Chapter 8 Problems
D
If the government eliminated tariffs: A. the gains in consumer surplus would equal the losses in producer surplus. B. the gains in producer surplus would equal the gains in consumer surplus. C. the gains in producer surplus would outweigh the losses in consumer surplus. D. the gains in consumer surplus would outweigh the losses in producer surplus.
D
If the government guarantees sugar farmers a price of $1 per pound when the market equilibrium price is actually $0.50 per pound, which of the following will occur? A. A surplus of sugar will occur, decreasing inefficiency. B. A shortage of sugar will occur, increasing inefficiency. C. A shortage of sugar will occur, decreasing inefficiency. D. A surplus of sugar will occur, increasing inefficiency.
B
In a progressive tax system A. the marginal tax rate increase as income increases but the average tax rate does not change as income increases. B. the marginal tax rate and the average tax rate increase as income levels increase and the marginal tax rate exceeds the average tax rate. C. the marginal tax rate and the average tax rate decrease as income levels increase and the marginal tax rate is less than the average tax rate. D. the marginal tax rate and the average tax rate are the same for every income level and the same as income increases.
B
Minimum wages cause: A. shortages of labor. B. a higher supply of the goods that labor produces. C. loss of gains from trade. D. excessive quality of products.
A
Over time, housing shortages caused by rent control _____ because the supply of housing is _____ elastic in the long run. A. increase; more B. decrease; less C. increase; less D. decrease; more
D
The marginal tax rate and the average tax rate are the same under a A. regressive income tax system. B. marginal tax system. C. progressive income tax system. D. proportional income tax system.
C
The marginal tax rate shows A. the average rate of taxation in the economy. B. the percentage of income which a typical family pays in tax. C. the extra tax due on an extra dollar of income. D. the deductions which are permitted for child care and medical expenses.
A
The minimum wage is an example of a(n): A. price floor. B. price ceiling. C. efficient policy. D. wage subsidy.
B
A binding price ceiling would result in a(n): A. surplus of the good. B. shortage of the good. C. quantity control. D. equilibrium price.
C
A binding price floor is: A. always below the equilibrium price. B. the maximum price that a seller can charge in a market. C. always above the equilibrium price. D. always at the equilibrium price.
B
A family that earns $20,000 a year pays $200 a year in city wage taxes. A family that earns $40,000 a year pays $1,600 a year in city wage taxes. The city wage tax is A. a benefits-received tax. B. a progressive tax. C. a regressive tax. D. a proportional tax.
D
A new tax policy has been passed in the country of Caldeconnia, a constitutional monarchy located high up in the Stap Mountain Range. This new policy states that 66% of the wages of every worker must go to taxes, regardless of how much they earn. This tax is an example of a(n) A. progressive tax. B. corporate income tax. C. excise tax. D. proportional tax.
D
A price ceiling is: A. the average price that a seller can charge in a market. B. the minimum price that a seller can charge in a market. C. any price above the equilibrium price. D. the maximum price that a seller can charge in a market.
A
A price floor is: A. the minimum price that a seller can charge in a market. B. any price below the equilibrium price. C. the maximum price that a seller can charge in a market. D. the average price that a seller can charge in a market.
B
A price floor or a price ceiling is an example of: A. a quantity regulation. B. a price control. C. a market equilibrium price. D. a quota.
D
A tariff _____ the price received by domestic producers and _____ the price paid by domestic consumers. A. decreases; increases B. increases; decreases C. decreases; decreases D. increases; increases
B
A tariff imposed on German imports into the United States tends to _____ American producers and _____ German producers. A. penalize; benefit. B. benefit; penalize C. penalize; penalize D. benefit; benefit
B
A tariff is a: A. limit on the quantity of a good that can be exported. B. tax on imported products. C. tax on exported products. D. limit on the quantity of a good that can be imported.
D
An employer has work that can be done in the same time by one high-skilled worker paid $50.00 an hour or by eight low-skilled workers paid $5.00 an hour each, and the minimum wage is $7.25 an hour. In this scenario, who benefits from the minimum wage, the high-skilled worker or the low-skilled workers? (Hint: Whom would you hire for the job?) A. Both benefit equally. B. the low-skilled workers C. It is impossible to say who benefits more. D. the high-skilled worker
A
Government sometimes supports protectionist tariffs because: A. the losses are spread over millions of consumers so the cost per consumer is small. B. the losses are spread over millions of producers, so the cost per producer is small. C. producers lose less than what consumers gain. D. producers always gain much more than what consumers altogether lose.
A
If the demand curve is downward-sloping, and supply is relatively elastic, then the burden of a tax is: A. borne mostly by consumers. B. borne mostly by producers. C. shared by consumers and producers, with the burden falling mainly on consumers. D. shared by consumers and producers, with the burden falling mainly on producers.
C
Price ceilings impose costs on society because they: A. ensure that everybody who wants the good will get it. B. may result in black markets, where prices are lower than the market-determined price would be. C. lead to a smaller quantity offered in the market. D. lead to a higher quantity offered in the market.
B
Price ceilings tend to create shortages when used to A. create a price above equilibrium. B. bring down price in a competitive market. C. bring down price to the level of marginal cost. D. reduce exploitative use of market power.
D
Price ceilings: A. misallocate resources because they allow consumers to compete against one another by offering sellers higher prices. B. improve the allocation of resources because consumers are prevented from bidding up the price of products. C. improve the allocation of resources because consumers with the greatest need for the product are more likely to be able to afford the product. D. misallocate resources because consumers who buy the product may not be the ones who value it the most.
A
Price controls cause resources to be _____ not just geographically but also across different _____ those resources. A. misallocated; uses for B. overutilized; types of C. properly allocated; demands for D. cheaper; uses for
A
Price floors make it illegal to compete for more customers by lowering prices, so firms compete by offering customers: A. higher quality. B. more discount. C. various options. D. more quantity.
D
Producers have an incentive to lower the quality of a good when the government imposes: A. any price control. B. an excise tax. C. a binding price floor. D. a binding price ceiling.
A
Suppose that the world price of TVs is $400, and the government imposes a $100 tariff. The new price domestic consumers pay for a TV is: A. $500. B. $400. C. $700. D. $600.
B
Suppose the government imposes a $6 per month tax on cell phone usage. If the demand for cell phone usage is perfectly inelastic, and the supply curve is elastic (but not perfectly elastic), then the price of cell phone usage will: A. increase by more than $6. B. increase by exactly $6. C. increase by less than $6. D. remain constant.
C
Suppose the government levies a $6 per month tax on cell phone usage. If the demand for cell phone service is relatively (but not perfectly) inelastic, and the supply is relatively (but not perfectly) elastic, then the price of cell phone usage will: A. increase by more than $6. B. increase by exactly $6. C. increase by less than $6. D. remain constant.
A
The Edict on Maximum Prices, established by the Roman emperor Diocletian, created price ceilings on various jobs and goods in a failed effort to curb inflation. For example, legal pay for a farm laborer could be no more than $0.108 a day (payment set in modern currency). If the market rate of farm labor was $0.12 a day, which would be a plausible consequence of this law? A. A laborer would work less hard than he otherwise would. B. Farms would produce more food than they otherwise would. C. Nothing unusual would happen. D. Unemployment for farm hands would increase.
C
The New York Philharmonic wants to make sure that its concerts are affordable for all residents of and visitors to New York City and therefore prices all of its tickets at $75. However, outside Lincoln Center, people can sell the same tickets for $250 or more. The true cost to the concertgoer of a ticket to the symphony is at least: A. $75. B. $125. C. $250. D. $325.
D
The average tax rate can be calculated by which of the following formulas? A. the change in taxable income divided by the change in taxes due B. the change in taxes due divided by the change in taxable income C. total taxable income divided by total taxes due D. total taxes due divided by total taxable income
C
The city of Mumbai in India imposed rent controls on apartments in 1947. Despite inflation and changes in land value, allowable rents have hardly increased since that time! Use what you know about rent controls to speculate about the quality of rent‑controlled buildings in Mumbai. Rent in Mumbai A. has fallen below the equilibrium rate in nominal terms, but the real rental rate is at equilibrium. B. has met the market level as the demand for housing has risen with population. C. is far below the equilibrium level and rental units are not being maintained. D. is below market levels, but landlords still have an incentive to maintain their properties.
A
The demand for frozen burritos is very inelastic compared to the supply of frozen burritos, so if a tax is imposed on consumers of frozen burritos, the tax incidence: A. will fall on consumers more than producers. B. will fall on producers more than consumers. C. will fall equally on consumers and producers. D. cannot be determined without more information.
C
The government can choose between taxing buyers of grapes at $1.00 per pound or taxing the sellers of grapes at $1.00 per pound. Which of the following statements is TRUE? I. The choice most beneficial to buyers is placing the $1.00 tax on sellers. II. The choice most beneficial to sellers is placing the $1.00 tax on buyers. III. Either choice will have the same effect on both buyers and sellers. A. II only B. I and II only C. III only D. I only
C
The higher the minimum wage is above the equilibrium wage, the: A. smaller is the number of low-skilled unemployed workers. B. smaller is the labor surplus among teenagers. C. greater is the number of low-skilled unemployed workers. D. more likely it is for students to stay in high school and receive their diploma.
A
The long-run effect of laws that raise the minimum wage is that A. labor-saving devices and management practices are slowly adopted. B. any short-run effect disappears and there is no long-run impact. C. the demand for minimum wage workers rises and more minimum wage workers are hired. D. labor-saving devices are quickly adopted to replace labor.
D
The statutory burden of a tax: A. determines who finally pays the entire tax being levied. B. always leads to an equal allocation of the tax between buyer and seller. C. does not play a role in determining where demand or supply shifts as a result of the tax. D. does not change the incidence of the tax.
B
Using a first-come, first-served system to allocate products with long lines is: A. efficient, since people who are willing to wait the longest get the products. B. inefficient because waiting wastes time. C. the only way scarce goods can be allocated. D. necessary when waiting is a costless exercise.
B
When a price ceiling is in effect, goods and services: A. are not necessarily supplied by their lowest-cost producer, nor do they flow to their highest-valued use. B. do not necessarily flow to their highest-valued use. C. are still allocated efficiently. D. are not necessarily supplied by their lowest-cost producer.
B
Which of the following statements is TRUE? I. Buyers bear the majority of the tax burden if the tax is originally imposed on buyers. II. Buyers bear the majority of the tax burden if the tax is originally imposed on sellers. III. Buyers and sellers will always bear equal amounts of the tax burden. IV. Buyers and sellers will jointly bear the tax. A. III only B. IV only C. II only D. I only
C
Which of the following statements is true? A. Economists believe that average tax rates have a greater influence on behavior than marginal tax rates. B. Economists believe that marginal and average tax rates influence behavior to the same extent. C. Economists believe that marginal tax rates have a greater influence on behavior than average tax rates. D. Economists believe that neither marginal nor average tax rates have any influence on behavior.
B
Which of these is NOT a typical consequence of rent control? A. a reduction in the quantity of apartments rented below the efficient level B. an efficient allocation of apartments among would-be renters C. wasted time and effort, as people search for apartments D. poor maintenance of apartments by landlords
D
Which would be the LEAST likely result of a price ceiling imposed in the market for gasoline? A. Some buyers will get less gasoline than they want. B. Buyers will bribe station attendants to fill up their tanks. C. Buyers will line up to buy gasoline. D. Competition in the market will be eliminated.
