Question 1

The relative tax burden borne by buyers and sellers is called the:

Accepted Answer

A)  tax wedge.
B)  tax incidence.
C)  tax revenue.
D)  real tax.E) A) and D)
F) B) and C)

Question 2

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

Accepted Answer

A)  An increase in demand (shift to the right) 
B)  A decrease in demand (shift to the left) 
C)  A decrease in supply (shift to the left) 
D)  None of these would cause the price ceiling to become non-binding.E) B) and D)
F) None of the above

Question 3

The graph shown demonstrates a tax on sellers. After the tax is in place, buyers purchase _______ units, and the post-tax price paid for each one is _______.

Accepted Answer

A)  15; $16
B)  15; $6
C)  31; $9
D)  31; $19E) B) and D)
F) None of the above

Question 4

A tax imposed on a good can:

Accepted Answer

A)  discourage consumption of the good.
B)  encourage production of the good.
C)  increase the supply of complementary goods.
D)  lower prices paid by consumers.E) A) and D)
F) A) and B)

Question 5

The graph shown portrays a subsidy to buyers. What is the amount of the subsidy per unit of this good?

Accepted Answer

A)  $22
B)  $16
C)  $10
D)  $6E) C) and D)
F) B) and C)

Question 6

A tax on sellers has what effect on a market?

Accepted Answer

A)  Supply shifts vertically upward by the amount of the tax.
B)  Demand shifts vertically downward by the amount of the tax.
C)  Equilibrium price decreases and equilibrium quantity decreases.
D)  Equilibrium price decreases and equilibrium quantity increases.E) None of the above
F) A) and B)

Question 7

Suppose S1 represents the initial market supply in the graph shown. A price ceiling is then set at $8. If supply shifts from S1 to S2, what will occur?

Accepted Answer

A)  The price ceiling will no longer be binding.
B)  The price ceiling will prevent output from changing.
C)  The size of the shortage will increase.
D)  The market will not reach equilibrium.E) A) and B)
F) All of the above

Question 8

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

Accepted Answer

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

Question 9

A binding price floor:

Accepted Answer

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

Question 10

Who benefits from a subsidy to sellers?

Accepted Answer

A)  Only buyers benefit.
B)  Only sellers 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) None of the above
F) All of the above

Question 11

Which of the following statements about taxes is true?

Accepted Answer

A)  They benefit many of the consumers in the market.
B)  They are sometimes used to correct market failures.
C)  They are sometimes used to transfer surplus from producers to consumers.
D)  They are sometimes used to transfer surplus from consumers to producers.E) B) and D)
F) None of the above

Question 12

If a price floor is set at $23 in the market shown in the graph, which areas would represent producer surplus?

Accepted Answer

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

Question 13

Does a subsidy to buyers affect the supply curve?

Accepted Answer

A)  Yes; the supply curve shifts up 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 D)
F) A) 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) C) and D)
F) B) and D)

Question 15

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 B)
F) A) and C)

Question 16

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

Accepted Answer

A)  $150
B)  $80
C)  $310
D)  $135E) A) and B)
F) C) and D)

Question 17

A price floor in the market shown in the graph would be non-binding if it were set at:

Accepted Answer

A)  $30.
B)  $23.
C)  $16.
D)  Any of these prices.E) None of the above
F) B) and C)

Question 18

Consider the market shown in the graph. What would most likely be the cause of a shift from S1 to S2?

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) None of the above

Question 19

A price ceiling in the market shown in the graph would be non-binding if it were set at:

Accepted Answer

A)  $5.
B)  $8.
C)  $10.
D)  $13.E) A) and B)
F) All of the above

Question 20

Does a tax on sellers 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 D)
F) A) and C)

Exam 6: Government Intervention

A binding price floor:

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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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A tax imposed on a good can:

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Consider the market shown in the graph. What would most likely be the cause of a shift from S1 to S2?

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Suppose S1 represents the initial market supply in the graph shown. A price ceiling is then set at $8. If supply shifts from S1 to S2, what will occur?

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Does a subsidy to buyers affect the supply curve?

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A price ceiling in the market shown in the graph would be non-binding if it were set at:

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The graph shown portrays a subsidy to buyers. What is the amount of the subsidy per unit of this good?

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Does a tax on sellers affect the supply curve?

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Which of the following statements about taxes is true?

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

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Who benefits from a subsidy to sellers?

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A tax on sellers has what effect on a market?

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The graph shown demonstrates a tax on sellers. After the tax is in place, buyers purchase _______ units, and the post-tax price paid for each one is _______.

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A price floor in the market shown in the graph would be non-binding if it were set at:

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

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If a price floor is set at $23 in the market shown in the graph, which areas would represent producer surplus?

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

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The relative tax burden borne by buyers and sellers is called the:

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

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The graph shown demonstrates a tax on sellers. After the tax is in place, buyers purchase _ units, and the post-tax price paid for each one is _.

Correct Answer
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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 _.

Correct Answer
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