Deck 15: Price Regulation, Taxes and Subsidies

Question 1

Which of the following statements is true?

A)A binding price ceiling results in excess supply.
B)A non-binding price ceiling results in excess demand.
C)A non-binding price ceiling results in excess supply.
D)A binding price ceiling results in excess demand.
E)a and c are correct.

Answer 1

A binding price ceiling results in excess demand.

Question 2

Which statement is true?

A)The economic incidence of a tax depends on the legal incidence of a tax.
B)The economic incidence of a tax does not depend on the legal incidence of a tax.
C)The economic incidence is always shared between the buyers and sellers in the market.
D)A tax is always paid for equally by suppliers and buyers in a market, irrespective of which side of the market is legally responsible for the tax.
E)None of the above.

Answer 2

The economic incidence of a tax does not depend on the legal incidence of a tax.

Question 3

Consider a market with a demand curve of P = 15 - q and a supply curve of P = 2q.If the government levies a tax on consumers of $3 per unit, what is the resulting DWL?

A)DWL = $0
B)DWL = $1
C)DWL = $1.5
D)DWL = $2
E)DWL = $3

Answer 3

DWL = $1.5

Question 4

Consider a market in which the law of demand hold, but supply is perfectly inelastic.The government levies a tax on consumers of t per unit consumed.In this case

A)Consumer and suppliers share the incidence of the tax; the DWL is increasing in the price elasticity of demand.
B)Consumer and supplier share the incidence of the tax; there is no DWL.
C)Suppliers pay for part of the tax; the DWL is increasing in the price elasticity of demand.
D)Suppliers pay for all of the tax; the DWL is zero.
E)None of the above.

Question 5

Consider a market with a demand curve of P = 15 - q and a supply curve of P = 2q.If the government levies a tax on consumers of $3 per unit, what are the prices paid by consumers (P^c) and the price received by suppliers (P^s)?

A)P^c = 10, P^s = 7.
B)P^c = 12, P^s = 9.
C)P^c = 10, P^s = .10
D)P^c = 11, P^s = 8.
E)P^c = 13, P^s = .10

Question 6

Consider a market in which demand is given by P = 30 - 2q and supply is given by P = q.If the government imposes a tax of $6 per unit on suppliers, the resulting DWL is:

A)$0
B)$2
C)$4
D)$6
E)$8

Question 7

Which statement is true?

A)A positive tax can create a DWL and not raise any revenue.
B)A tax that raises no revenue will never create a DWL.
C)A tax that raises tax revenue will create a DWL.
D)All of the above statements are true.
E)None of the above.

Question 8

Consider a market with a demand curve of P = 15 - q and a supply curve of P = 2q.If the government levies a tax on consumers of $3 per unit, what is the equilibrium quantity traded in the market.

A)3
B)4
C)5
D)6
E)7

Question 9

Which of the following statements is true?

A)A non-binding price floor results in excess supply.
B)A binding price floor results in excess supply.
C)A binding price floor results in excess demand.
D)A non-binding price floor results in excess demand.
E)None of the above statements are true.

Question 10

Consider a market in which demand is given by P = 30 - 2q and supply is given by P = q.If the government imposes a tax of $6 per unit on suppliers:

A)Consumers pay a price of $16 and suppliers receive a net price (not including the tax) of $10.
B)Consumers pay a price of $12 and suppliers receive a net price (not including the tax) of $6.
C)Consumers pay a price of $14 and suppliers receive a net price (not including the tax) of $8.
D)Consumers pay a price of $20 and suppliers receive a net price (not including the tax) of $14.
E)None of the above.