Deck 15: Market Intervention

Question 1

The incidence of a tax:

A) falls entirely on consumers if demand is perfectly elastic.
B) falls entirely on consumers if demand is perfectly inelastic.
C) is shared by suppliers and consumers if demand is perfectly elastic.
D) falls entirely on suppliers if demand is perfectly inelastic.

Answer 1

falls entirely on consumers if demand is perfectly inelastic.

Question 2

The deadweight loss of taxation:

A) is the lost consumer surplus due to a gain in producer surplus from a tax.
B) is the lost producer surplus due to a gain in consumer surplus from a tax.
C) is the lost aggregate surplus due to a tax.
D) is the difference between consumer and producer surplus after a tax.

Answer 2

is the lost aggregate surplus due to a tax.

Question 3

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The producer surplus after the tax is:

A) $3.56 million.
B) $4.50 million.
C) $1.89 million.
D) $7.11 million.

Answer 3

$3.56 million.

Question 4

The incidence of a tax:

A) falls entirely on consumers if supply is perfectly inelastic.
B) falls entirely on consumers if demand is perfectly elastic.
C) is shared by suppliers and consumers if demand is perfectly elastic.
D) falls entirely on suppliers if demand is perfectly elastic.

Question 5

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The change in producer surplus due to the tax is:

A) $3.56 million.
B) $1.89 million.
C) $7.11 million.
D) $944,444.

Question 6

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The loss in consumer surplus due to the tax is:

A) $3.56 million.
B) $1.89 million.
C) $7.11 million.
D) $944,444.

Question 7

An ad valorem tax:

A) is a fixed dollar amount that must be paid on each unit bought or sold.
B) is a tax that is stated as a percentage of the good's price.
C) is a tax that is stated as a percentage of the good's price, which increases as quantity bought increases.
D) is a tax that is only paid by producers.

Question 8

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The price paid by buyers with the tax is:

A) $2.00.
B) $2.33.
C) $2.50.
D) $2.25.

Question 9

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The price received by sellers with the tax is:

A) $2.33.
B) $1.50.
C) $1.75.
D) $1.83.

Question 10

More of a tax is borne by firms:

A) the more elastic is demand and the less elastic is supply.
B) the less elastic is demand and the less elastic is supply.
C) the more elastic is demand and the more elastic is supply.
D) the less elastic is demand and the more elastic is supply.

Question 11

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The aggregate surplus with the tax is:

A) $7.11 million.
B) $3.56 million.
C) $13.50 million.
D) $10.67 million.

Question 12

The incidence of a tax:

A) falls entirely on suppliers if supply is perfectly elastic.
B) falls entirely on suppliers if demand is perfectly inelastic.
C) falls entirely on consumers if supply is perfectly elastic.
D) falls entirely on consumers if demand is perfectly elastic.

Question 13

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The government revenue raised by the tax is:

A) $944,444.
B) $2.67 million.
C) $1.83 million.
D) $4.50 million.

Question 14

There is no deadweight loss from a tax:

A) only if demand is perfectly elastic.
B) only if supply is perfectly inelastic.
C) if either demand or supply is perfectly elastic.
D) if either demand or supply is perfectly inelastic.

Question 15

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The deadweight loss due to the tax is:

A) $944,444.
B) $2.83 million.
C) $1.67 million.
D) $1.89 million.

Question 16

A specific tax:

A) is a fixed dollar amount that must be paid on each unit bought or sold.
B) is a tax that is stated as a percentage of the good's price.
C) is a tax that is stated as a percentage of the good's price, which increases as quantity bought increases.
D) is a tax that is only paid by producers.

Question 17

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The consumer surplus with the tax is:

A) $166,667.
B) $3.56 million.
C) $7.11 million.
D) $9 million.

Question 18

The federal gasoline tax is an example of:

A) a specific tax.
B) an ad valorem tax.
C) a lump sum tax.
D) an income tax.

Question 19

A sales tax is an example of:

A) a specific tax.
B) an ad valorem tax.
C) a lump sum tax.
D) an income tax.

Question 20

The incidence of a tax:

A) indicates how much of the tax burden is borne by suppliers.
B) indicates how much of the tax burden is borne by consumers.
C) indicates how much of the tax burden is borne by various market participants.
D) depends upon the shape of the supply curve only.

Question 21

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal.How much would the government have to pay farmers?

A) $1.5 billion
B) $3 billion
C) $4.5 billion
D) $18 billion

Question 22

The deadweight loss from a tax:

A) is zero when demand is perfectly elastic.
B) is zero when supply is perfectly elastic.
C) is zero when demand is perfectly inelastic.
D) is never zero.

Question 23

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.How much wheat goes to waste under the program?

A) 10 billion bushels per year
B) 4 billion bushels per year
C) 6 billion bushels per year
D) No wheat goes to waste.

Question 24

With a price floor:

A) producer surplus will fall if profits fall.
B) producer surplus will fall if profits rise.
C) producer surplus will increases if profits fall.
D) producer surplus always increases.

Question 25

A price floor:

A) establishes a maximum price.
B) establishes a minimum price.
C) establishes a maximum quantity.
D) establishes a minimum quantity.

Question 26

With a price floor:

A) consumer surplus falls and producer surplus falls.
B) consumer surplus increases and producer surplus falls.
C) consumer surplus falls and producer surplus can increase or decrease.
D) consumer surplus increases and producer surplus increases.

Question 27

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal.What is the size of the deadweight loss from the program?

A) $1.5 billion
B) $3 billion
C) $4.5 billion
D) $18 billion

Question 28

All of the following statements are true regarding voluntary production reduction programs EXCEPT:

A) they offer firms incentives to reduce their production voluntarily.
B) they include payments to producers who reduce production.
C) they are an attempt to limit supply.
D) they are an attempt to protect consumers from high prices.

Question 29

A voluntary production reduction program:

A) offers firms incentives to reduce their production voluntarily.
B) forces firms to reduce their production.
C) offers firms incentives to increase their production voluntarily.
D) forces firms to increase their production.

Question 30

A subsidy:

A) increases the amount that buyers pay for a good.
B) reduces the amount that buyers pay for a good.
C) reduces both the amount that buyers pay and the amount sellers receive for a good.
D) increases both the amount that buyers pay and the amount sellers receive for a good.

Question 31

A production quota program:

A) places limitations on the quantity that individual consumers can purchase.
B) is a way to raise prices without causing the overproduction that occurs under a price support program.
C) is like a subsidy in that it reduces the price that buyers pay for a good.
D) places minimums on the quantity that individual firms must produce.

Question 32

With a price floor:

A) producer surplus will increase if profits increase.
B) producer surplus will increase is profits fall.
C) producer surplus will decrease if profits increase.
D) producer surplus always decreases.

Question 33

A production quota program:

A) imposes limits on the quantity that individual firms can produce.
B) is a way to reduce prices without causing the overconsumption that occurs under a price support program.
C) places limitations on the quantity that individual consumers can purchase.
D) is like a subsidy in that it reduces the price that buyers pay for a good.

Question 34

When the government implements a price support program:

A) it may end up buying a lot of the good, for which it has little or no use.
B) the goal is to increase the market price of the good.
C) the deadweight loss created can be larger than that created by a price floor.
D) All of these occur as a result of a price support program.

Question 35

All of the following are true regarding a production quota EXCEPT:

A) a production quota imposes limits on the quantity that individual firms can produce.
B) a production quota is a way to raise prices without causing the overproduction that occurs under a price support program.
C) a production quota places limitations on supply.
D) a production quota does not lead to a deadweight loss.

Question 36

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price support program to achieve their goal.How much wheat must the government buy?

A) 10 billion bushels per year
B) 4 billion bushels per year
C) 6 billion bushels per year
D) None

Question 37

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal.What is the size of the producer surplus?

A) $8 billion
B) $4.5 billion
C) $12.5 billion
D) $6.5 billion

Question 38

Which of the following statements is NOT true regarding subsidies?

A) Subsidies are like taxes in that they create deadweight loss.
B) Subsidies are like taxes in that they reduce sales of the subsidized good.
C) Subsidies are unlike taxes in that they increase sales of the subsidized good.
D) Subsidies are unlike taxes in that they reduce the price that buyers pay for a good.

Question 39

A subsidy:

A) reduces the amount that buyers pay and increases the amount that sellers receive for a good.
B) increases the amount that buyers pay and reduces the amount that sellers receive for a good.
C) reduces both the amount that buyers pay and the amount sellers receive for a good.
D) increases both the amount that buyers pay and the amount sellers receive for a good.

Question 40

A price support program:

A) lowers the market price by making purchases of a good, thereby increasing demand.
B) lowers the market price by making purchases of a good, thereby reducing demand.
C) raises the market price by making purchases of a good, thereby increasing demand.
D) raises the market price by making purchases of a good, thereby reducing demand.

Question 41

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal.What is the size of the consumer surplus?

A) $4 billion
B) $8 billion
C) $18 billion
D) $6 billion

Question 42

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the domestic market supply function is Q^s = 2.5P - 7.5.Suppose further that the world price for the good in question is $3.40 per unit.If the government places a $1.20 tariff on imported units of this good,how much revenue does the tariff generate?

A) $3,200
B) $3,600
C) $5,400
D) $3,000

Question 43

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the domestic market supply function is Q^s = 2.5P - 7.5.Suppose further that the world price for the good in question is $3.40 per unit.If the government places a $1.20 tariff on imported units of this good,by how much is producer surplus increased?

A) $3,200
B) $3,600
C) $5,400
D) $3,000

Question 44

A tariff:

A) is a tax on imports.
B) is a tax on exports.
C) directly limits the total quantity of a good that can be imported.
D) directly limits the total quantity of a good that can be exported.

Question 45

A quota:

A) is a tax on imports.
B) is a tax on exports.
C) directly limits the total quantity of a good that can be imported.
D) directly limits the total quantity of a good that can be exported.

Question 46

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the consumer surplus?

A) $4 billion
B) $8 billion
C) $10 billion
D) $6 billion

Question 47

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the aggregate surplus?

A) $4 billion
B) $8 billion
C) $10 billion
D) $12 billion

Question 48

If the import supply curve is horizontal at the world price:

A) a tariff will lower domestic aggregate surplus.
B) a tariff will increase domestic aggregate surplus.
C) a tariff will not change domestic aggregate surplus.
D) a quota will increase domestic aggregate surplus.

Question 49

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the domestic market supply function is Q^s = 2.5P - 7.5.Suppose further that the world price for the good in question is $3.40 per unit.How much deadweight loss would be caused by a $1.20 tariff on imported units of this good?

A) $3,200
B) $3,600
C) $5,400
D) $3,000

Question 50

Discuss why the government would implement a program to lower the price of a good and the welfare effects of such a program.Give an example of good for which such a policy has been implemented and explain the purpose of the policy.

Question 51

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the domestic market supply function is Q^s = 2.5P - 7.5.Suppose further that the world price for the good in question is $3.40 per unit.Under conditions of free trade,how much consumer surplus will there be?

A) $26,450
B) $26,650
C) $52,900
D) $53,300

Question 52

If the import supply curve is upward-sloping:

A) a tariff or quota can increase domestic aggregate surplus.
B) a quota can increase domestic aggregate surplus, but a tariff cannot.
C) a tariff can increase domestic aggregate surplus, but a quota cannot.
D) neither a tariff nor a quota can increase domestic aggregate surplus.

Question 53

Domestic aggregate surplus:

A) is the sum of consumer surplus, deadweight loss and government revenue.
B) is the sum of domestic producer surplus and government revenue.
C) is the sum of domestic producer surplus and consumer surplus.
D) is the sum of consumer surplus, domestic producer surplus and government revenue.

Question 54

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the domestic market supply function is Q^s = 2.5P - 7.5.Suppose further that the world price for the good in question is $3.40 per unit.Under conditions of free trade,how much producer surplus will there be?

A) $26,450
B) $200
C) $400
D) $600

Question 55

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the producer surplus?

A) $4 billion
B) $6 billion
C) $10.5 billion
D) $8 billion

Question 56

Suppose the government wants to increase the price of a specific agricultural product.Discuss the welfare effects of four possible policies: price floor,price support,production quota and voluntary production reduction.Which policy is least efficient? Discuss the differences in the benefits to farmers and the cost to the government.

Question 57

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal.What is the size of the aggregate surplus?

A) $4 billion
B) $12 billion
C) $10 billion
D) $6 billion

Question 58

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the domestic market supply function is Q^s = 2.5P - 7.5.Suppose further that the world price for the good in question is $3.40 per unit.If the government places a $1.20 tariff on imported units of this good,by how much is consumer surplus reduced?

A) $14,450
B) $5,400
C) $12,000
D) $3,600