Supply, Demand, and Government Policies (Ch 06)

Which of the following increases quantity supplied, decreases quantity demanded, and increases the price that consumers pay? a. the imposition of a binding price floor b. the repeal of a tax on a good c. the passage of a tax on a good d. the removal of a binding price floor

a. the imposition of a binding price floor

A price floor a. always determines the price at which a good must be sold. b. sets a legal minimum on the price at which a good can be sold. c. is not a binding constraint if it is set above the equilibrium price. d. sets a legal maximum on the price at which a good can be sold

b. sets a legal minimum on the price at which a good can be sold.

Which of the following statements about a binding price ceiling is true? a. The surplus created by the price ceiling is greater in the long run than in the short run. b. The surplus created by the price ceiling is greater in the short run than in the long run. c. The shortage created by the price ceiling is greater in the long run than in the short run. d. The shortage created by the price ceiling is greater in the short run than in the long run.

c. The shortage created by the price ceiling is greater in the long run than in the short run.

For a price ceiling to be a binding constraint on the market, the government must set it a. at any price because all price ceilings are binding constraints. b. above the equilibrium price. c. below the equilibrium price. d. precisely at the equilibrium price.

c. below the equilibrium price.

When the government imposes a binding price floor, it causes a. the demand curve to shift to the right. b. the supply curve to shift to the left. c. a shortage of the good to develop. d. a surplus of the good to develop.

d. a surplus of the good to develop.

Within the supply-and-demand model, a tax collected from the buyers of a good shifts the a. supply curve upward by the size of the tax per unit. b. demand curve upward by the size of the tax per unit. c. supply curve downward by the size of the tax per unit. d. demand curve downward by the size of the tax per unit.

d. demand curve downward by the size of the tax per unit.

Rent control causes larger shortages in the ________ run because over that time horizon, supply and demand are ________ elastic. a. long, less b. short, more c. short, less d. long, more

d. long, more

Within the supply-and-demand model, a tax collected from the sellers of a good shifts the a. demand curve upward by the size of the tax per unit. b. demand curve downward by the size of the tax per unit. c. supply curve downward by the size of the tax per unit. d. supply curve upward by the size of the tax per unit.

d. supply curve upward by the size of the tax per unit.

Which of the following statements is true if the government places a price ceiling on gasoline at $4.00 per gallon and the equilibrium price is $3.00 per gallon? a. A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint. b. A significant increase in the supply of gasoline could cause the price ceiling to become a binding constraint. c. There will be a shortage of gasoline. d. There will be a surplus of gasoline.

a. A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint.

A $1 per unit tax levied on consumers of a good is equivalent to a. a $1 per unit tax levied on producers of the good. b. a price ceiling that raises the good's price by $1 per unit. c. a price floor that raises the good's price by $1 per unit. d. a $1 per unit subsidy paid to producers of the good

a. a $1 per unit tax levied on producers of the good.

The surplus caused by a binding price floor will be greatest if a. both supply and demand are elastic. b. both supply and demand are inelastic. c. supply is inelastic and demand is elastic. d. demand is inelastic and supply is elastic.

a. both supply and demand are elastic.

Studies show that a 10 percent increase in the minimum wage a. decreases teenage employment by about 1 to 3 percent. b. increases teenage employment by about 10 to 15 percent. c. decreases teenage employment by about 10 to 15 percent. d. increases teenage employment by about 1 to 3 percent.

a. decreases teenage employment by about 1 to 3 percent.

The burden of a tax falls more heavily on the buyers in a market when a. demand is inelastic and supply is elastic. b. demand is elastic and supply is inelastic. c. both supply and demand are elastic. d. both supply and demand are inelastic.

a. demand is inelastic and supply is elastic.

An increase in the minimum wage reduces the total amount paid to the affected workers if the price elasticity of ________ is ________ than one. a. demand, greater b. demand, less c. supply, greater d. supply, less

a. demand, greater

Which of the following increases quantity supplied, increases quantity demanded, and decreases the price that consumers pay? a. the passage of a tax on a good b. the repeal of a tax on a good c. the removal of a binding price floor d. the imposition of a binding price floor

b. the repeal of a tax on a good

Suppose the equilibrium price for apartments is $800 per month and the government imposes rent controls of $500. Which of the following is unlikely to occur as a result of the rent controls? a. Landlords may be offered bribes to rent apartments. b. The quality of apartments will improve. c. Landlords may discriminate among apartment renters. d. There will be a shortage of housing. e. There may be long lines of buyers waiting for apartments.

b. The quality of apartments will improve.

A binding price ceiling creates a. a surplus. b. a shortage. c. a shortage or a surplus depending on whether the price ceiling is set above or below the equilibrium price. d. an equilibrium

b. a shortage.

Which of the following takes place when a tax is placed on a good? a. a decrease in the price buyers pay, an increase in the price sellers receive, and an increase in the quantity sold b. an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold c. an increase in the price buyers pay, a decrease in the price sellers receive, and an increase in the quantity sold d. a decrease in the price buyers pay, an increase in the price sellers receive, and a decrease in the quantity sold

b. an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold

The burden of a tax falls more heavily on the sellers in a market when a. demand is inelastic and supply is elastic. b. demand is elastic and supply is inelastic. c. both supply and demand are elastic. d. both supply and demand are inelastic.

b. demand is elastic and supply is inelastic.

For which of the following products would the burden of a tax likely fall more heavily on the sellers? a. clothing b. entertainment c. housing d. food

b. entertainment

A tax placed on a good that is a necessity for consumers will likely generate a tax burden that a. falls more heavily on sellers. b. is evenly distributed between buyers and sellers. c. falls more heavily on buyers. d. falls entirely on sellers.

c. falls more heavily on buyers.

A tax of $1.00 per gallon on gasoline a. decreases the price the sellers receive by $1.00 per gallon. b. increases the price the buyers pay by precisely $0.50 and reduces the price received by sellers by precisely $0.50. c. places a tax wedge of $1.00 between the price the buyers pay and the price the sellers receive. d. increases the price the buyers pay by $1.00 per gallon.

c. places a tax wedge of $1.00 between the price the buyers pay and the price the sellers receive.

Which of the following is an example of a price floor? a. rent controls b. restricting gasoline prices to $2.00 per gallon when the equilibrium price is $3.00 per gallon c. the minimum wage d. All of the above are price floors.

c. the minimum wage

Which side of the market is more likely to lobby government for a price floor? a. Neither buyers nor sellers desire a price floor. b. Both buyers and sellers desire a price floor. c. the sellers d. the buyers

c. the sellers

When a tax is collected from the buyers in a market, a. the sellers bear the burden of the tax. b. the tax burden falls most heavily on the buyers. c. the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers. d. the buyers bear the burden of the tax.

c. the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers.

Which of the following statements about the burden of a tax is correct? a. The tax burden falls most heavily on the side of the market (buyers or sellers) that is most willing to leave the market when price movements are unfavorable to them. b. The tax burden generated from a tax placed on a good consumers perceive to be a necessity will fall most heavily on the sellers of the good. c. The burden of a tax lands on the side of the market (buyers or sellers) from which it is collected. d. The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation.

d. The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation.

In a market with a binding price ceiling, increasing the ceiling price will a. increase the surplus. b. increase the shortage. c. decrease the surplus. d. decrease the shortage.

d. decrease the shortage.

When a good is taxed, the burden of the tax falls mainly on consumers if a. the tax is levied on consumers. b. supply is inelastic and demand is elastic. c. the tax is levied on producers. d. supply is elastic and demand is inelastic.

d. supply is elastic and demand is inelastic.