Finance 6204 Chapter 6 Quiz

Which of the following is not an example of a public policy? a. rent-control laws b. minimum-wage laws c. taxes d. equilibrium laws

d. equilibrium laws

In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that a. OPEC raised the price of crude oil in world markets. b. U.S. gasoline producers raised the price of gasoline. c. the U.S. government maintained a price ceiling on gasoline. d. Americans typically commuted long distances.

c. the U.S. government maintained a price ceiling on gasoline.

Which of the following is not correct? a. Taxes levied on sellers and taxes levied on buyers are not equivalent. b. A tax places a wedge between the price that buyers pay and the price that sellers receive. c. The wedge between the buyers' price and the sellers' price is the same, regardless of whether the tax is levied on buyers or sellers. d. In the new after-tax equilibrium, buyers and sellers share the burden of the tax.

a. Taxes levied on sellers and taxes levied on buyers are not equivalent.

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

a. demand curve will shift upward by $30, and the price paid by buyers will decrease by less than $30.

If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of NFL game tickets would a. increase by less than $5. b. increase by exactly $5. c. increase by more than $5. d. decrease by an indeterminate amount.

a. increase by less than $5.

Minimum wage laws a. may encourage some teenagers to drop out and take jobs. b. create labor shortages. c. have the greatest impact in the market for skilled labor. d. All of the above are correct.

a. may encourage some teenagers to drop out and take jobs.

A tax on buyers 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.

b. demand curve downward by the amount of the tax.

In which panel(s) of the figure would there be a shortage of the good at the price ceiling? a. panel (a) only b. panel (b) only c. both panel (a) and panel (b) d. neither panel (a) nor panel (b)

b. panel (b) only

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.

When a tax is placed on the sellers of cell phones, the size of the cell phone market a. and the price paid by buyers both increase. b. increases, but the price paid by buyers decreases. c. decreases, but the price paid by buyers increases. d. and the price paid by buyers both decrease.

c. decreases, but the price paid by buyers increases.

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

c. either buyers or sellers of gasoline.

In response to a shortage caused by the imposition of a binding price ceiling on a market, a. price will no longer be the mechanism that rations scarce resources. b. long lines of buyers may develop. c. sellers could ration the good or service according to their own personal biases. d. All of the above are correct.

c. sellers could ration the good or service according to their own personal biases.

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.

The Earned Income Tax Credit is an example of a a. minimum-wage law. b. price ceiling. c. wage subsidy. d. rent subsidy.

c. wage subsidy.

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, a. quantity demanded decreases. b. quantity supplied increases. c. there is a surplus. d. All of the above are correct.

d. All of the above are correct.

You receive a paycheck from your employer, and your pay stub indicates that $300 was deducted to pay the FICA (Social Security/Medicare) tax. Which of the following statements is correct? a. The $300 that you paid is not necessarily the true burden of the tax that falls on you, the employee. b. Your employer is required by law to pay $300 to match the $300 deducted from your check. c. This type of tax is an example of a payroll tax. d. All of the above are correct.

d. All of the above are correct.

One economist has argued that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this? a. He fears that low rents will cause low-income people to move into the city, reducing the quality of life for other people. b. He fears that rent control will benefit landlords at the expense of tenants, increasing inequality in the city. c. He fears that rent controls will cause a construction boom, which will make the city crowded and more polluted. d. He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

d. He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

Which of the following is not a function of prices in a market system? a. Prices have the crucial job of balancing supply and demand. b. Prices send signals to buyers and sellers to help them make rational economic decisions. c. Prices coordinate economic activity. d. Prices ensure an equal distribution of goods and services among consumers.

d. Prices ensure an equal distribution of goods and services among consumers.

When a tax is placed on the sellers of cell phones, the size of the cell phone market a. and the effective price received by sellers both increase. b. increases, but the effective price received by sellers decreases. c. decreases, but the effective price received by sellers increases. d. and the effective price received by sellers both decrease.

d. and the effective price received by sellers both decrease.

Lawmakers designed the burden of the FICA payroll tax to be split evenly between workers and firms. Labor economists believe that a. lawmakers may have actually achieved their goal because statistics show that the tax burden is currently equally divided. b. the tax raises too little revenue for the government, so it should be eliminated. c. firms bear most of the burden of the tax. d. workers bear most of the burden of the tax.

d. workers bear most of the burden of the tax.