Microeconomics Chapter 6
Refer to the Figure. XYZ, Inc. is a seller of the good. XYZ sells a unit of the good to a buyer and then pays the tax on that unit to the government. XYZ is left with how much money?
$2.00
Refer to the figure. The per-unit burden of the tax on buyer is
$4.
Refer to the table. Suppose the government imposes a price floor of $5 on this market. What will be the size of the surplus in this market?
12 units.
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 significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint
Which of the following takes place when a tax is placed on a good?
An increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold
For a price ceiling to be a binding constraint on the market, the government must set it
Below the equilibrium price
Studies show that a 10 percent increase in minimum wage
Decreases teenage employment by 1 to 3 percent
A $10 tax on baseball gloves will always raise the price that the buyers pay for baseball gloves by $10.
False
A 10 percent increase in the minimum wage causes a 10 percent reduction in teenage employment.
False
A price ceiling set below the equilibrium price causes a surplus.
False
A price floor in a market always creates a surplus in that market.
False
If the equilibrium price of gasoline is $3.00 per gallon and the government places a price ceiling on gasoline of $4.00 per gallon, the result will be a shortage of gasoline.
False
The government can choose to place the burden of a tax on the buyers in a market by collecting the tax from the buyers rather than the sellers.
False
The minimum wage helps all teenagers because they receive higher wages than they would otherwise.
False
When we use the model of supply and demand to analyze a tax collected from the buyers, we shift the demand curve upward by the size of the tax.
False
A tax of $1.00 per gallon on gasoline
Places a tax wedge of $1.00 between the price the buyers pay and the price the sellers receive
A price floor
Sets a legal minimum on the price at which a good can be sold
After a tax is imposed on the market for bottled water, the price buyers pay is $2.50 per bottle and the price sellers receive is $1.75. If the equilibrium price was $2.00 before the tax was imposed on the market, what can you conclude about the relative price elasticities of demand and supply?
Supply is more elastic than demand.
Within the supply-and-demand model, a tax collected from the sellers of a good shifts the
Supply upward by the size of the tax per unit
Which of the following statements about the burden of a tax is correct?
The distribution of the burden of a tax is determined by the relative elasticities of supply and demand is not determined by legislation.
Suppose that a $3.00 tax per pack is imposed on cigarettes. Which of the following is consistent with the demand being relatively inelastic and the supply being relatively elastic?
The price buyers pay increases by more than $1.50 and the price sellers receive decreases by less than $1.50.
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?
The quality of the apartments will improve
Which side of the market is more likely to lobby government for a price floor?
The sellers
Which of the following statements about a binding price ceiling is true?
The shortage created by the price ceiling is greater in the long run than in the short run
When a tax is collected from the buyers in a market,
The tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers
A price ceiling that is not a binding constraint today could cause a shortage in the future if demand were to increase and raise the equilibrium price above the fixed price ceiling.
True
A price floor set above the equilibrium price is a binding constraint.
True
A tax collected from buyers has an equivalent impact to a same size tax collected from sellers.
True
A tax creates a tax wedge between a buyer and a seller. This causes the price paid by the buyer to rise, the price received by the seller to fall, and the quantity sold to fall.
True
If medicine is a necessity, the burden of a tax on medicine will likely land more heavily on the buyers of medicine.
True
The shortage of housing caused by a binding rent control is likely to be more severe in the long run when compared to the short run.
True
The ultimate burden of a tax lands most heavily on the side of the market that is less elastic.
True
If a binding price floor is imposed on the market for carrots, then
a surplus of carrots will develop
If the market price of a 60-in- flat-screen TVs is $1200 and the government imposes a price control setting the price at $1000, this price control could be a
binding price ceiling or a nonbinding price floor
A government-mandated maximum price that is set below the market equilibrium price is a
binding price ceiling that results in a shortage
The surplus caused by a binding price floor will be greatest if
both supply and demand are elastic
A $15.00 tax levied on the sellers of car batteries will
cause the supply curve for car batteries to shift to the left by $15.00
Before OPEC raised the price of crude oil in the 1970s, the price
ceiling on gasoline was not binding, but it became binding and caused a shortage when the supply of gasoline decreased
Rent control is an example of a price
ceiling; in cities with rent control mechanisms other than price are used to ration housing
Within the supply-and-demand model, a tax collected from the buyers of a good shifts the
demand curve downward by the size of the tax per unit
the burden of a tax falls more heavily on the sellers in a market when
demand is elastic and supply is inelastic
The burden of a tax falls more heavily on the buyers in a market when
demand is inelastic and supply is elastic
For which of the following products would the burden of a tax likely fall more heavily on the sellers?
entertainment
A tax placed on a good that is a necessity for consumers will likely generate a tax burden that
falls more heavily on buyers
If the market price of burgers is $8 and the government sets a legal minimum at $9, the government has imposed a price
floor that is binding
Suppose that the demand for toilet paper is highly inelastic, and the supply of toilet paper is highly elastic. A tax of $0.10 per roll levied on toilet paper will decrease the effective price received by sellers of toilet paper by
less than $0.05
The Earned Income Tax Credit is a
method of raising living standards of the working poor without creating unemployment
Which of the following is an example of a price floor?
minimum wage
Suppose the equilibrium price of a jar of spaghetti sauce is $3, and the government imposes a price floor of $4 per jar. As a result of the price floor, the
quantity demanded of spaghetti sauce decreases, and the quantity of spaghetti sauce that firms want to supply increases
Suppose that in a particular market, the supply curve is relatively inelastic and the demand curve is relatively elastic. If a tax is imposed in this market, then the
sellers will bear a greater burden of the tax than the buyers
A binding price ceiling creates
shortage
Which of the following is correct? Price controls often help
some of those they are designed to help
Although lawmakers legislated a fifty-fifty division of the payment of the FICA tax,
the burden of the tax is dictated by the relative elasticities of supply and demand rather than the legislated tax incidence
If the government removes a binding price ceiling in the market for gasoline, then
the price of gasoline will increase, and the quantity of gasoline sold will increase
Refer to the Figure. How is the burden of the tax shared between buyers and sellers? Buyers bear
two-thirds of the burden, and sellers bear one-third of the burden.
