Question 1

Which of the following is a prominent argument against the use of price ceilings?

Accepted Answer

A)  They are unfair.
B)  They lead to an increase in surplus but a waste of society's resources.
C)  They lead to a decrease in total surplus.
D)  They raise corporate profits.E) A) and C)
F) None of the above

Question 2

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

Question 3

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

Question 4

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

Accepted Answer

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

Question 5

The difference in the price the buyer pays and the price the sellers keep in the presence of a tax is called:

Accepted Answer

A)  a tax differential.
B)  a tax wedge.
C)  the tax incidence.
D)  the tax burden.E) B) and C)
F) None of the above

Question 6

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 the surplus gained by consumers through lower prices is greater than the surplus they lost due to fewer transactions taking place.
B)  ineffective because the surplus gained by consumers through lower prices is less than the surplus they lost due to fewer transactions taking place.
C)  effective because the surplus lost by producers through lower prices is less than the surplus gained by consumers through lower prices.
D)  ineffective because the amount of deadweight loss is greater than the surplus gained by consumers from lower prices.E) A) and D)
F) All of the above

Question 7

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 8

A price ceiling is non-binding when:

Accepted Answer

A)  it is set above the equilibrium price.
B)  it is set below the equilibrium price.
C)  it reduces the output in a market.
D)  it increases the output in a market.E) C) and D)
F) All of the above

Question 9

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

Accepted Answer

A)  6
B)  9
C)  3
D)  12E) B) and C)
F) A) and D)

Question 10

Who benefits from a subsidy to buyers?

Accepted Answer

A)  Only sellers benefit.
B)  Only buyers benefit.
C)  The benefit is shared by sellers and buyers depending on the elasticity of the supply and demand curves.
D)  None of these statements are true.E) C) and D)
F) A) and D)

Question 11

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

Accepted Answer

A)  above the equilibrium price.
B)  below the equilibrium price.
C)  equal to the equilibrium price.
D)  anywhere along the demand curve.E) None of the above
F) B) and C)

Question 12

A subsidy:

Accepted Answer

A)  has the exact same impact on the quantity exchanged as a tax.
B)  has a larger impact on the quantity exchanged than a tax of the same amount.
C)  has a smaller impact on the quantity exchanged than a tax of the same amount.
D)  has the exact opposite impact on the quantity exchanged than a tax of the same amount.E) B) and D)
F) B) and C)

Question 13

If a price ceiling of $12 is set in the market shown in the graph, what will consumer surplus be?

Accepted Answer

A)  $260
B)  $130
C)  $88
D)  $60E) A) and D)
F) C) and D)

Question 14

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, the policy was:

Accepted Answer

A)  effective because consumers gained in surplus overall.
B)  ineffective because some consumers lost surplus.
C)  ineffective because consumers lost surplus overall.
D)  effective because all consumers gained surplus.E) A) and B)
F) A) and C)

Question 15

The graph shown portrays a subsidy to buyers. After the subsidy is in place, the post-subsidy price paid by buyers is _______ and the post-subsidy price received by sellers is _______; the difference between these two figures is the amount of _______.

Accepted Answer

A)  $24; $40; the subsidy
B)  $30; $46; the subsidy
C)  $40; $24; the subsidy
D)  $24; $40; government revenueE) All of the above
F) A) and B)

Question 16

How might a government attempt to protect dairy farmers from low milk prices?

Accepted Answer

A)  Banning households from hoarding milk
B)  Setting a minimum price on milk
C)  Increasing taxes on dairy farmers
D)  Reducing subsidies on the price of milkE) None of the above
F) C) and D)

Question 17

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

Question 18

Which of the following is a prominent argument against the use of price floors?

Accepted Answer

A)  Non-price rationing must occur and can lead to consumers waiting for goods or services.
B)  The cost to taxpayers will increase if the government buys all surplus.
C)  Producers will reduce the quality of the goods they sell.
D)  Price floors transfer surplus from producers to consumers.E) None of the above
F) All of the above

Question 19

A binding price ceiling:

Accepted Answer

A)  will cause quantity supplied to exceed quantity demanded.
B)  will increase total well-being.
C)  will set a legal minimum price in a market.
D)  will cause quantity demanded to exceed quantity supplied.E) A) and B)
F) All of the above

Question 20

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

Accepted Answer

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

Exam 6: Government Intervention

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

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Which of the following is a prominent argument against the use of price floors?

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The graph shown portrays a subsidy to buyers. After the subsidy is in place, the post-subsidy price paid by buyers is _______ and the post-subsidy price received by sellers is _______; the difference between these two figures is the amount of _______.

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If a price ceiling of $12 is set in the market shown in the graph, what will consumer surplus be?

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The difference in the price the buyer pays and the price the sellers keep in the presence of a tax is called:

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A subsidy:

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

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

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A price ceiling is non-binding when:

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

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

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A binding price ceiling:

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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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Which of the following is a prominent argument against the use of price ceilings?

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Who benefits from a subsidy to buyers?

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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, then positive analysis would conclude that the policy was:

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

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

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How might a government attempt to protect dairy farmers from low milk prices?

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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, the policy was:

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The graph shown portrays a subsidy to buyers. After the subsidy is in place, the post-subsidy price paid by buyers is ___ and the post-subsidy price received by sellers is _; the difference between these two figures is the amount of _____.

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