Micro-Exam 2 Prep Chapter 6

In the table above, what is the equilibrium wage rate in an unregulated market?

$10.00 per hour

In the above figure, if the government imposed a minimum wage of $8 per hour in this labor market, the increase in the hourly wage for those who are able to keep their jobs is

$2 per hour

In the above figure, the amount of the tax per unit imposed on the seller is

$2.00

In the above figure, the price paid by the buyer before the tax is ________ per compact disc, and the price paid by the buyer after the tax is _______ per compact disc.

$20; $30

In the figure above, originally the apartment rental market is in short-run and long-run equilibrium with a rent of $600 per month. Then the government imposes a rent ceiling of $500 per month. The loss of producer surplus as a result of the price ceiling is

$250,000 per month

The above figure shows the market for anti-freeze. The government imposes the sales tax shown in the figure on sellers. How much tax revenue does the government raise from this tax?

$3,000

The figure above shows the market for milk in Cowland. A subsidy paid to producers of $1 per gallon of milk is introduced if there are no external costs and no external benefits, the marginal benefit of the last gallon of milk consumed is

$3.50 a gallon

In the figure above, the initial demand curve is D0. There are no rent ceilings nor rent floors. The equilibrium monthly rent is

$300 per month.

The figure above shows the market for milk in Cowland. A subsidy paid to producers of $1 per gallon of milk is introduced. If there are no external costs and no external benefits, the marginal cost of the last gallon of milk produced is

$4.50 a gallon

In the figure above, originally the apartment rental market is in short-run and long-run equilibrium with a rent of $600 per month. Then the government imposes a rent ceiling of $500 per month. If the law is strictly enforced, the maximum for which an apartment will rent on the black market is

$700 per month.

The table gives the demand and supplu schedules for fireworks on the Island of Big Bang. In the past, because many deaths have resulted from accidents involving fireworks, the government has banned fireworks and is enforcing the ban. A $6 a firework penalty on sellers of fireworks and no penalty on buyers will reduce the number of fireworks bought to ______ a week and increase the price paid by buyers to _____

$80; $11

In the above figure, if the minimum wage is set at $6 per hour, the level of unemployment is _____ hours a week is

0

The above figure shows the market for blouses. The government decides to impose the sales tax on sellers, as shown in the figure. The tax decreases consumption by

1,000 blouses.

The above firgure shows the market for anti-freeze. The government imposes the sales tax shown in the figure on sellers. The sales tax on anti-freeze decreases the quantity of anti-freeze that automobile owners purchase by

1000 gallons

In the above figure, if the minimum wage is set at $2 per hour, what quantity of labor is employed?

200 million hours

Suppose the government has declared beer to be an illegal substance and has imposed penalties on any person caught buying a beer. Selling a beer, however, remains legal. Using the above figure, in which CBL is the cost of breaking the law, beer consumption is decreased by

200 quarts

The figure above shows the demand for and supply of rental housing in Smallton. If a rent ceiling is set at $800, how many apartment units are rented?

3,000

The figure above shows the marker for cotton in Georgestan. The government regulates the market with a production quota set at 8 million pounds per year. The price of cotton in Georgestan is

60 cents per pound.

"The tax on insulin in the Philippines is anywhere between 10 and 20 percent. If you are rich and living in the Philippines, this is not a problem, but if you are poor, then insulin becomes something that you cannot afford." Why do buyers care so much about a tax on insulin, a vital daily medicine for those with diabetes?

Because buyers pay virtually the entire tax on insulin because the demand is almost perfectly inelastic

The minimum wage

Both answers A and C are correct ( A. can create a surplus of labor and C. is a type of price ceiling)

A price floor is a price

Both answers A and C are correct ( below which a seller cannot legally sell and that creates a surplus of the good if it is set above the equilirbium price

A minimum wage set above the equilibrium wage rate has no effect.

FALSE

A policy of raising the minimum wage is beneficial to all low-skilled workers.

FALSE

A rent ceiling set above equilibrium rent efficiently allocates resources in the housing market.

FALSE

Because a subsidy raises marginal benefit, it can be used to eliminate the deadweight loss from overproduction

FALSE

If the demand is perfectly elastic, buyers pay the entire tax.

FALSE

One positive aspect of rent ceilings is that they help reduce the time and expense associated with apartment hunting.

FALSE

One way to assure that poor people will have a plentiful supply of affordable housing available to them is by imposing rent ceilings.

FALSE

The black market price for a legally prohibited good will be the same whether a $1,000 fine is placed on the buyer or the seller.

FALSE

The incidence of the tax between buyers and sellers depends only on the elasticity of demand.

FALSE

The supply curve of low-skilled labor is upward sloping because those workers know that government will protect them with minimum wage legislation.

FALSE

To try to help farmers, governments I. set production quotas II. set price ceilings.

I and II

Which of the following is an effect of a price ceiling set below the equilibrium price?

Less of the good is produced with the ceiling than would be produced without the ceiling.

Most of us are dependent on crude oil in some shape or way, whether it's to power our cars or to heat our homes in some parts of the country. More than 80 percent of the home heating oil used in the United States goes to the Northeast. It is suggested that there needs to be government regulation to make it illegal to charge a very high price for oil. This type of regulation would be a _______

Price ceiling

A rent ceiling set above the equilibrium rent has no effect.

TRUE

A sales tax on sellers of a good shifts the supply curve leftward because the tax is like a cost of production.

TRUE

Discrimination based on age, race, gender, or family status very likely increases as a result of rent ceilings.

TRUE

If the elasticities of demand for alcohol, tobacco and gasoline are low and the elasticities of supply are high, then the burden of these taxes (excise taxes) falls more heavily on buyers than on sellers.

TRUE

Most economists believe that raising the minimum wage decreases the employment opportunities for low-skilled workers.

TRUE

The federal minimum wage in 2010 was $7.25. If this wage rate was less than the equilibrium wage, what is the effect?

The minimum wage does not create unemployment.

"The tax on insulin in the Philippines is anywhere between 10 and 20 percent. If you are rich and living in the Philippines, this is not a problem, but if you are poor, then insulin becomes something that you cannot afford." If the government places the tax on sellers, what is the most likely tax incidence?

The vast majority of the tax is paid by buyers.

One of the best defenses we have against malaria these days comes from a fern-like weed called wormwood. Fluctuating supply and demand have pushed the plants price from $155 per kilo one year, to over $1000 the next. There is a push to set a price ceiling for the plant. Which of the following would NOT occur if there was a price ceiling set below the equilibrium price on wormwood?

The wormwood market would be allocatively efficient because its price would not fluctuate.

The federal government pays airlines to service small cities in the United States through a subsidy program called Essential Air Service which was established in 1978 when airline industry was deregulated. Most subsidies can't exceed $200 per passenger. What would happen if the government increased the subsidy to $400 per passenger?

There would be a fall in price and increase in quantity produced.

More than 80 percent of the home heating oil used in the United States goes to the Northeast. In Vermont, the vast majority of people there use oil to stay warm when it's cold outside. Richard Izor heats his home with oil and inquires, "I'd like to see them come in and put a ceiling on the oil price now before it gets any higher. Why they haven't done this is more than I can understand." Which of the following is NOT likely to occur if such a price ceiling was imposed?

There would be a surplus of heating oil.

The federal government pays airlines to service small cities in the United States through a subsidy program called Essential Air Service which was established in 1978 when airline industry was deregulated. Most subsidies can't exceed $200 per passenger. Without this subsidy, what is true?

There would be higher prices and fewer flights.

In the above figure, a minimum wage of _______ would result in employment of ________.

W1; L2

The Volumetric Ethanol Excise Tax Credit (VEETC) is a tax credit (which acts like a subsidy) for registered ethanol-gasoline blenders. Qualified blenders receive $0.51 for each gallon of pure ethanol they blend into gasoline. What statement is true?

With a subsidy, the price paid by consumers will be lower than without a subsidy.

A rent ceiling creates a shortage. As a result, there is

a decrease in the producer surplus in the housing market.

In the figure above, the demand curve shifts rightward from D0 to D1 so that D1 is the relevant demand curve. Suppose the government imposers a rent ceiling of $300 per month. In the short run will be

a shortage and an increase in search costs.

The figure above shows the demand for and supply of rental housing in Smallton. If a rent ceiling is set at $400, there is

a shortage of 2,000 units of rental housing

In the figure above, imposing a tax on the product results in a division in which

all of the tax is paid by the buyers

The federal government pays airlines to service small cities in the United States through a subsidy program called Essential Air Service which was established in 1978 when airline industry was deregulated. Most subsidies can't exceed $200 per passenger. What is NOT an effect of this subsidy?

an increase in price and an increase in quantity produced

The above figure shows the apartment rental market in Bigtown. If the market is in equilibrium and then the Bigtown Housing Authority imposes a rent ceiling of $500 per apartment, which of the following would occur?

an increase in the search time and expense of finding an apartment

The figure above shows the market for milk in Cowland. If a subsidy paid to producers of $1 per gallon of milk is introduced, what is the price that consumers pay?

between $3.00 and $4.00 per gallon

The demand and the supply for a good are each neither perfectly elastic nor perfectly inelastic. If a sales tax on sellers of the good is imposed, the tax is paid by

both buyers and sellers.

In the above figure, a price ceiling of $2 would

create a shortage

If the penalty on sellers of an illegal good is less than the penalty on buyers of an illegal good, then the supply of the good will __________ by _______ demand and the price of the good will ________.

decrease; less than; decrease

The figure above shows the market for cotton in Georgestan. The government regulates the market with a production quota set at 8 million pounds per year. The introduction of the quota has

decreased the production of cotton in Georgestan by 8 million pounds.

In general, a fine on buying a product leads to the

demand curve shifting leftward.

When a government fines and/or imprisons persons convicted of using illegal drugs, the government is attempting to decrease the illegal drug trade by shifting the _______ curve for illegal drugs ________

demand; leftward

In the figure above, if a minimum wage of $6 per hour has been imposed and the labor demand curve then shifts from D0 to D1 the wage rate _______ and the amount of employment _______.

does not change; decreases

The amount of a tax paid by the sellers will be larger the more _______ the demand and the more ______ the supply

elastic; inelastic

If sanctions are imposed on buyers but NOT on sellers of an illegal good, then the equilibrium price ______ and the equilibrium quantity ________.

falls; decreases

If policy makes believe that the equilibrium wage rate is too low, policy makers can raise wages by legislating a minimum wage, that is, a wage

floor above the equilibrium wage.

The market for unskilled labor is illustrated in the figure above. The market is in equilibrium and then a minimum wage of $3 per hour is imposed. Unemployment will equal

floor above the equilibrium wage.

Governments often intervene in agricultural markets by

granting subsidies.

If a production quota is set below the equilibrium quantity, at the quota quantity, marginal benefit ______ marginal cost and the level of production is ________

greater than; inefficient

You are in the business of producing and selling hamburgers, french fries, pizza and ice cream. The mayor plans to impose a tax on one of these products. Based on the elasticities in the above table, as a profit-minded business person who seeks to avoid taxes whenever possible, which good would you least like to have taxed?

hamburgers

Imposing a minimum wage that is above the equilibrium wage rate results in

higher job search costs

The figure above shows the market for cotton in Georgestan. The government regulates the market with a production quota set at 8 million pounds per year. With the quota in place, the amount of cotton produced in Georgestan is ______ because the marginal social cost of a pound of cotton is _______ the marginal social benefit of a pound of cotton.

inefficient; less than

In the above figure, a price floor of $4

leads to a surplus

Making the buying and selling of a good illegal shifts the demand curve ________ and shifts the supply curve _______

leftward; leftward

The above figure depicts the market for video games. If the government imposed a $3 per game tax on sellers, what would be tax revenue?

less than $18

In the figure above, if a tax of $2 per widget is imposed on sellers, then the after-tax amount per widget received by the seller will be

less than $6

The amount of a tax paid by the buyers will be larger the

more inelastic the demand and the more elastic the supply.

The figure above shows the market for milk in Cowland. If a subsidy paid to producers of $1 per gallon of milk is introduced, how many gallons are sold per year?

more than 300 million but less than 400 million

In the figure above, the demand curve shifts rightward from D0 to D1 so that D1 is the relevant demand curve. Suppose the government imposes a rent ceiling of $500 per month. In the short run there will be

neither a shortage nor a surplus of apartments

Suppose that the equilibrium wage in the low-skilled labor market is $9.25. Further, suppose the federal government raises the minimum wage to $9.00 an hour from its present level of $8.15. The government's action of increasing the minimum wage will result in

neither a shortage nor a surplus of labor in the low-skilled labor market

If supply is perfectly elastic, a sales tax imposed on sellers is paid by

only the buyers

If supply is perfectly inelastic, a sales tax imposed on sellers is paid by

only the buyers

Suppose the local government places a sales tax on hotel rooms and that the demand for these rooms is elastic while the supply is perfectly inelastic. The tax incidence is such that the tax will be paid by

only the producers

If penalties for trading illegal drugs are instituted on both buyers and sellers, the

price might rise or fall, but the quantity will decrease

A price floor

results in a surplus if the floor price is higher than the equilibrium price.

One consequence of rent ceilings set below the equilibrium rent is that

search costs for housing increase

In general, a fine on selling a product leads to the

supply curve shifting leftward

Two small California cities, Richmond and El Monte, are planning to impose a penny per ounce tax on sugary drinks. They are being opposed by the soda industry that is vehemently against this new legislation. One reason why soda companies are so fervently against this tax might be because they assume sellers will pay the entire tax. Sellers will pay the entire tax if

supply is perfectly inelastic

When a government fines and/or convicted drug dealers, it is attempting to reduce the illegal drug trade by shifting the _______ curve for illegal drugs ________.

supply; leftward

One common effect of rent ceilings in big cities is

that landlords charge "key money", high payments charged to new tenants for new looks and keys.

If the government decreases the tax on cell phones,

the deadweight loss decreases

The above figure shows the market for blouses. The government decides to impose the sales tax on sellers, as shown in the figure. The amount of the tax paid by the sellers would be greater than shown in the figure if

the demand was more elastic.

The above figure shows the market for blouses. The government decides to impose the sales tax on sellers, as shown in the figure. The government would raise more tax revenue from this excise tax if

the demand was more inelastic

The above table gives the demand schedule and the supply schedule for housing in Anytown, U.S.A. If a rent ceiling of $600 was imposed in the housing market, then

the market would reach equilibrium at the quantity of 60 housing units

A sales tax is imposed on the sellers of gasoline. This tax shifts

the supply of gasoline curve leftward.

The above table gives the demand schedule and the supply schedule for housing in Anytown, USA. If a rent ceiling of $300 is imposed in the housing market, then

there would be a shortage of apartments

Which of the following is a likely outcome of rent ceilings?

waiting lists of potential renters of rent-controlled housing