Question 1

%media ch06_42_43. j p g %If a price ceiling of $10 is set in the market shown in the graph, the quantity exchanged will:

Accepted Answer

A)   fall by 4 units.
B)   rise by 4 units.
C)   rise by 8 units.
D)   not change.E) None of the above
F) C) and D)

Question 2

The graph shown demonstrates a tax on sellers. Which of the following can be said about the effect of this tax?

Accepted Answer

A)   The tax increases producer surplus.
B)   Consumers prefer this tax over a tax levied on buyers.
C)   The deadweight loss would be larger if this tax had been imposed on buyers.
D)   The tax decreases consumer surplus.E) A) and B)
F) A) and C)

Question 3

If a price ceiling is set at $8 in the market shown in the graph:

Accepted Answer

A)   some surplus will be transferred from consumer to producer.
B)   some surplus will be transferred from producer to consumer.
C)   all consumers will be better off.
D)   all producers will be better off.E) A) and B)
F) A) and C)

Question 4

The graph shown demonstrates a tax on buyers. Who bears the greater economic tax incidence?

Accepted Answer

A)   The seller
B)   The buyer
C)   The government
D)   The incidence is equally shared between buyer and sellerE) B) and D)
F) C) and D)

Question 5

If the intended aim of the price floor set at $12, as shown in the graph, was a net increase in the well-being of producers, then normative analysis would conclude that the policy was:

Accepted Answer

A)   effective because the surplus gained by producers through higher prices is greater than the surplus they lost through deadweight loss.
B)   ineffective because the surplus gained by producers through higher prices is greater than the surplus they lost through deadweight loss.
C)   effective because the surplus gained by producers through higher prices is greater than the surplus lost by consumers through higher prices.
D)   There is no "right" conclusion to be reached in a normative sense, because normative analysis is not based on value judgements.E) A) and B)
F) All of the above

Question 6

A government plans to implement a $1 tax in one of two markets: the first market has elastic supply and demand curves and the second market has inelastic supply and demand curves. If the government's aim is to raise the most revenue with the smallest deadweight loss, where should the tax be placed?

Accepted Answer

A)   In the market with elastic supply and demand curves.
B)   In the market with inelastic supply and demand curves.
C)   It is impossible to say without more information.
D)   Since the burden is shared, it doesn't matter in which market the tax is placed.E) None of the above
F) B) and D)

Question 7

The graph shown demonstrates a tax on buyers. Before the tax was imposed, buyers purchased _______ units and paid _______ for each one.

Accepted Answer

A)   6; $22
B)   6; $34
C)   9; $18
D)   9; $30E) A) and D)
F) B) and C)

Question 8

A tax imposed on a good can:

Accepted Answer

A)   discourage consumption of the good.
B)   encourage production of the good.
C)   increase the supply of complementary goods.
D)   lower prices paid by consumers.E) All of the above
F) C) and D)

Question 9

The graph shown demonstrates a tax on buyers. What is the amount of deadweight loss generated by this tax?

Accepted Answer

A)   $0
B)   $18
C)   $36
D)   $72E) None of the above
F) B) and C)

Question 10

Suppose the market in the graph shown is in equilibrium. If a price floor is set at $13, the total number of units traded:

Accepted Answer

A)   falls by 5.
B)   falls by 3.
C)   increases by 2.
D)   increases by 5.E) B) and D)
F) A) and D)

Question 11

Positive analysis:

Accepted Answer

A)   evaluates whether a policy is a good idea.
B)   leads to the best solutions.
C)   is the only way to analyze a policy.
D)   examines if a policy actually accomplished its goals.E) A) and B)
F) C) and D)

Question 12

The graph shown portrays a subsidy to buyers. Before the subsidy was put in place, sellers sold _______ units and received _______ for each one.

Accepted Answer

A)   100; $46
B)   100; $30
C)   150; $40
D)   150; $24E) B) and C)
F) A) and D)

Question 13

If the intended aim of the price ceiling set at $6, as shown in the graph, was a net increase in the well-being of consumers, what would positive analysis consider?

Accepted Answer

A)   Whether the surplus transferred from consumers to producers is greater than the consumer surplus lost.
B)   Whether the producer surplus lost to deadweight loss is greater than the producer surplus gained from a higher price.
C)   Whether the surplus transferred from producers to consumers is greater than the consumer surplus lost.
D)   Whether the producer surplus lost due to lower prices is greater than the producer surplus lost due to fewer transactions taking place.E) None of the above
F) All of the above

Question 14

Consider the market shown in the graph. What would most likely be the cause of a shift from S1 to S2?

Accepted Answer

A)   A tax on sellers
B)   A tax on buyers
C)   A subsidy for sellers
D)   A subsidy for buyersE) C) and D)
F) A) and B)

Question 15

Which action could cause the price floor shown in the graph to become non-binding?

Accepted Answer

A)   An increase in demand (shift to the left) 
B)   A decrease in supply (shift to the left) 
C)   An increase in supply (shift to the right) 
D)   None of these would cause the price floor to become non-binding.E) A) and D)
F) None of the above

Question 16

A tax on sellers:

Accepted Answer

A)   causes equilibrium price and quantity to decrease.
B)   shifts the demand curve vertically downwards by the amount of the tax, but does not shift the supply curve.
C)   shifts the supply curve vertically upwards by the amount of the tax, but does not shift the demand curve.
D)   All of these are correct.E) B) and C)
F) A) and B)

Question 17

If the demand curve is less elastic than the supply curve in a market that is taxed, then:

Accepted Answer

A)   buyers will bear a greater tax burden than sellers.
B)   sellers will bear a greater tax burden than buyers.
C)   the tax burden will be shared equally by buyers and sellers.
D)   None of these are correct.E) B) and D)
F) All of the above

Question 18

The graph shown demonstrates a tax on buyers. After the tax is in place, sellers experience:

Accepted Answer

A)   a decrease in supply.
B)   an increase in supply.
C)   a decrease in quantity supplied.
D)   an increase in quantity supplied.E) B) and C)
F) A) and B)

Question 19

Price controls:

Accepted Answer

A)   are regulations that set a maximum or minimum legal price for a particular good.
B)   allow a market to reach equilibrium.
C)   prevent a good from being bought or sold.
D)   All of these are correct.E) C) and D)
F) All of the above

Question 20

Does a subsidy to sellers affect the supply curve?

Accepted Answer

A)   Yes; the supply curve shifts down by the amount of the subsidy.
B)   Yes; the supply curve shifts to the right by the amount of the subsidy.
C)   No; the supply curve does not move, as quantity supplied increases instead.
D)   No; the supply curve does not move, as quantity supplied decreases instead.E) B) and D)
F) All of the above

Exam 6: Governmentintervention

%media ch06_42_43. j p g %If a price ceiling of $10 is set in the market shown in the graph, the quantity exchanged will:

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The graph shown portrays a subsidy to buyers. Before the subsidy was put in place, sellers sold _______ units and received _______ for each one.

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Positive analysis:

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Which action could cause the price floor shown in the graph to become non-binding?

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The graph shown demonstrates a tax on sellers. Which of the following can be said about the effect of this tax?

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A government plans to implement a $1 tax in one of two markets: the first market has elastic supply and demand curves and the second market has inelastic supply and demand curves. If the government's aim is to raise the most revenue with the smallest deadweight loss, where should the tax be placed?

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Does a subsidy to sellers affect the supply curve?

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Consider the market shown in the graph. What would most likely be the cause of a shift from S1 to S2?

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If the demand curve is less elastic than the supply curve in a market that is taxed, then:

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If the intended aim of the price floor set at $12, as shown in the graph, was a net increase in the well-being of producers, then normative analysis would conclude that the policy was:

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If the intended aim of the price ceiling set at $6, as shown in the graph, was a net increase in the well-being of consumers, what would positive analysis consider?

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The graph shown demonstrates a tax on buyers. Who bears the greater economic tax incidence?

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Suppose the market in the graph shown is in equilibrium. If a price floor is set at $13, the total number of units traded:

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If a price ceiling is set at $8 in the market shown in the graph:

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The graph shown demonstrates a tax on buyers. Before the tax was imposed, buyers purchased _______ units and paid _______ for each one.

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The graph shown demonstrates a tax on buyers. What is the amount of deadweight loss generated by this tax?

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Price controls:

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A tax imposed on a good can:

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A tax on sellers:

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The graph shown demonstrates a tax on buyers. After the tax is in place, sellers experience:

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The graph shown portrays a subsidy to buyers. Before the subsidy was put in place, sellers sold _ units and received _ for each one.

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The graph shown demonstrates a tax on buyers. Before the tax was imposed, buyers purchased _ units and paid _ for each one.

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