Question 1

Why do governments tend to set price ceilings?

Accepted Answer

A)  To ensure everyone can afford certain goods.
B)  To encourage producers to make enough for everyone.
C)  To help producers make enough profit to stay in the industry.
D)  To prevent consumers from choosing the wrong goods.E) B) and D)
F) C) and D)

Question 2

The graph shown best represents:

Accepted Answer

A)  a non-binding price ceiling.
B)  a non-binding price floor.
C)  a missing market.
D)  the market for an inferior good.E) A) and C)
F) None of the above

Question 3

The graph shown demonstrates a tax on sellers. How many fewer units are being sold due to the imposition of a tax on this market?

Accepted Answer

A)  15
B)  16
C)  31
D)  37E) A) and B)
F) All of the above

Question 4

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) None of the above

Question 5

Suppose a $10 tax is imposed on sellers in the market shown in the graph. What will be the deadweight loss?

Accepted Answer

A)  $15,000
B)  $20,000
C)  $12,500
D)  $10,000E) A) and B)
F) All of the above

Question 6

Does a tax on buyers affect the supply curve?

Accepted Answer

A)  Yes; the supply curve shifts to the left by the amount of the tax.
B)  Yes; the supply curve shifts to the right by the amount of the tax.
C)  Yes; the supply curve shifts up by the amount of the tax.
D)  No; the supply curve does not move, as there is a change in the quantity supplied instead.E) A) and B)
F) A) and C)

Question 7

Suppose a tax has been imposed in the market shown in the graph. Which kind of tax is most likely demonstrated by this graph?

Accepted Answer

A)  A tax on sellers
B)  A tax on buyers
C)  A tax on big corporations
D)  A price ceilingE) B) and C)
F) A) and B)

Question 8

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) A) and B)
F) C) and D)

Question 9

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) B) and C)
F) All of the above

Question 10

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 C)
F) None of the above

Question 11

If a price floor is set at $23 in the market shown in the graph, which area(s) would represent the surplus that is transferred from consumers to producers?

Accepted Answer

A)  B + C + D
B)  B + C
C)  C
D)  BE) A) and B)
F) A) and C)

Question 12

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 B)
F) B) and D)

Question 13

In evaluating policy effectiveness, economists rely on:

Accepted Answer

A)  positive analysis.
B)  normative analysis.
C)  both normative and positive analysis.
D)  Economists can never fully analyze any real-world policy effectiveness.E) B) and C)
F) All of the above

Question 14

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 C)
F) C) 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) A) and B)
F) A) and C)

Question 16

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) B) and C)

Question 17

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

Accepted Answer

A)  The sellers are not as business savvy as the buyers.
B)  The supply curve must be more inelastic than the demand curve.
C)  The sellers face a very inelastic demand.
D)  The supply curve must be more elastic than the demand curve.E) None of the above
F) All of the above

Question 18

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) B) and C)
F) B) and D)

Question 19

If a price floor is set at $23 in the market shown in the graph, which area(s) would represent total surplus?

Accepted Answer

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

Question 20

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) All of the above
F) C) and D)

Exam 6: Government Intervention

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

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If a price floor is set at $23 in the market shown in the graph, which area(s) would represent total surplus?

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Suppose a tax has been imposed in the market shown in the graph. Which kind of tax is most likely demonstrated by this graph?

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Why do governments tend to set price ceilings?

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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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In evaluating policy effectiveness, economists rely on:

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

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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 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 best represents:

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Price controls:

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

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Does a subsidy to sellers affect the supply curve?

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Suppose a $10 tax is imposed on sellers in the market shown in the graph. What will be the deadweight loss?

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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.

Correct AnswerverifiedShow Answer

If a price floor is set at $23 in the market shown in the graph, which area(s) would represent the surplus that is transferred from consumers to producers?

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The graph shown demonstrates a tax on sellers. How many fewer units are being sold due to the imposition of a tax on this market?

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Does a tax on buyers affect the supply curve?

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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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