13

If Heather's tax liability increases from $10,000 to $16,000 when her income increases from $30,000 to $40,000, her marginal tax rate is

Accepted Answer

A)  33 percent. 
B)  35 percent. 
C)  50 percent. 
D)  60 percent. 
A)  33 percent. 
B)  35 percent. 
C)  50 percent. 
D)  60 percent.

Question 14

Figure 4-3
  
-Figure 4-3 indicates the demand (D) and supply (S) for the rental housing market in a large city. If the government imposed a price ceiling of a, which of the following would be true?

Accepted Answer

A)  The quantity of rental housing demanded would be t. 
B)  The quantity of rental housing supplied would be r. 
C)  There would be a shortage of rental housing. 
D)  All of the above are true. 
A)  The quantity of rental housing demanded would be t. 
B)  The quantity of rental housing supplied would be r. 
C)  There would be a shortage of rental housing. 
D)  All of the above are true.

Question 15

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 16

Suppose an excise tax is imposed on two products X and Y, both of which have identical supply elasticities. The demand for good X is highly elastic, while the demand for good Y is highly inelastic. The deadweight loss (or excess burden) will be

Accepted Answer

A)  equal in both cases. 
B)  larger for good X than good Y. 
C)  larger for good Y than good X. 
D)  zero in both cases. 
A)  equal in both cases. 
B)  larger for good X than good Y. 
C)  larger for good Y than good X. 
D)  zero in both cases.

Question 17

Other things constant, as the price of a resource increases,

Accepted Answer

A)  the quantity of the resource demanded falls. 
B)  the quantity of the resource supplied falls. 
C)  the price of the product the resource helps to produce falls. 
D)  there is less of an incentive for users of the resource to find substitute resources. 
A)  the quantity of the resource demanded falls. 
B)  the quantity of the resource supplied falls. 
C)  the price of the product the resource helps to produce falls. 
D)  there is less of an incentive for users of the resource to find substitute resources.

Question 18

Use the figure below illustrating the impact of an excise tax to answer the following question(s).
Figure 4-6
  
-The deadweight loss of the tax illustrated in Figure 4-6 is given by the area

Accepted Answer

A)  ABEH. 
B)  DFE. 
C)  EKG. 
D)  EFG. 
A)  ABEH. 
B)  DFE. 
C)  EKG. 
D)  EFG.

Question 19

When the top marginal tax rates were lowered substantially during the 1980s, the inflation-adjusted income tax revenue collected from the top 1 percent of all income earners

Accepted Answer

A)  declined sharply. 
B)  remained approximately constant. 
C)  increased substantially. 
D)  did none of the above. 
A)  declined sharply. 
B)  remained approximately constant. 
C)  increased substantially. 
D)  did none of the above.

Question 20

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.

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

A tax tends to

A price ceiling set below an equilibrium price tends to cause persistent imbalances in the market because

If Neleh's income increases from $60,000 to $80,000 and her tax liability increases from $12,000 to $16,000, which of the following is true?

If a local government enacts rent control legislation that sets the price of rental housing below equilibrium, which of the following will most likely happen in the local rental housing market?

Which of the following generalizations about the benefit of a subsidy is correct?

Use the table below to choose the correct answer. The marginal tax rate on income in the $25,000 to $30,000 range is

Other things constant, if a labor union is able to successfully increase the wages of autoworkers, there will be

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?

According to the Laffer curve,

A legally mandated minimum wage is an example of

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because

If Heather's tax liability increases from $10,000 to $16,000 when her income increases from $30,000 to $40,000, her marginal tax rate is

Figure 4-3 -Figure 4-3 indicates the demand (D) and supply (S) for the rental housing market in a large city. If the government imposed a price ceiling of a, which of the following would be true?

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?

Suppose an excise tax is imposed on two products X and Y, both of which have identical supply elasticities. The demand for good X is highly elastic, while the demand for good Y is highly inelastic. The deadweight loss (or excess burden) will be

Other things constant, as the price of a resource increases,

Use the figure below illustrating the impact of an excise tax to answer the following question(s). Figure 4-6 -The deadweight loss of the tax illustrated in Figure 4-6 is given by the area

When the top marginal tax rates were lowered substantially during the 1980s, the inflation-adjusted income tax revenue collected from the top 1 percent of all income earners

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

A : Taking the Nations Economic Pulse

B : Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

A : an Introduction to Basic Macroeconomic Markets

B : an 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

A : Money and the Banking System

B : Money 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

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

Special Topic 1 : Government Spending and Taxation

Special Topic 2 : The Economics of Social Security

Special Topic 3 : The Stock Market: Its Function, Performance, and Potential as an Investment Opportunity

Special Topic 4 : Great Debates in Economics: Keynes Versus Hayek

Special Topic 5 : The Crisis of 2008: Causes and Lessons for the Future

Special Topic 6 : Lessons from the Great Depression

Special Topic 7 : Lessons from Japan and Canada

Special Topic 8 : The Federal Budget and the National Debt

Special Topic 9 : The Economics of Healthcare

Special Topic 10 : Education: Problems and Performance

Special Topic 11 : Earnings Differences Between Men and Women

Special Topic 12 : Do Labor Unions Increase the Wages of Workers?

Special Topic 13 : The Question of Resource Exhaustion

Special Topic 14 : Difficult Environmental Cases and the Role of Government

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