ECON CHAPER 6

The imposition of a binding price ceiling on a market causes a. quantity demanded to be greater than quantity supplied. b. quantity demanded to be less than quantity supplied. c. quantity demanded to be equal to quantity supplied. d. the price of the good to be greater than its equilibrium price.

A. Quantity demanded to be greater than quantity supplied.

A binding price floor will reduce a firm's total revenue a. always. b. when demand is elastic. c. when demand is inelastic. d. never.

B. When demand is elastic.

Under rent control, bribery is a mechanism to a. bring the total price of an apartment (including the bribe) closer to the equilibrium price. b. allocate housing to the poorest individuals in the market. c. force the total price of an apartment (including the bribe) to be less than the market price. d. allocate housing to the most deserving tenants.

A. Bring the total price of an apartment (including the bribe) closer to the equilibrium price.

Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the a. buyers will bear a greater burden of the tax than the sellers. b. sellers will bear a greater burden of the tax than the buyers. c. buyers and sellers are likely to share the burden of the tax equally. d. buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.

A. Buyers will bear a greater burden of the tax than the buyers.

If the government removes a $2 tax on buyers of cigars and imposes the same $2 tax on sellers of cigars, then the price paid by buyers will a. not change, and the price received by sellers will not change. b. not change, and the price received by sellers will decrease. c. decrease, and the price received by sellers will not change. d. decrease, and the price received by sellers will decrease.

A. Not Change, and the price received by sellers will not change.

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct? a. The effective price received by sellers is $0.40 per bottle less than it was before the tax. b. Sixty percent of the burden of the tax falls on sellers. c. This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume. d. All of the above are correct.

A. The effective price received by sellers is $0.40 per bottle less than it was before the tax.

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk? a. Policymakers have studied the effects of the price ceiling carefully, and they recognize that the price ceiling is advantageous for society as a whole. b. Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling. c. Sellers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling. d. Buyers and sellers of milk have agreed that the price ceiling is good for both of them and have therefore pressured policymakers into imposing the price ceiling.

B. Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.

When a tax is imposed on the buyers of a good, the demand curve shifts a. upward by the amount of the tax. b. downward by the amount of the tax. c. upward by less than the amount of the tax. d. downward by less than the amount of the tax.

B. Downward by the amount of the tax.

When a tax is placed on the sellers of a product, buyers pay a. more, and sellers receive more than they did before the tax. b. more, and sellers receive less than they did before the tax. c. less, and sellers receive more than they did before the tax. d. less, and sellers receive less than they did before the tax.

B. More, and sellers receive less than they did before the tax.

A legal minimum on the price at which a good can be sold is called a a. price subsidy. b. price floor. c. tax. d. price ceiling.

B. Price Floor

If a nonbinding price ceiling is imposed on a market, then the a. quantity sold in the market will decrease. b. quantity sold in the market will stay the same. c. price in the market will increase. d. price in the market will decrease.

B. Quantity sold in the market will stay the same.

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding? a. Improvements in production technology reduce the costs of producing laptop computers. b. The number of firms selling laptop computers decreases. c. Consumers' income decreases, and laptop computers are a normal good. d. The number of consumers buying laptop computers decreases.

B. The number of firms selling laptop computers decreases.

If the minimum wage exceeds the equilibrium wage, then a. the quantity demanded of labor will exceed the quantity supplied. b. the quantity supplied of labor will exceed the quantity demanded. c. the minimum wage will not be binding. d. there will be no unemployment.

B. The quantity supplied of labor will exceed the quantity demanded.

Price controls are usually enacted a. as a means of raising revenue for public purposes. b. when policymakers believe that the market price of a good or service is unfair to buyers or sellers. c. when policymakers tax a good. d. All of the above are correct.

B. When policymakers believe that the market price of a good or service is unfair to buyers or sellers.

Which of the following statements is correct? a. A tax levied on buyers will never be partially paid by sellers. b. Who actually pays a tax depends on the price elasticities of supply and demand. c. Government can decide who actually pays a tax. d. A tax levied on sellers always will be passed on completely to buyers.

B. Who actually pays a tax depends on the price elasticities of supply and demand.

If a tax is levied on the sellers of a product, then there will be a(n) a. downward shift of the demand curve. b. upward shift of the demand curve. c. decrease in quantity demanded. d. increase in quantity demanded.

C. Decrease in quantity demanded.

The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. The mayor will be able to successfully divide the burden of the tax equally if the a. demand for labor is more elastic than the supply of labor. b. supply of labor is more elastic than the demand for labor. c. demand for labor and supply of labor are equally elastic. d. It is not possible for the tax burden to fall equally on firms and workers.

C. Demand for labor and supply of labor are equally elastic.

A $1.50 tax levied on the buyers of pomegranate juice will shift the demand curve a. upward by exactly $1.50. b. upward by less than $1.50. c. downward by exactly $1.50. d. downward by less than $1.50.

C. Downward by exactly $1.50.

If the government wants to reduce smoking, it should impose a tax on a. buyers of cigarettes. b. sellers of cigarettes. c. either buyers or sellers of cigarettes. d. whichever side of the market is less elastic.

C. Either buyers or sellers of cigarettes

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the a. demand curve for toothpaste shifts to the left. b. supply curve for toothpaste shifts to the right. c. quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases. d. quantity supplied of toothpaste stays the same.

C. Quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.

When a binding price floor is imposed on a market to benefit sellers, a. no sellers actually benefit. b. some sellers benefit, but no sellers are harmed. c. some sellers benefit, and some sellers are harmed. d. all sellers benefit.

C. Some sellers benefit, and some sellers are harmed

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the a. demand curve will shift upward by $20, and the price paid by buyers will decrease by less than $20. b. demand curve will shift upward by $20, and the price paid by buyers will decrease by $20. c. supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20. d. supply curve will shift downward by $20, and the effective price received by sellers will increase by $20.

C. Supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20.

An example of a price floor is a. the regulation of gasoline prices in the U.S. in the 1970s. b. rent control. c. the minimum wage. d. any restriction on price that leads to a shortage.

C. The Minimum Wage

The term tax incidence refers to a. whether buyers or sellers of a good are required to send tax payments to the government. b. whether the demand curve or the supply curve shifts when the tax is imposed. c. the distribution of the tax burden between buyers and sellers. d. widespread view that taxes (and death) are the only certainties in life.

C. The distribution of the tax burden between buyers and sellers.

A tax on sellers will shift the a. demand curve upward by the amount of the tax. b. demand curve downward by the amount of the tax. c. supply curve upward by the amount of the tax. d. supply curve downward by the amount of the tax.

C. supply curve upward by the amount of the tax.

If a binding price ceiling is imposed on the baby formula market, then a. the quantity of baby formula demanded will increase. b. the quantity of baby formula supplied will decrease. c. a shortage of baby formula will develop. d. All of the above are correct.

D. All of the above are correct.

When a tax is placed on the sellers of energy drinks, the a. sellers bear the entire burden of the tax. b. buyers bear the entire burden of the tax. c. burden of the tax will be always be equally divided between the buyers and the sellers. d. burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

D. Burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

The goal of rent control is to a. facilitate controlled economic experiments in urban areas. b. help landlords by assuring them a low vacancy rate for their apartments. c. help the poor by assuring them an adequate supply of apartments. d. help the poor by making housing more affordable.

D. Help the poor by making housing more affordable.

f the government removes a binding price ceiling from a market, then the price received by sellers will a. decrease, and the quantity sold in the market will decrease. b. decrease, and the quantity sold in the market will increase. c. increase, and the quantity sold in the market will decrease. d. increase, and the quantity sold in the market will increase.

D. Increase, and the quantity sold in the market will increase.

In the housing market, supply and demand are a. more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the short run than in the long run. b. more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the long run than in the short run. c. more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the short run than in the long run. d. more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.

D. More elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.

If a tax is levied on the buyers of a product, then there will be a(n) a. downward shift of the supply curve. b. upward shift of the supply curve. c. movement up and to the right along the supply curve. d. movement down and to the left along the supply curve.

D. Movement down and to the left along the supply curve.

A legal maximum on the price at which a good can be sold is called a price a. floor. b. subsidy. c. support. d. ceiling.

d. Price Ceiling