Question 1

The graph shown portrays a subsidy to buyers. What is the deadweight loss that arises from this subsidy?

Accepted Answer

A)   $400
B)   $3,600
C)   $750
D)   $800E) A) and B)
F) B) and C)

Question 2

Does a subsidy to buyers affect the demand curve?

Accepted Answer

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

Question 3

Governments can discourage the consumption of certain goods by:

Accepted Answer

A)   giving 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 the consumption of goods.E) All of the above
F) A) and C)

Question 4

If a price floor is set at $23 in the market shown in the graph:

Accepted Answer

A)   some consumers would lose because they will pay a higher price.
B)   some producers would gain because they will sell at a higher price.
C)   the quantity traded in the market would fall.
D)   All of these are correct.E) All of the above
F) B) and C)

Question 5

The graph shown best represents:

Accepted Answer

A)   a binding price ceiling.
B)   a binding price floor.
C)   a missing market.
D)   a market for an inferior good.E) All of the above
F) A) and C)

Question 6

What does tax incidence describe?

Accepted Answer

A)   The difference between what buyers pay and what sellers receive in a market in which taxes are present
B)   Whether buyers or sellers bear more of the relative burden of a tax
C)   The revenue that is generated comes when taxes are imposed in markets
D)   The difference between the revenue generated from a tax and the value of deadweight loss caused by the imposition of a tax.E) A) and B)
F) A) and C)

Question 7

If a price ceiling is set at $8 in the market shown in the graph, which area(s)  would represent producer surplus?

Accepted Answer

A)   C + D + E
B)   C + D + F + G
C)   E
D)   A + C + EE) A) and C)
F) None of the above

Question 8

A tax wedge:

Accepted Answer

A)   refers to the difference in the price the buyer pays and the price the seller keeps.
B)   refers to the shift in supply or demand that results from a tax.
C)   only occurs in markets when the tax is placed on buyers.
D)   only occurs in markets when taxes are placed on large corporations.E) B) and C)
F) None of the above

Question 9

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) B) and C)

Question 10

A subsidy:

Accepted Answer

A)   is a requirement that the government pay an extra amount to producers or consumers of a good.
B)   is used by governments to encourage the production and consumption of a particular good or service.
C)   is used by governments as an alternative to price controls to benefit certain groups without generating a shortage or excess supply.
D)   All of these statements are true.E) B) and C)
F) None of the above

Question 11

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 an outcome is desirable.E) B) and D)
F) None of the above

Question 12

How can one allocate a good that is undersupplied due to a binding price ceiling?

Accepted Answer

A)   Offer it on a first-come, first-served basis.
B)   Ration a certain quantity per household.
C)   Give the good to the friends and family of the producers.
D)   All of these are correct.E) A) and C)
F) None of the above

Question 13

Consider the graph shown. 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) B) and C)
F) A) and C)

Question 14

Suppose a $5 subsidy to buyers is imposed on the market in the graph shown. What is the cost to the government to fund this subsidy?

Accepted Answer

A)   $45
B)   $27
C)   $90
D)   $30E) A) and C)
F) B) and D)

Question 15

We would expect that a tax on cigarettes will be more effective at discouraging consumption over the _______ because demand becomes _______ elastic over time.

Accepted Answer

A)   long run; more
B)   long run; less
C)   short run; more
D)   short run; lessE) All of the above
F) A) and C)

Question 16

The graph shown portrays a subsidy to buyers. What is the amount of money the government has spent on this subsidy?

Accepted Answer

A)   $3,600
B)   $2,400
C)   $6,000
D)   $800E) A) and B)
F) B) and D)

Question 17

If sellers bear a smaller tax burden than buyers in a market, which of the following must be true?

Accepted Answer

A)   It must be a market for inferior goods.
B)   It must be a market for luxury items.
C)   The supply curve must be more elastic than the demand curve.
D)   The supply curve must be less elastic than the buyers demand curve.E) None of the above
F) A) and D)

Question 18

If a price ceiling is set at $8 in the market shown in the graph, which areas would represent total surplus?

Accepted Answer

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

Question 19

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

Accepted Answer

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

Question 20

A price floor is:

Accepted Answer

A)   a legal maximum price.
B)   a legal minimum price.
C)   a legal maximum quantity that can be sold at a particular price.
D)   a legal minimum quantity that can be sold at a particular price.E) A) and B)
F) A) and C)

Exam 6: Governmentintervention

Does a subsidy to buyers affect the demand curve?

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

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The graph shown best represents:

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

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Governments can discourage the consumption of certain goods by:

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A subsidy:

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If sellers bear a smaller tax burden than buyers in a market, which of the following must be true?

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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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How can one allocate a good that is undersupplied due to a binding price ceiling?

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Suppose a $5 subsidy to buyers is imposed on the market in the graph shown. What is the cost to the government to fund this subsidy?

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We would expect that a tax on cigarettes will be more effective at discouraging consumption over the _______ because demand becomes _______ elastic over time.

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If a price floor is set at $23 in the market shown in the graph:

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If a price ceiling is set at $8 in the market shown in the graph, which areas would represent total surplus?

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The graph shown portrays a subsidy to buyers. What is the deadweight loss that arises from this subsidy?

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The graph shown portrays a subsidy to buyers. What is the amount of money the government has spent on this subsidy?

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If a price ceiling is set at $8 in the market shown in the graph, which area(s) would represent producer surplus?

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Positive analysis:

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What does tax incidence describe?

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A tax wedge:

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A price floor is:

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

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We would expect that a tax on cigarettes will be more effective at discouraging consumption over the _ because demand becomes _ elastic over time.

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