Question 1

Suppose a tax has been imposed in the graph shown. 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) None of the above
F) All of the above

Question 2

If a price floor of $23 were placed in the market in the graph shown:

Accepted Answer

A)   some surplus is transferred from consumer to producer.
B)   some surplus is transferred from producer to consumer.
C)   all producers are better off.
D)   all consumers are better off.E) None of the above
F) A) and D)

Question 3

According to the graph above, a price ceiling in this market would be non-binding if it were set at:

Accepted Answer

A)   $5.
B)   $8.
C)   $10.
D)   $13.E) A) and B)
F) A) and C)

Question 4

A subsidy to buyers has been placed in the market in the graph shown. The result is:

Accepted Answer

A)   a higher quantity bought and sold at a higher price.
B)   customers are worse off than before the subsidy.
C)   producers are worse off than before the subsidy.
D)   None of these is true.E) A) and C)
F) B) and C)

Question 5

If the demand curve is more elastic than the supply curve, then:

Accepted Answer

A)   the buyers will bear a greater tax incidence than sellers.
B)   the sellers will bear a greater tax incidence than buyers.
C)   tax incidence will be shared equally by buyer and seller.
D)   None of these is true.E) A) and C)
F) C) and D)

Question 6

If a price ceiling of $8 were placed in the market in the graph shown:

Accepted Answer

A)   some surplus is transferred from consumer to producer.
B)   some surplus is transferred from producer to consumer.
C)   all consumers are made better off.
D)   all producers are made better off.E) A) and C)
F) A) and D)

Question 7

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 price paid by buyers is greater than that received by sellers, and the difference is the tax wedge.
B)   The price paid by buyers is less than that received by sellers, and the difference is the total tax revenue.
C)   The price paid by buyers is greater than that received by sellers, and the difference is the total tax revenue.
D)   The price paid by buyers and received by sellers is higher than it was before the tax was imposed.E) None of the above
F) A) and D)

Question 8

Suppose a tax on buyers has been imposed in the graph shown. Once the tax is in place, the 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) B) and D)
F) B) and C)

Question 9

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

Accepted Answer

A)   6; $22
B)   6; $34
C)   9; $18
D)   9; $30E) None of the above
F) B) and C)

Question 10

The graph shown demonstrates a tax on sellers. 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 a surplus, and the government must buy the excess.
C)   The tax creates a shortage, and the government must regulate the market.
D)   None of these is true.E) A) and B)
F) A) and C)

Question 11

Positive analysis:

Accepted Answer

A)   is the best way to analyze a policy.
B)   leads to the best solutions.
C)   is the only way to analyze a policy.
D)   examines if the policy actually accomplished its goals.E) A) and D)
F) A) and B)

Question 12

Price controls:

Accepted Answer

A)   are regulations that sets 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 true.E) A) and C)
F) B) and D)

Question 13

Suppose a tax on sellers has been imposed as shown in the graph. Once the tax is in place, the buyers experience:

Accepted Answer

A)   a decrease in demand.
B)   an increase in demand.
C)   a decrease in quantity demanded.
D)   an increase in quantity demanded.E) A) and D)
F) B) and C)

Question 14

Assume a subsidy to buyers has been enacted in the market in the graph shown. With the subsidy, the producers sell _____ units and receive _____ for each of them.

Accepted Answer

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

Question 15

Would you expect a tax on cigarettes to be more effective at discouraging consumption over the long run or the short run?

Accepted Answer

A)   Long run because demand becomes more elastic over time
B)   Long run because demand becomes less elastic over time
C)   Short run because demand becomes more elastic over time
D)   Short run because demand becomes less elastic over timeE) A) and B)
F) A) and C)

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 a surplus, and the government must buy the excess.
C)   The tax creates a shortage, and the government must regulate the market.
D)   None of these is true.E) A) and D)
F) A) and B)

Question 17

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 18

The graph shown portrays a subsidy to buyers. The amount of money spent on this subsidy by the government is:

Accepted Answer

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

Question 19

Because a price floor causes:

Accepted Answer

A)   a shortage, some form of rationing must occur.
B)   a surplus, some producers may ultimately lose because they won't have enough customers.
C)   a shortage, rent-seeking will occur.
D)   a surplus, everyone will be better off.E) A) and B)
F) C) and D)

Question 20

The graph shown best represents:

Accepted Answer

A)   a non-binding price ceiling.
B)   a non-binding price floor.
C)   a missing market.
D)   a market for an inferior good.E) B) and D)
F) B) and C)

Exam 6: Government Intervention

Positive analysis:

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The graph shown best represents:

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

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Suppose a tax on sellers has been imposed as shown in the graph. Once the tax is in place, the buyers experience:

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If a price ceiling of $8 were placed in the market in the graph shown:

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Price controls:

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According to the graph above, a price ceiling in this market would be non-binding if it were set at:

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Would you expect a tax on cigarettes to be more effective at discouraging consumption over the long run or the short run?

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A subsidy to buyers has been placed in the market in the graph shown. The result is:

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The graph shown portrays a subsidy to buyers. The amount of money spent on this subsidy by the government is:

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

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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 best represents:

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

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If a price floor of $23 were placed in the market in the graph shown:

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Assume a subsidy to buyers has been enacted in the market in the graph shown. With the subsidy, the producers sell _____ units and receive _____ for each of them.

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Because a price floor causes:

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If the demand curve is more elastic than the supply curve, then:

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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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Suppose a tax on buyers has been imposed in the graph shown. Once the tax is in place, the sellers experience:

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

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Assume a subsidy to buyers has been enacted in the market in the graph shown. With the subsidy, the producers sell _ units and receive _ for each of them.

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