Question 1

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 2

Use the figure below to answer the following question(s).
Figure 4-10
  
-Figure 4-10 shows the market for a good before and after an excise tax is imposed. What does the triangular area C represent?

Accepted Answer

A)  the deadweight loss accompanying the tax 
B)  the tax revenue derived from sellers 
C)  the tax revenue derived from buyers 
D)  the total tax revenue generated by the tax 
A)  the deadweight loss accompanying the tax 
B)  the tax revenue derived from sellers 
C)  the tax revenue derived from buyers 
D)  the total tax revenue generated by the tax

Question 3

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.

Question 4

A tax imposed on the sellers of a good

Accepted Answer

A)  raises both the price buyers pay and the net price received by sellers. 
B)  raises the price buyers pay and lowers the net price received by sellers. 
C)  lowers the price buyers pay and raises the net price received by sellers. 
D)  lowers both the price buyers pay and the price received by sellers. 
A)  raises both the price buyers pay and the net price received by sellers. 
B)  raises the price buyers pay and lowers the net price received by sellers. 
C)  lowers the price buyers pay and raises the net price received by sellers. 
D)  lowers both the price buyers pay and the price received by sellers.

Question 5

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

Accepted Answer

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

Question 6

A politician was recently quoted as saying, "Our country can only reach full employment by raising the minimum wage, which would cause the demand for products to increase . . . and eventually cause production to expand." His analysis overlooks the fact that

Accepted Answer

A)  minimum wage legislation increases costs of production (and thus product prices) and creates an excess supply (unemployment) of unskilled labor. 
B)  automation is the prime cause of unemployment. 
C)  full employment can only be reached by increasing the minimum wage substantially. 
D)  minimum wage legislation may increase the employment of low-skilled workers, but this will be offset by an equal reduction in the employment of skilled workers. 
A)  minimum wage legislation increases costs of production (and thus product prices) and creates an excess supply (unemployment) of unskilled labor. 
B)  automation is the prime cause of unemployment. 
C)  full employment can only be reached by increasing the minimum wage substantially. 
D)  minimum wage legislation may increase the employment of low-skilled workers, but this will be offset by an equal reduction in the employment of skilled workers.

Question 7

How would a decrease in lumber prices influence the home construction market?

Accepted Answer

A)  The demand for newly constructed homes will increase. 
B)  The demand for newly constructed homes will decrease. 
C)  The supply of newly constructed homes will increase. 
D)  The supply of newly constructed homes will decrease. 
A)  The demand for newly constructed homes will increase. 
B)  The demand for newly constructed homes will decrease. 
C)  The supply of newly constructed homes will increase. 
D)  The supply of newly constructed homes will decrease.

Question 8

Which of the following examples illustrates a regressive income tax?

Accepted Answer

A)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $90 in taxes. 
B)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes. 
C)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $110 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 $90 in taxes. 
B)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $100 in taxes. 
C)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $110 in taxes. 
D)  I earn $500 and pay $50 in taxes; you earn $1,000 and pay $125 in taxes.

Question 9

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 10

Which of the following statements is correct?

Accepted Answer

A)  Whenever a per-unit tax is imposed, sellers always pass on the full amount of the tax to consumers in the form of higher prices. 
B)  The burden of a per-unit tax on cigarettes would likely fall more on consumers than would the burden of a tax on imported bottled water. 
C)  The burden of a per-unit tax is always equally shared between producers and consumers. 
D)  When a per-unit tax is imposed, the total losses to producers and consumers exactly equal the amount of revenue collected by the government. 
A)  Whenever a per-unit tax is imposed, sellers always pass on the full amount of the tax to consumers in the form of higher prices. 
B)  The burden of a per-unit tax on cigarettes would likely fall more on consumers than would the burden of a tax on imported bottled water. 
C)  The burden of a per-unit tax is always equally shared between producers and consumers. 
D)  When a per-unit tax is imposed, the total losses to producers and consumers exactly equal the amount of revenue collected by the government.

Question 11

A subsidy on a product will generate more actual benefit for consumers (and less for producers) 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 12

If we observe long lines of people camping out to get tickets to a concert, this tells us

Accepted Answer

A)  the ticket price is below the market equilibrium price. 
B)  the ticket price is above the market equilibrium price. 
C)  it is likely to be a good concert, but it doesn't tell us anything about the ticket price. 
D)  the opportunity cost of time of the people in line is higher than the average for the general population. 
A)  the ticket price is below the market equilibrium price. 
B)  the ticket price is above the market equilibrium price. 
C)  it is likely to be a good concert, but it doesn't tell us anything about the ticket price. 
D)  the opportunity cost of time of the people in line is higher than the average for the general population.

Question 13

If a $5,000 tax is placed legally (statutorily) on the sellers of new automobiles and as a result the price of automobiles to consumers rises by $4,000, then the actual burden of the tax

Accepted Answer

A)  falls completely on automobile buyers. 
B)  falls completely on automobile sellers. 
C)  is $4,000 on automobile buyers and $1,000 on sellers. 
D)  is $1,000 on automobile buyers and $4,000 on sellers. 
A)  falls completely on automobile buyers. 
B)  falls completely on automobile sellers. 
C)  is $4,000 on automobile buyers and $1,000 on sellers. 
D)  is $1,000 on automobile buyers and $4,000 on sellers.

Question 14

Which of the following statements is true?

Accepted Answer

A)  In both black markets and legal markets, supply and demand determine price. 
B)  The quality of products sold in black markets and legal markets are similar. 
C)  The price of products in black markets tends to be the same as those in legal markets for otherwise identical products. 
D)  The rate of violence is similar in black markets and legal markets. 
A)  In both black markets and legal markets, supply and demand determine price. 
B)  The quality of products sold in black markets and legal markets are similar. 
C)  The price of products in black markets tends to be the same as those in legal markets for otherwise identical products. 
D)  The rate of violence is similar in black markets and legal markets.

Question 15

The large amount of violence associated with the current drug trade is mostly caused by

Accepted Answer

A)  the fact that drug markets must operate outside the normal legal system. 
B)  buyers and sellers often being under the influence of drugs at the time of the transaction. 
C)  buyers and sellers who are often unfamiliar with conducting normal transactions within the legal system. 
D)  the lack of quantity supplied and quantity demand being in balance in black markets because there is no equilibrium price in these markets. 
A)  the fact that drug markets must operate outside the normal legal system. 
B)  buyers and sellers often being under the influence of drugs at the time of the transaction. 
C)  buyers and sellers who are often unfamiliar with conducting normal transactions within the legal system. 
D)  the lack of quantity supplied and quantity demand being in balance in black markets because there is no equilibrium price in these markets.

Question 16

Figure 4-2
  
-Given the demand and supply conditions shown in Figure 4-2, if the government imposes a price ceiling of a, indicate the quantity consumers would like to buy and the amount producers would be willing to supply.

Accepted Answer

A)  Consumers would want to buy t; producers would be willing to sell r. 
B)  Consumers would want to buy r; producers would be willing to sell t. 
C)  Consumers would want to buy t; producers would be willing to sell s. 
D)  Consumers would want to buy s; producers would be willing to sell s. 
A)  Consumers would want to buy t; producers would be willing to sell r. 
B)  Consumers would want to buy r; producers would be willing to sell t. 
C)  Consumers would want to buy t; producers would be willing to sell s. 
D)  Consumers would want to buy s; producers would be willing to sell s.

Question 17

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 18

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 19

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 20

Which of the following is true?

Accepted Answer

A)  An increase in the minimum wage will reduce the training opportunities available to inexperienced workers. 
B)  The minimum wage is an example of a price floor. 
C)  Most minimum wage workers are employed part-time, and they are generally either a spouse or a teenage member of a household with an income well above the poverty level. 
D)  All of the above are true. 
A)  An increase in the minimum wage will reduce the training opportunities available to inexperienced workers. 
B)  The minimum wage is an example of a price floor. 
C)  Most minimum wage workers are employed part-time, and they are generally either a spouse or a teenage member of a household with an income well above the poverty level. 
D)  All of the above are true.

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

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

Use the figure below to answer the following question(s). Figure 4-10 -Figure 4-10 shows the market for a good before and after an excise tax is imposed. What does the triangular area C represent?

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

A tax imposed on the sellers of a good

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

A politician was recently quoted as saying, "Our country can only reach full employment by raising the minimum wage, which would cause the demand for products to increase . . . and eventually cause production to expand." His analysis overlooks the fact that

How would a decrease in lumber prices influence the home construction market?

Which of the following examples illustrates a regressive income tax?

An increase in the demand for a product will cause the

Which of the following statements is correct?

A subsidy on a product will generate more actual benefit for consumers (and less for producers) when

If we observe long lines of people camping out to get tickets to a concert, this tells us

If a $5,000 tax is placed legally (statutorily) on the sellers of new automobiles and as a result the price of automobiles to consumers rises by $4,000, then the actual burden of the tax

Which of the following statements is true?

The large amount of violence associated with the current drug trade is mostly caused by

Figure 4-2 -Given the demand and supply conditions shown in Figure 4-2, if the government imposes a price ceiling of a, indicate the quantity consumers would like to buy and the amount producers would be willing to supply.

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

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

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

Which of the following is true?

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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