Deck 6: Government Actions in Markets

Question 1

A price ceiling, such as a rent ceiling,

A) results in a surplus if the ceiling price is less than the equilibrium price.
B) always results in a surplus.
C) results in a shortage if the ceiling price is less than the equilibrium price.
D) always results in a shortage.

Answer 1

results in a shortage if the ceiling price is less than the equilibrium price.

Question 2

In the above figure, the price paid by the buyer before the tax is _______ per compact disc, and the price paid by the buyer after the tax is _______ per compact disc.

A) $30; $20
B) $20; $20
C) $20; $30
D) $30; $30

Answer 2

$20; $30

Question 3

In the above figure, if the minimum wage is set at $8 per hour, the level of unemployment is _______ Hours per week.

A) 40 million
B) 0
C) 20 million
D) 30 million

Answer 3

20 million

Question 4

The government sets a price floor for wheat which is above the equilibrium price of wheat. As a result,

A) the wheat market will be efficient.
B) a shortage of corn will be created.
C) a deadweight loss will be created.
D) None of the above answers is correct.

Question 5

The figure shows the market for books before and after a sales tax is introduced. The tax on books is _______ A book, buyers pay _______ of tax per book, and the government's tax revenue is _______ A week.

A) $1.20; $0.80; $12
B) $0.40; $0.40; $4
C) $1.20; $0.80; $128
D) $0.80; $1.20; $12

Question 6

A production quota

A) is inefficient because it results in overproduction.
B) is efficient because it results in overproduction.
C) is efficient for quantities below the equilibrium quantity and is inefficient for quantities above the equilibrium quantity.
D) is inefficient because it results in underproduction.

Question 7

If the minimum wage is set above the equilibrium wage, a supply and demand diagram of the low- skilled labour market will show unemployment as

A) the area of a rectangle.
B) the area of a triangle.
C) a horizontal distance.
D) a vertical distance.

Question 8

In the above figure suppose a minimum wage of $8 per hour is imposed. As a result, the quantity of labour supplied is _______ hours and the quantity of labour demanded is _______ hours.

A) 4,000; 4,000
B) 3,000; 4,000
C) 4,000; 2,000
D) 2,000; 4,000

Question 9

When a tax is imposed on the suppliers of a good or service, then

A) in general, the producers pay all the tax.
B) the demanders pay a larger part of the tax as the demand for the product becomes less elastic.
C) the demanders pay a larger part of the tax as the demand for the product becomes more elastic.
D) in general, the consumers pay all the tax.

Question 10

The opportunity cost of buying a good includes
I. The price of the good.
II. The value of time spent searching for the good.

A) Only I
B) Only II
C) Both I and II
D) Neither I nor II

Question 11

In the above figure, CBL is the cost of breaking the law. If the good in the figure is made illegal and penalties are imposed on both buyers and sellers, then its price per unit

A) will be lower than if it was not illegal.
B) cannot be compared with its price when it was legal.
C) will be the same as when it was not illegal.
D) will be higher than if it was not illegal.

Question 12

In the table above, what is the level of unemployment (in millions of workers) if the minimum wage is set at $8 per hour?

A) 3
B) 0
C) 1
D) 4

Question 13

Among the factors that create a deadweight loss and inefficiency are

A) minimum wages, rent ceilings and taxes.
B) taxes, but not minimum wages or rent ceilings.
C) rent ceilings, but not taxes.
D) minimum wages, but not taxes.

Question 14

A price ceiling can result in which of the following?

A) Black markets
B) Inefficiency
C) Increased search activities
D) All of the above answers are correct.

Question 15

When a tax is imposed on sellers, the supply curve shifts so that the vertical distance between the old and the new supply curve equals the

A) tax multiplied by the price elasticity of demand.
B) amount of the tax.
C) tax multiplied by the price elasticity of supply.
D) tax divided by the price elasticity of demand.

Question 16

In general, a fine on smoking cigarettes shifts the _______ curve of cigarettes _______.

A) supply; leftward
B) demand; rightward
C) demand; leftward
D) supply; rightward

Question 17

The figure above shows the demand for and supply of labour of students in Smallville. If the minimum wage is set at $4 per hour, how many hours do students work?

A) 12,000 hours
B) 6,000 hours
C) 9,000 hours
D) None of the above answers is correct.

Question 18

A rent ceiling

A) cannot change the market price.
B) generally aims at insuring that landlords receive a higher rent than would otherwise be the case.
C) set above equilibrium price has no effect.
D) increases the quantity of rental units supplied.

Question 19

Which of the following is a correct statement about markets for prohibited goods?

A) Penalising either buyers or sellers of an illegal good decreases the quantity bought.
B) Penalising sellers of an illegal good decreases supply and penalising buyers decreases demand.
C) Taxing a good at a sufficiently high rate can achieve the same consumption level as prohibition.
D) All of the above are correct statements.

Question 20

The demand for and the supply of a good are each neither perfectly elastic nor perfectly inelastic. If a sales tax on sellers of the good is imposed, the tax burden falls on

A) only sellers.
B) only buyers.
C) both buyers and sellers.
D) neither buyers nor sellers.

Question 21

The above figure shows the apartment rental market in Bigtown. If the Bigtown Housing Authority imposes a rent ceiling of $500 per apartment, the deadweight loss will be

A) $125,000.
B) $500,000.
C) $250,000.
D) $1,000,000.

Question 22

The figure above illustrates a rental housing market in which there is a rent ceiling of $400 a month. The rent ceiling is strictly enforced. The number of apartments rented is

A) less than 2,000.
B) 2,000.
C) 4,000.
D) 3,000.

Question 23

If penalties are imposed only on buyers (but not on sellers) of marijuana, the equilibrium price of marijuana will _______, and the equilibrium quantity of marijuana sold _______.

A) fall; decreases
B) fall; increases
C) rise; increases
D) rise; decreases

Question 24

If penalties are imposed on the sellers of illegal goods or services, then the equilibrium price _______ And the equilibrium quantity _______.

A) falls; decreases
B) rises; increases
C) falls; increases
D) rises; decreases

Question 25

The figure above shows the demand for and supply of rental housing in Smallton. If a rent ceiling is set at $800, what is the rent?

A) $400
B) $800
C) $600
D) None of the above answers is correct.

Question 26

The buyers pay the entire sales tax levied on a good when demand is perfectly _______ or supply is perfectly _______.

A) elastic; elastic
B) inelastic; elastic
C) inelastic; inelastic
D) elastic; inelastic

Question 27

In the above figure, the amount of tax revenue is

A) $8,000.
B) $4,000.
C) $2,000.
D) $6,000.

Question 28

The government wants to increase its tax revenue and plans to implement an additional sales tax. The government will raise more tax revenue if it taxes a good with an _______ rather than a good with an _______ .

A) elastic supply; inelastic supply
B) elastic demand; inelastic demand
C) inelastic demand; elastic demand
D) None of the above answers is correct.

Question 29

The above figure shows the demand and supply curves for housing in City B. What would be the effects of a rent ceiling equal to $1,000 per month?

A) A shortage equal to 3,000 apartments
B) A surplus equal to 3,000 apartments
C) A surplus equal to 250 apartments
D) Nothing because the rent ceiling has no effect on the equilibrium price and quantity.

Question 30

After a $3 per- unit tax on seeing movies in theatres is imposed, attendance falls from 4,000 a week to 3,000 a week. The revenue from the tax is

A) less than $9,000 a week.
B) between $9,000 a week and $12,000 a week.
C) $9,000 a week.
D) some amount that cannot be calculated without more information.

Question 31

The figure above illustrates the market for posters. The tax on a poster is _______ and the government's tax revenue from the sale of posters is _______ a month.

A) $0.50; $150
B) $0.35; $140
C) $0.35; $200
D) $0.35; $105

Question 32

When a good is made illegal, which of the following definitely results in the price rising?

A) A much higher fine on buyers than on sellers
B) A much higher fine on sellers than on buyers
C) Any fine imposed on buyers
D) Any fine imposed on both buyers and sellers

Question 33

If a production quota is set below the equilibrium quantity, at the quota quantity marginal benefit is _______ marginal cost and the level of production is _______.

A) greater than; efficient
B) less than; inefficient
C) greater than; inefficient
D) equal to; efficient

Question 34

A price floor is a price

A) below which a seller cannot legally sell.
B) above which a seller cannot legally sell.
C) that creates a surplus of the good if it is set above the equilibrium price.
D) Both answers A and C are correct.

Question 35

Suppose the local government places a tax on hotel rooms and the demand for these rooms is elastic while the supply is perfectly inelastic. The tax incidence is such that the tax will be paid

A) equally by the consumers and the producers.
B) only by the producers.
C) by the taxpayers.
D) only by the consumers.

Question 36

How a tax is divided between buyers and sellers is determined by

A) the elasticities of supply and demand.
B) the revenue needs of government.
C) the government's choice of whom to tax.
D) who the law says must pay the tax.

Question 37

Making the buying and selling of a good illegal shifts the demand curve _______ and shifts the supply curve _______.

A) rightward; leftward
B) leftward; rightward
C) leftward; leftward
D) rightward; rightward

Question 38

In the above figure, a price floor of $4

A) shifts the demand curve leftward.
B) leads to a shortage.
C) has no effect.
D) leads to a surplus.

Question 39

You are in the business of producing and selling hamburgers, french fries, pizza and ice cream. The mayor plans to impose a tax on one of these products. Based on the elasticities in the above table, as a profit- minded business person who seeks to avoid taxes whenever possible, which good would you most prefer to have taxed?

A) Ice cream
B) Hamburgers
C) French fries
D) Pizza

Question 40

The figure above shows the market for books before and after a sales tax is introduced. Each week, the tax creates a deadweight loss of _______, decreases consumer surplus by _______, and decreases producer surplus by _______.

A) $12; $8; $4
B) $3; $10; $5
C) $15; $10; $5
D) $3; $2; $1

Question 41

A minimum wage set above the equilibrium wage rate is a price _______ that _______ the quantity of low- skilled labour demanded.

A) ceiling; decreases
B) ceiling; increases
C) floor; increases
D) floor; decreases

Question 42

A tax is imposed on the sale of a product. As long as neither the supply nor the demand is perfectly elastic or inelastic,

A) the price paid by consumers increases by the full amount of the tax.
B) the price paid by consumers increases by less than the amount of the tax.
C) the price paid by consumers increases by more than the amount of the tax.
D) there is no change in the price paid by consumers.

Question 43

The amount of a tax paid by the buyers will be smaller, the

A) more inelastic the demand and the more elastic the supply.
B) more elastic are both the supply and demand.
C) more inelastic are both the supply and demand.
D) more elastic the demand and the more inelastic the supply.

Question 44

Which of the following statements is true about taxes?

A) Government revenue from a tax is always greater than the loss of producer surplus and consumer surplus.
B) Taxes always create more deadweight loss than do price ceilings and price floors.
C) Taxes decrease both consumer surplus and producer surplus while creating a deadweight loss.
D) Both answers A and C are correct.

Question 45

A good has a downward- sloping demand curve and a perfectly elastic supply. Imposing a sales tax of $1 per unit on the sellers of the good

A) raises the price paid by demanders by less than $1.00.
B) raises the price paid by demanders by more than $1.00.
C) raises the price paid by demanders by $1.00.
D) does not change the price paid by demanders.

Question 46

The government of Healthyland imposes a tax on sellers of salt. The tax is $1.00 per kilogram. With no tax, the price of salt is $4.00 per kilogram. The demand for salt is perfectly inelastic and the elasticity of supply is 1.5. With the tax, the price that sellers of salt in Healthyland receive and keep is

A) $5.00 per kilogram.
B) $4.50 per kilogram.
C) $4.00 per kilogram.
D) $3.50 per kilogram.

Question 47

In the market for books, initially there are no taxes on books. Books are normal goods. The government introduces a tax of $4 a book and, at the same time, people's income fall by $4,000 a year. Following these two changes, the equilibrium quantity of books

A) remains unchanged.
B) increases.
C) decreases.
D) either increases or decreases, we cannot say which.

Question 48

In order to have an effect, a price ceiling must be set

A) below the equilibrium price.
B) above the equilibrium price.
C) equal to the equilibrium price.
D) by suppliers.

Question 49

The government raises the tax on shirts. The tax is imposed on sellers. As a result, the

A) demand curve for shirts becomes vertical.
B) demand curve for shirts becomes horizontal.
C) supply curve of shirts shifts rightward.
D) supply curve of shirts shifts leftward.

Question 50

Suppose the government wants to discourage the use of cigarettes. If it imposes a tax on cigarettes, the equilibrium quantity falls the most when the elasticity of demand equals

A) 0.50.
B) 1.00.
C) 0.
D) 2.00.

Question 51

The above figure shows the labour market in an undeveloped nation. If the minimum wage is set at
$5)00 per hour, what effect will it have on the market for low- skilled labour?

A) The minimum wage will have no effect when set above the equilibrium wage rate.
B) The minimum wage will create a surplus of low- skilled labour.
C) The minimum wage will attract more labour to the low- skilled labour market and cause the wage rate to fall.
D) The minimum wage will create a shortage of low- skilled labour.

Question 52

A minimum wage set above the equilibrium wage rate is a price

A) floor that results in a shortage of low- skilled labour.
B) floor that results in a surplus of low- skilled labour.
C) ceiling that results in a shortage of low- skilled labour.
D) ceiling that results in a surplus of low- skilled labour.

Question 53

In the figure above, imposing a tax on the sellers of the product results in a division in which

A) all of the tax is paid by the sellers.
B) the buyers and sellers pay the same amount.
C) neither the buyers nor the sellers pay the tax.
D) all of the tax is paid by the buyers.

Question 54

When a rent ceiling is imposed in a housing market, the opportunity cost of housing equals the

A) rent.
B) market equilibrium rent that would prevail in the absence of a rent ceiling.
C) consumer surplus.
D) value of the time and resources spent searching plus the rent.

Question 55

The figure above shows the market for rental units in Gladstone. The market is in equilibrium. The government now introduces a rent ceiling of $500 a month. The price of a rental unit _______ and the number of units rented _______.

A) remains the same; remains the same
B) increases by $500 per month; decreases
C) increases by $100 per month; increases
D) decreases by $100 per month; decreases

Question 56

The more _______, the larger is the amount of the tax on the good that the _______ pays.

A) elastic the supply of a good; seller
B) inelastic the demand for a good; buyer
C) inelastic the supply of a good; buyer
D) elastic the demand for a good; buyer

Question 57

Of the $3 per pizza tax illustrated in the above figure, the

A) government collects $120,000 in revenue.
B) consumers pay $2.
C) sellers pay $1.
D) All of the above answers are correct.

Question 58

Suppose a $1 tax is placed on a good. The more elastic the supply of the good, the

A) smaller the decrease in the quantity sold.
B) more of the tax will be paid by the sellers.
C) larger the increase in the after- tax price.
D) less of the tax will be paid by the buyers.

Question 59

If demand is perfectly elastic, a sales tax is paid by

A) only the sellers.
B) only the buyers.
C) both the buyers and sellers.
D) None of the above answers is correct.

Question 60

If penalties for trading illegal drugs are instituted on both buyers and sellers, the

A) price might rise or fall, but the quantity will decrease.
B) price and the quantity will both increase.
C) price and the quantity will both decrease.
D) quantity might increase or decrease but the price will rise.

Question 61

If the government makes a good illegal and then imposes stiffer penalties on illegal drug buyers than on sellers, the price of the good _______ and the quantity _______.

A) falls; increases
B) falls; decreases
C) rises; decreases
D) does not change; decreases

Question 62

To help pay for the cost of sport- related injuries, the government imposes a tax on sellers of all sports equipment. Using the above figure, how much producer surplus is lost from this tax on sports equipment?

A) abd
B) P0P1da
C) P0P1ba
D) acd

Question 63

A rent ceiling creates a shortage. As a result, there is

A) a surplus of housing.
B) a decrease in the producer surplus in the housing market.
C) an increase in the producer surplus in the housing market.
D) an efficient allocation of housing.

Question 64

When a government imposes penalties on both sellers and buyers of an illegal good, the price of the good _______ and the quantity _______.

A) falls; decreases
B) falls; might increase, decrease or not change
C) might rise, fall or not change; decreases
D) rises; might increase, decrease or not change

Question 65

If the government decreases the tax on mobile phones,

A) the deadweight loss decreases.
B) the market becomes less efficient because the government collects less tax revenue.
C) the consumer surplus does not change because sellers will not lower the price of a mobile phone call.
D) the number of mobile phones purchased does not change.

Question 66

Suppose the Australian Government sets a production quota for dairy production above the equilibrium quantity. Then,

A) the policy will decrease revenue received by dairy producers.
B) the policy will raise the price of milk in the international market.
C) the policy will increase the quantity of milk produced in Australia.
D) the policy will have no impact on the dairy industry.

Question 67

When a government fines and/or imprisons convicted drug dealers, it is attempting to reduce the illegal drug trade by shifting the _______ curve for illegal drugs _______.

A) demand; leftward
B) supply; leftward
C) demand; rightward
D) supply; rightward

Question 68

If salt has a _______, then _______ pay most of any tax levied on salt.

A) low elasticity of demand; buyers
B) high elasticity of demand; buyers
C) low elasticity of supply; buyers
D) high elasticity of supply; sellers

Question 69

In the figure above, imposing a tax on the product results in a division in which

A) neither the buyers nor the sellers pay the tax.
B) all of the tax is paid by the buyers.
C) all of the tax is paid by the sellers.
D) the buyers and sellers pay the same amount.

Question 70

If supply is perfectly inelastic, a sales tax imposed on sellers is paid by

A) only the buyers.
B) only the sellers.
C) both the buyers and sellers.
D) None of the above answers is correct.

Question 71

The government of Healthyland imposes a tax on sellers of salt. The tax is $1.00 per kilogram. With no tax, the price of salt is $4.00 per kilogram. The demand for salt is perfectly inelastic and the elasticity of supply is 1.5. With the tax, the price of salt paid by buyers in Healthyland is

A) $5.00 per kilogram.
B) $3.50 per kilogram.
C) $4.50 per kilogram.
D) $4.00 per kilogram.

Question 72

Which of the following is NOT true about the $3 per pizza tax illustrated in the above figure?

A) It creates a deadweight loss of $135,000.
B) It decreases producer surplus by $45,000.
C) It decreases consumer surplus by $90,000.
D) None of the above because they are all true.

Question 73

The supply of oil is more elastic than the demand for oil. If oil is taxed $10 per barrel, how will the tax be divided between the buyers and sellers?

A) The sellers will pay more of the tax than the buyers.
B) The sellers and buyers will split the tax evenly.
C) The buyers will pay more of the tax than the sellers.
D) The sellers will pay the entire tax.

Question 74

When the minimum wage is set above the equilibrium wage rate, the number of hours of labour employed is determined by the _______ and the _______.

A) supply of labour; minimum wage
B) demand for labour; minimum wage
C) supply of and demand for labour; the minimum wage
D) demand for labour; supply of labour

Question 75

A production quota

A) is a payment made by the government to a producer.
B) is an upper limit to the quantity of a good that can be produced in a specified period.
C) is a lower limit to the quantity of a good that can be produced in a specified period.
D) is a payment made by a producer to a consumer.

Question 76

The above figure shows the apartment market in Big City. What could the Big City Housing Authority do if it wants to reduce the rents paid by its citizens?

A) Impose a rent floor above $1,350
B) Impose a rent ceiling above $1,350
C) Impose a rent ceiling below $1,350
D) Impose a rent floor below $1,350

Question 77

The above figure shows the market for neckties after the government has imposed a tax. How much government revenue is generated by the tax?

A) $500 per month
B) $800 per month
C) $1,000 per month
D) $400 per month

Question 78

The market for unskilled labour is illustrated in the figure above. The market is in equilibrium and then a minimum wage of $5 per hour is imposed. Employment will fall by

A) 0 hours.
B) 20 million hours per year.
C) 10 million hours per year.
D) 30 million hours per year.

Question 79

The table above shows the demand and supply schedules for rice. With a quota of 2,000 boxes a week, the price of a box of rice is _______, the marginal cost of producing rice is _______ a box, and the quantity of rice produced is _______ boxes a week.

A) $1.40; $1.40; 2,000
B) $1.40; $1.40; 2,500
C) $1.60; $1.30; 2,000
D) $1.30; $1.60; 2,000

Question 80

A $10 per- unit tax on mobile phones raises the equilibrium price paid by consumers by $5. Before
The tax, 5,000 mobile phones were sold per year. The revenue from the tax is

A) more than $50,000 per year.
B) positive but less than $50,000 per year.
C) zero.
D) $50,000 per year.