Question 1

In order for a price ceiling to be binding, it must be set _______ the equilibrium price, and it will likely cause _______.

Accepted Answer

A)   above; a shortage
B)   below; a shortage
C)   above; excess supply
D)   below; excess supplyE) B) and C)
F) A) and D)

Question 2

The graph shown portrays a subsidy to buyers. With the subsidy, sellers sell _______ units, and the post-subsidy price received for each one is _______.

Accepted Answer

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

Question 3

The incidence of a tax depends on:

Accepted Answer

A)   the relative elasticity of the supply and demand curves in a market.
B)   whether it is imposed on buyers or sellers.
C)   the amount of revenue it generates once administrative burdens are taken into account.
D)   whether the revenue it generates is greater than the deadweight loss it causes.E) A) and B)
F) A) and C)

Question 4

A tax on sellers shifts the ______ by the amount of the tax.

Accepted Answer

A)   supply curve left
B)   demand curve left
C)   supply curve up
D)   demand curve downE) None of the above
F) C) and D)

Question 5

If the intended aim of the price floor set at $23, as shown in the graph, was a net increase in the well-being of producers, then positive analysis would have us consider whether:

Accepted Answer

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

Question 6

According to the market in the graph shown, at which of the following prices could a binding price floor be set?

Accepted Answer

A)   $10
B)   $6
C)   $8
D)   A binding price floor could not be set at any of these prices.E) A) and D)
F) B) and C)

Question 7

Because a price ceiling causes:

Accepted Answer

A)   a shortage, some form of rationing must occur.
B)   excess supply, some form of rationing must occur.
C)   a shortage, the outcome will be efficient.
D)   excess supply, the outcome will be inefficient.E) A) and C)
F) A) and D)

Question 8

In general, price controls have a _______ effect in the _______ than in the _______ because demand and supply become _______ elastic over time.

Accepted Answer

A)   larger; long run; short run; more
B)   larger; short run; long run; more
C)   smaller; long run; short run; less
D)   smaller; short run; long run; lessE) A) and D)
F) B) and C)

Question 9

Which of the following is an unintended consequence of price ceilings?

Accepted Answer

A)   The loss of surplus always outweighs the benefits of the policy.
B)   Non-price rationing must occur and can lead to bribes.
C)   The transfer of surplus from producer to consumer rarely is recognized.
D)   Producers will increase the quality of the goods sold.E) B) and D)
F) B) and C)

Question 10

The graph shown portrays a subsidy to buyers. The subsidy causes _______ units to be sold in this market.

Accepted Answer

A)   50 more
B)   150 more
C)   100 fewer
D)   50 fewerE) A) and B)
F) A) and C)

Question 11

If a price ceiling of $14 is set in the market shown in the graph: QS appears to be incomplete.I. Total surplus will be $90.II. Deadweight loss will be $8.III. Producer surplus will be $25.

Accepted Answer

A)   I only
B)   III only
C)   II and III only
D)   I, II, and IIIE) C) and D)
F) B) and D)

Question 12

Government attempts to lower, raise, or simply stabilize prices will usually:

Accepted Answer

A)   maintain the distribution of surplus.
B)   create unintended side effects.
C)   improve the efficiency of a market.
D)   All of these are correct.E) All of the above
F) B) and D)

Question 13

Government attempts to set prices below market equilibrium can:

Accepted Answer

A)   lead to more producer surplus.
B)   encourage more production.
C)   reduce the total surplus in the market.
D)   always create a better outcome.E) A) and D)
F) B) and C)

Question 14

Suppose a $5 subsidy to buyers is imposed on the market in the graph shown. After the subsidy is in place, the post-subsidy price paid by buyers is _______ and the post-subsidy price received by sellers is _______.

Accepted Answer

A)   $6; $11
B)   $13; $8
C)   $11; $6
D)   $3; $8E) None of the above
F) All of the above

Question 15

When a tax is imposed on a market:

Accepted Answer

A)   the price the buyer pays is higher than the amount the seller receives.
B)   the buyers' equilibrium tax-inclusive price increases and the equilibrium quantity decreases.
C)   fewer total transactions take place in the market.
D)   All of these are correct.E) C) and D)
F) B) and D)

Question 16

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

Accepted Answer

A)   The tax creates a shortage, and rationing must occur.
B)   The tax creates excess supply and the government must buy the excess.
C)   The tax creates a shortage, and the government must regulate the market.
D)   None of these are correct.E) None of the above
F) A) and D)

Question 17

Is it possible for sellers to benefit more than buyers from a subsidy to buyers?

Accepted Answer

A)   Yes, if the sellers need it more.
B)   Yes, if the supply curve is relatively less elastic than the demand curve.
C)   Yes, if the supply curve is relatively more elastic than the demand curve.
D)   No; sellers can never benefit more than buyers from a subsidy to buyers.E) B) and D)
F) A) and B)

Question 18

How can a government ensure all producers benefit from the implementation of a price floor?

Accepted Answer

A)   Guarantee to buy all excess supply
B)   Ration a certain quantity per consumer
C)   Ration a certain quantity per producer
D)   All of these are correct.E) A) and D)
F) B) and C)

Question 19

The graph shown portrays a subsidy to buyers. Before the subsidy is put in place, buyers bought _______ units and paid _______ for each one.

Accepted Answer

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

Question 20

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, then positive analysis would conclude that the policy was:

Accepted Answer

A)   effective because areas A + C are larger than areas B + D.
B)   effective because area B is smaller than area D.
C)   ineffective because area D is larger than area E.
D)   ineffective because areas A + C + D are larger than areas B + E.E) C) and D)
F) All of the above

Exam 6: Governmentintervention

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

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The graph shown portrays a subsidy to buyers. Before the subsidy is put in place, buyers bought _______ units and paid _______ for each one.

Correct AnswerverifiedShow Answer

The incidence of a tax depends on:

Correct AnswerverifiedShow Answer

Suppose a $5 subsidy to buyers is imposed on the market in the graph shown. After the subsidy is in place, the post-subsidy price paid by buyers is _______ and the post-subsidy price received by sellers is _______.

Correct AnswerverifiedShow Answer

Which of the following is an unintended consequence of price ceilings?

Correct AnswerverifiedShow Answer

According to the market in the graph shown, at which of the following prices could a binding price floor be set?

Correct AnswerverifiedShow Answer

A tax on sellers shifts the ______ by the amount of the tax.

Correct AnswerverifiedShow Answer

The graph shown portrays a subsidy to buyers. With the subsidy, sellers sell _______ units, and the post-subsidy price received for each one is _______.

Correct AnswerverifiedShow Answer

In general, price controls have a _______ effect in the _______ than in the _______ because demand and supply become _______ elastic over time.

Correct AnswerverifiedShow Answer

Is it possible for sellers to benefit more than buyers from a subsidy to buyers?

Correct AnswerverifiedShow Answer

Government attempts to set prices below market equilibrium can:

Correct AnswerverifiedShow Answer

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, then positive analysis would conclude that the policy was:

Correct AnswerverifiedShow Answer

Government attempts to lower, raise, or simply stabilize prices will usually:

Correct AnswerverifiedShow Answer

When a tax is imposed on a market:

Correct AnswerverifiedShow Answer

If a price ceiling of $14 is set in the market shown in the graph: QS appears to be incomplete.I. Total surplus will be $90.II. Deadweight loss will be $8.III. Producer surplus will be $25.

Correct AnswerverifiedShow Answer

In order for a price ceiling to be binding, it must be set _______ the equilibrium price, and it will likely cause _______.

Correct AnswerverifiedShow Answer

How can a government ensure all producers benefit from the implementation of a price floor?

Correct AnswerverifiedShow Answer

Because a price ceiling causes:

Correct AnswerverifiedShow Answer

If the intended aim of the price floor set at $23, as shown in the graph, was a net increase in the well-being of producers, then positive analysis would have us consider whether:

Correct AnswerverifiedShow Answer

The graph shown portrays a subsidy to buyers. The subsidy causes _______ units to be sold in this market.

Correct AnswerverifiedShow Answer

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The graph shown portrays a subsidy to buyers. Before the subsidy is put in place, buyers bought _ units and paid _ for each one.

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Suppose a $5 subsidy to buyers is imposed on the market in the graph shown. After the subsidy is in place, the post-subsidy price paid by buyers is _ and the post-subsidy price received by sellers is _.

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The graph shown portrays a subsidy to buyers. With the subsidy, sellers sell _ units, and the post-subsidy price received for each one is _.

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In general, price controls have a ___ effect in the _ than in the _ because demand and supply become ___ elastic over time.

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In order for a price ceiling to be binding, it must be set _ the equilibrium price, and it will likely cause _.

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