Question 1

When a tax is placed on buyers:

Accepted Answer

A)   the resulting price paid by consumers is the same as if the tax were placed on sellers.
B)   the resulting price received by sellers is the same as if the tax were placed on sellers.
C)   the equilibrium quantity will unequivocally decrease.
D)   All of these are true.E) A) and B)
F) B) and D)

Question 2

A type of public policy set in response to rising prices of a basic necessity, such as food, might be:

Accepted Answer

A)   to make it illegal to charge higher prices for those goods.
B)   to hire more producers of those goods.
C)   to subsidize the price of those goods.
D)   All of these are ways government can try to address rising prices of a basic necessity.E) B) and C)
F) A) and D)

Question 3

The graph shown demonstrates a tax a sellers. Before the tax was imposed, the sellers produced ________ units and received __________ for each one sold.

Accepted Answer

A)   15; $16
B)   31; $9
C)   31; $19
D)   15; $6E) All of the above
F) B) and C)

Question 4

After a price ceiling of $8 is placed on the market in the graph shown, the total number of units traded:

Accepted Answer

A)   falls by 8 relative to equilibrium.
B)   falls by 15 relative to equilibrium.
C)   falls by 23 relative to equilibrium.
D)   increases by 15 relative to equilibrium.E) A) and B)
F) A) and C)

Question 5

A market failure is most likely to occur when:

Accepted Answer

A)   a sole producer of a good faces no threat of competition.
B)   several producers of a good compete for customers by having price wars.
C)   several producers of a good search for the lowest-cost method of production.
D)   many producers produce identical products, and only the consumers and producers are affected by the transactions.E) C) and D)
F) A) and C)

Question 6

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

Accepted Answer

A)   the policy was effective, since surplus gained by producers through higher prices is greater than the surplus they lost through deadweight loss.
B)   the policy was ineffective, since surplus gained by producers through higher prices is greater than the surplus they lost through deadweight loss.
C)   the policy was effective, since 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, since people have different opinions concerning what constitutes a better outcome.E) C) and D)
F) All of the above

Question 7

If a price ceiling of $8 were placed in the market in the graph shown, which area represents deadweight loss?

Accepted Answer

A)   F + G
B)   B + D
C)   E
D)   B + D + F + GE) B) and D)
F) A) and C)

Question 8

Positive analysis:

Accepted Answer

A)   involves the formulation and testing of hypotheses.
B)   involves value judgments concerning the desirability of alternative outcomes.
C)   weighs the fairness of a policy.
D)   examines if the outcome is desirable.E) C) and D)
F) A) and B)

Question 9

If a price floor of $23 were placed in the market in the graph shown, which area represents deadweight loss?

Accepted Answer

A)   C + F
B)   C + D + F
C)   G
D)   B + C + E + FE) A) and D)
F) B) and C)

Question 10

One way to allocate the scarce good created from an effective price ceiling is to:

Accepted Answer

A)   offer it on a first-come, first-served basis.
B)   ration a certain quantity per household.
C)   give them to the friends and family of the producers.
D)   All of these are examples of allocating using non-price methods.E) A) and D)
F) B) and D)

Question 11

Does a tax on buyers affect the demand curve?

Accepted Answer

A)   Yes, it shifts down by the amount of the tax.
B)   Yes, it shifts to the left by the amount of the tax.
C)   Yes, it shifts up by the amount of the tax.
D)   No, there is change in the quantity demanded, but the demand curve does not move.E) A) and B)
F) B) and D)

Question 12

For a price ceiling to have an impact on a market it:

Accepted Answer

A)   must be set above the equilibrium price.
B)   must be set below the equilibrium price.
C)   must be set at the equilibrium price.
D)   can lead more goods to be produced in a market.E) B) and C)
F) All of the above

Question 13

Policymakers who wish to discourage businesses that pollute by taxing them:

Accepted Answer

A)   forget that businesses will pass the entire tax onto consumers of their products.
B)   should place a tax on consumers instead of the producers in order to increase the burden on sellers.
C)   should place a tax on producers instead of the consumers in order to increase the burden on sellers.
D)   forget that some of the tax burden will be shared by consumers.E) A) and B)
F) C) and D)

Question 14

Governments can discourage consumption of certain goods by:

Accepted Answer

A)   a subsidy to consumers in those markets.
B)   taxing substitute goods.
C)   imposing a minimum price above the equilibrium price.
D)   None of these policies decrease consumption of goods.E) C) and D)
F) All of the above

Question 15

A tax on sellers:

Accepted Answer

A)   shifts the supply curve left by the amount of the tax.
B)   shifts the demand curve left by the amount of the tax.
C)   shifts the supply curve up by the amount of the tax.
D)   shifts the demand curve down by the amount of the tax.E) All of the above
F) C) and D)

Question 16

The graph shown demonstrates a tax on buyers. What is the amount of tax revenue being generated from the tax?

Accepted Answer

A)   $72
B)   $36
C)   $48
D)   $96E) A) and B)
F) None of the above

Question 17

After a price floor of $23 is placed on the market in the graph shown, which area represents producer surplus?

Accepted Answer

A)   B + C + D + F
B)   B + E
C)   B + C + D
D)   B + C + E + FE) C) and D)
F) B) and D)

Question 18

With reference to the graph above, if the intended aim of the price ceiling set at $6 was a net increase in the well-being of consumers, then positive analysis would consider:

Accepted Answer

A)   whether the surplus transferred from consumers to producers is larger than the consumer surplus lost to deadweight loss.
B)   whether the producer surplus lost to deadweight loss is larger than the producer surplus gained from a higher price.
C)   whether the surplus transferred from producers to consumers is larger than the consumer surplus lost to deadweight loss.
D)   whether the producer surplus lost due to lower prices is larger than the producer surplus lost due to fewer transactions taking place.E) All of the above
F) A) and C)

Question 19

Consider the graph. What would most likely be the cause of a shift from D1 to D2?

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 20

A subsidy to buyers has been placed in the market in the graph shown. Why might the government enact such a policy?

Accepted Answer

A)   As a way to encourage the consumption of the good
B)   As a way to encourage consumers to substitute away from the good
C)   As a way to discourage the production of the good
D)   As a way to discourage the consumption of the goodE) A) and B)
F) B) and D)

Exam 6: Government Intervention

A subsidy to buyers has been placed in the market in the graph shown. Why might the government enact such a policy?

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One way to allocate the scarce good created from an effective price ceiling is to:

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For a price ceiling to have an impact on a market it:

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A type of public policy set in response to rising prices of a basic necessity, such as food, might be:

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After a price floor of $23 is placed on the market in the graph shown, which area represents producer surplus?

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Policymakers who wish to discourage businesses that pollute by taxing them:

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When a tax is placed on buyers:

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Positive analysis:

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If a price ceiling of $8 were placed in the market in the graph shown, which area represents deadweight loss?

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A market failure is most likely to occur when:

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Does a tax on buyers affect the demand curve?

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After a price ceiling of $8 is placed on the market in the graph shown, the total number of units traded:

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The graph shown demonstrates a tax a sellers. Before the tax was imposed, the sellers produced ________ units and received __________ for each one sold.

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Consider the graph. What would most likely be the cause of a shift from D1 to D2?

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With reference to the graph above, if the intended aim of the price ceiling set at $6 was a net increase in the well-being of consumers, then positive analysis would consider:

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Governments can discourage consumption of certain goods by:

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The graph shown demonstrates a tax on buyers. What is the amount of tax revenue being generated from the tax?

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If a price floor of $23 were placed in the market in the graph shown, which area represents deadweight loss?

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A tax on sellers:

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

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The graph shown demonstrates a tax a sellers. Before the tax was imposed, the sellers produced units and received __ for each one sold.

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