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

Deadweight losses are associated with

Accepted Answer

A)  taxes that distort the incentives that people face. 
B)  taxes that target expenditures on survivor's benefits for Social Security. 
C)  taxes that have no efficiency losses. 
D)  lump-sum taxes. 
A)  taxes that distort the incentives that people face. 
B)  taxes that target expenditures on survivor's benefits for Social Security. 
C)  taxes that have no efficiency losses. 
D)  lump-sum taxes.

Question 3

Exempting teenagers from the minimum wage would probably cause

Accepted Answer

A)  the unemployment rate of teenagers to increase. 
B)  an increase in the demand for unionized labor, which is a good substitute for labor services provided by teenagers. 
C)  an increase in the number of jobs offering on-the-job training to teenagers. 
D)  all of the above. 
A)  the unemployment rate of teenagers to increase. 
B)  an increase in the demand for unionized labor, which is a good substitute for labor services provided by teenagers. 
C)  an increase in the number of jobs offering on-the-job training to teenagers. 
D)  all of the above.

Question 4

An increase in the number of students attending college would tend to

Accepted Answer

A)  reduce the demand for college professors. 
B)  decrease the number of college professors employed. 
C)  increase the demand for college professors. 
D)  reduce the wage for college professors. 
A)  reduce the demand for college professors. 
B)  decrease the number of college professors employed. 
C)  increase the demand for college professors. 
D)  reduce the wage for college professors.

Question 5

When a tax is imposed on a good, the actual incidence of the tax generally

Accepted Answer

A)  falls entirely on the buyer. 
B)  falls entirely on the seller. 
C)  is shared between the buyer and seller. 
D)  is the same as the statutory incidence. 
A)  falls entirely on the buyer. 
B)  falls entirely on the seller. 
C)  is shared between the buyer and seller. 
D)  is the same as the statutory incidence.

Question 6

Which of the following examples illustrates a proportional income tax?

Accepted Answer

A)  I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $1,000 in taxes. 
B)  I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $500 in taxes. 
C)  I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $800 in taxes. 
D)  I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $1,200 in taxes. 
A)  I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $1,000 in taxes. 
B)  I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $500 in taxes. 
C)  I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $800 in taxes. 
D)  I earn $5,000 and pay $500 in taxes; you earn $10,000 and pay $1,200 in taxes.

Question 7

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action?

Accepted Answer

A)  There will be a shortage of corn. 
B)  There will be a surplus of corn. 
C)  There will be a decrease in the quantity of corn demanded as the result of the price ceiling. 
D)  There will be an increase in the quantity of corn supplied as the result of the price ceiling. 
A)  There will be a shortage of corn. 
B)  There will be a surplus of corn. 
C)  There will be a decrease in the quantity of corn demanded as the result of the price ceiling. 
D)  There will be an increase in the quantity of corn supplied as the result of the price ceiling.

Question 8

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 9

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 10

Kathy works full time during the day as an economist and faces a 60 percent marginal tax rate. If Kathy were to get an offer to work a second job in the evenings doing consulting work for a local business for $10,000 per year, how much of this additional income would she be able to keep as net pay after taxes?

Accepted Answer

A)  $1,000 
B)  $4,000 
C)  $6,000 
D)  $10,000 
A)  $1,000 
B)  $4,000 
C)  $6,000 
D)  $10,000

Question 11

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because

Accepted Answer

A)  with shortages and waiting lists, they have no incentive to maintain and improve their property. 
B)  they become resigned to the fact that many of their apartments are going to be vacant at any given time. 
C)  with rent control the government guarantees landlords a minimal level of profit. 
D)  with rent control it becomes the government's responsibility to maintain rental housing. 
A)  with shortages and waiting lists, they have no incentive to maintain and improve their property. 
B)  they become resigned to the fact that many of their apartments are going to be vacant at any given time. 
C)  with rent control the government guarantees landlords a minimal level of profit. 
D)  with rent control it becomes the government's responsibility to maintain rental housing.

Question 12

A law establishing a minimum legal price for a good or service (the minimum wage for example) is known as

Accepted Answer

A)  an equilibrium price. 
B)  a price floor. 
C)  a price ceiling. 
D)  a price wall. 
A)  an equilibrium price. 
B)  a price floor. 
C)  a price ceiling. 
D)  a price wall.

Question 13

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.

Question 14

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)  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. 
B)  Textbook buyers will receive an actual benefit of $20 from the subsidy, while textbook sellers will receive an actual benefit of $10 from the subsidy. 
C)  Textbook buyers will receive the full $30 benefit from the subsidy. 
D)  Textbook sellers will receive the full $30 benefit from the subsidy. 
A)  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. 
B)  Textbook buyers will receive an actual benefit of $20 from the subsidy, while textbook sellers will receive an actual benefit of $10 from the subsidy. 
C)  Textbook buyers will receive the full $30 benefit from the subsidy. 
D)  Textbook sellers will receive the full $30 benefit from the subsidy.

Question 15

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 16

Data from the effects of the substantial tax rate reductions in the 1980s

Accepted Answer

A)  cast serious doubt on the Laffer curve as a guide for tax policy. 
B)  are consistent with the principles illustrated in the Laffer curve. 
C)  generally reject the idea that lower tax rates can lead to higher tax revenue. 
D)  support an "inverted Laffer curve" in which reducing tax rates for those with high incomes leads to lower tax revenue. 
A)  cast serious doubt on the Laffer curve as a guide for tax policy. 
B)  are consistent with the principles illustrated in the Laffer curve. 
C)  generally reject the idea that lower tax rates can lead to higher tax revenue. 
D)  support an "inverted Laffer curve" in which reducing tax rates for those with high incomes leads to lower tax revenue.

Question 17

The Laffer curve illustrates the concept that

Accepted Answer

A)  an increase in marginal tax rates will always cause tax revenues to increase. 
B)  an increase in marginal tax rates will always cause tax revenues to decrease. 
C)  when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase. 
D)  when marginal taxes are quite low, an increase in the tax rate will probably cause tax revenues to decline. 
A)  an increase in marginal tax rates will always cause tax revenues to increase. 
B)  an increase in marginal tax rates will always cause tax revenues to decrease. 
C)  when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues to increase. 
D)  when marginal taxes are quite low, an increase in the tax rate will probably cause tax revenues to decline.

Question 18

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

Accepted Answer

A)  the supply of gasoline would shift to S2. 
B)  the price of gasoline to consumers would increase from $1.20 per gallon to $1.40 per gallon. 
C)  the net price received by producers of gasoline would decline from $1.20 per gallon to $1.00 per gallon. 
D)  all of the above would occur. 
A)  the supply of gasoline would shift to S2. 
B)  the price of gasoline to consumers would increase from $1.20 per gallon to $1.40 per gallon. 
C)  the net price received by producers of gasoline would decline from $1.20 per gallon to $1.00 per gallon. 
D)  all of the above would occur.

Question 19

Kathy works full time during the day as an economist and faces a 90 percent marginal tax rate. If Kathy were to get an offer to work a second job in the evenings doing consulting work for a local business for $10,000 per year, how much of this additional income would she be able to keep as net pay after taxes?

Accepted Answer

A)  $1,000 
B)  $4,000 
C)  $6,000 
D)  $10,000 
A)  $1,000 
B)  $4,000 
C)  $6,000 
D)  $10,000

Question 20

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)

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

When prices of products are set below equilibrium,

Deadweight losses are associated with

Exempting teenagers from the minimum wage would probably cause

An increase in the number of students attending college would tend to

When a tax is imposed on a good, the actual incidence of the tax generally

Which of the following examples illustrates a proportional income tax?

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action?

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

The average tax rate is defined as

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because

A law establishing a minimum legal price for a good or service (the minimum wage for example) is known as

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

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,

Data from the effects of the substantial tax rate reductions in the 1980s

The Laffer curve illustrates the concept that

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

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?

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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