ECO MOD 4

When a tax is imposed on a product, it affects both the quantity supplied and the quantity demanded.

True

Consider the market for jobs. Which of the following statements is true?

Workers are the demanders of jobs, and firms are the suppliers of jobs.

A change in the quantity demanded at each price is:

a change in demand.

An excise tax is a tax on:

a good or service that depends on the units sold

A price ceiling is:

a maximum price sellers are allowed to charge for a good or service

A price floor is:

a minimum legal price at which a good, service, or resource can be sold.

A characteristic of demand for a good, service, or resource other than its own market price is:

a nonprice determinant of demand.

The market adjusts to a new equilibrium price and quantity when:

a nonprice determinant of supply changes.

When the market participants of a market that is in disequilibrium respond to rising prices, the market will return to equilibrium, resulting in:

an elimination of a shortage.

A change in demand is:

an increase or decrease in the quantity demanded at every price.

Surpluses and shortages:

are denoted in units of the product itself.

When a shortage exists in a competitive market, the price provides incentives for:

suppliers to increase the quantity of a good or service supplied to the market.

A tax on suppliers shifts the:

supply curve to the left

A situation in which the quantity of output supplied is greater than the quantity of output demanded at the current market price is called a _____.

surplus

One way to reduce the quantity demanded for cigars would be to impose a

tax

To pay for needed services, governments

tax economic activity

By changing the prices that buyers and sellers face in the market:

taxes change market outcomes.

When the government imposes a new tax (or increases an existing tax),

the amount that consumers pay increases.

A tax increases

the cost of goods sold

In the presence of a tax on suppliers

the cost producing the good or service increases

The relative magnitudes of the changes in demand and supply will determine:

the direction of change in price or quantity when both demand and supply shift.

When there is a decrease in both demand and supply:

the equilibrium quantity falls, but the change in the equilibrium price is indeterminate.

When the supply of a good increases

the good becomes less expensive, ceteris paribus

Increased scarcity and inefficiency will result when:

the market is in disequilibrium.

The price that consumers pay and that producers receive exactly balances the marginal benefit and marginal cost of consuming and producing a good or service when:

the market is in equilibrium.

A good once unaffordable to most people can become an item that almost everyone owns when:

the market supply increases over time.

When a tax is placed on a good:

the price paid by consumers rises, but the price received by producers decreases

Price of good is the

the primary determinant of the quantity demanded by consumers.

A surplus occurs when:

the quantity of output supplied is greater than the quantity of output demanded at the current market price.

When the price of a good, service, or resource decreases,

the quantity supplied decreases.

When the price of a good, service, or resource increases:

the quantity supplied increases.

When the price of a good increases:

the quantity supplied rises.

When a good or service is taxed in the market: 2

the quantity traded in the market falls

When a nonprice determinant of supply changes: 2

the relationship between the quantity supplied and the price changes.

When there is a change in a non-price determinant of supply:

the supply curve shifts and there is a movement along the demand curve.

The revenue collected from a tax equals:

the tax times the quantity traded

When the supply curve shifts to the right or left:

there has been a change in the non-price determinants of supply.

The primary reason that governments tax economic activity is:

to generate the revenue needed to pay for services.

When both demand and supply change:

we can always determine with confidence how price or quantity will change but not both

When both demand and supply change simultaneously

we can determine the effect on either price or quantity - but not both.

Equilibrium means that:

we should expect to see the price and the quantity converge at specific levels.

When a shortage is eliminated, the market returns to a(n) equilibrium

where the quantity supplied equals the quantity demanded

If price was not allowed to adjust, a shortage:

would persist, and the market would not return to equilibrium.

A good will become more affordable when:

The supply curve shifts to the right, causing the price to fall.

Suppliers have an incentive to increase quantity supplied when there is a

shortage in competitive market

The equilibrium price increases and the equilibrium quantity is indeterminate when:

demand increases and supply decreases.

When both demand and supply shift, the direction of change in price or quantity:

depends on the relative magnitudes of the changes in demand and supply.

The demand for a good changes when the non-price

determinants of demand changes

results in increased scarcity and inefficiency in the production of a good or service.

disequilibrium

A tax:

does not change the benefit of a good.

The quantity supplied of a good, service, or resource equals the quantity demanded at the

equilibrium demand

The market-clearing price is the same as the

equilibrium price

When a minimum wage results in unemployment, people may turn to

informal markets to provide their labor.

Shortage and Surplus

is usually the product of price controls that do not allow markets to adjust to unforeseen events that disrupt supply.

When a nonprice determinant of supply changes:

-The supply curve shifts to the right or to the left. -The entire supply relationship changes.

Which of the following would shift the supply curve for soft drinks to the left?

A 2 cent per ounce tax on all soft drinks

Which of the following statements is true?

A binding price ceiling will be lower than a nonbinding price ceiling.

The statement "Households are on the supply side, and firms are on the demand side." is with reference to which market?

Labor

Identify which of the following is an example of a shortage.

No snow shovels are available when a blizzard is forecast.

Referring to the graph, suppose the demand for bottled water decreases by 400 bottles at each price. What are the new equilibrium price and quantity in this market?

Price = $1.50; Quantity = 300

Which of the following is not true of equilibrium?

Price and quantity will never change.

The role of government in market economies includes:

Punishing dishonest behavior Enforcing contracts Determining the rules of commerce Defining and enforcing property rights

Price floors are designed to make sure that:

Sellers receive a minimum price that is greater than what would be available at the market

Referring to the graph, suppose the market price is $1.50. What is the size of the shortage or surplus in this market at $1.50?

Shortage of 400

Consider the market for oranges in the United States. What is the size and type of the disequilibrium found at $4.00?

Surplus of 300 million tons of oranges

When a tax is imposed on buyers, what happens in the market? 2

The demand curve shifts to the left.

When a tax is imposed on buyers, what happens in the market?

The demand curve shifts to the left. Reason: (When a tax is imposed on buyers, the demand curve will shift to the left, or decrease).

Which of the following is a benefit from imposing a tax on a good or service?

The government raises revenue to fund government activities

Referring to the graph, if a $6 excise tax is imposed on the market for wine, what happens to the price buyers pay and the price sellers receive?

The price for buyers increases and the price for sellers decreases. Reason: (When a good or service is taxed, the overall price paid by consumers rises and the price received by sellers, net of the tax, falls. In this example, the price paid by consumers rises to $14, and the price received by sellers decreases to $8. Without the tax, the market price is $10.)

A minimum legal price that is set above the market price is called a

binding price floor.

In order for a price floor to be:

binding, the price floor must be set above the equilibrium price.

When a tax is imposed on a market, it can affect:

both demand and supply

The change in price or quantity will be indeterminate when:

both demand and supply change.

The direction of change in price or quantity will depend on the magnitude of the shifts in demand and supply when:

both demand and supply change.

We can determine how price or quantity will change, but not both, when:

both demand and supply change.

Rent control is an example of a price

ceiling

A price floor will:

change the incentives that both buyers and sellers face

Non-price determinants are held

constant for any given supply curve.

A tax paid at the time of sale is explicitly paid by

consumers

The equilibrium quantity increases and the equilibrium price is indeterminate when:

demand and supply both increase.

A tax on demanders shifts the:

demand curve to the left.

The nonprice determinants or other factors that affect demand are held constant for any given:

demand curve.

The equilibrium price decreases and the equilibrium quantity is indeterminate when:

demand decreases and supply increases.

The price that balances demand and supply is called the:

equilibrium price.

The quantity supplied of a good, service, or resource equals the quantity demanded at the quantity

equilibrium quantity

When the quantity supplied of a good, service, or resource equals the quantity demanded, this quantity traded is known as the:

equilibrium quantity.

If the quantity supplied equals the quantity demanded:

equilibrium will stay the same if all else is equal.

A shortage is sometimes called

excess demand

The tax on a good or service that depends on the units sold, not the price of the good or service is called _____ tax.

excise

An $1.01 tax on every pack of cigarettes sold is an example of a(n)

excise tax

Other things remaining constant, when a good's price

falls, its quantity supplied falls.

A policy designed to ensure that sellers receive a minimum price that is greater than what would be available at the market is a price ________.

floor

A price fixed above equilibrium that changes the incentives that both buyers and sellers face is called price

floor

The non-price determinants or other factors that affect demand are:

held constant for any given demand curve.

The non-price determinants or other factors that affect supply are:

held constant for any given supply curve.

Shortages and surpluses are represented by the:

horizontal distance between the quantity demanded and the quantity supplied.

The role of government in market economies include all the following except:

identifying new markets.

When the market is in equilibrium, the price that consumers pay and that producers receive exactly balances the

marginal benefit and marginal cost of consuming and producing a good or service.

When price ceilings are in effect:

market participants have a strong incentive to work around the laws

The most common form of price floor is:

minimum wage

When a shift of the supply curve occurs:

more or less is supplied at every price

A minimum legal price that is set below the market price is called a

non-binding price floor.

A minimum legal price that is not set above the equilibrium price is a

nonbinding price floor.

A maximum legal price that is set below the equilibrium price is a binding

price ceiling.

A shortage persists when:

price is not allowed to adjust upward.

The primary determinant of the quantity demanded by consumers is the:

price of a good or service.

When a good or service is taxed in the market:

price rises

Price changes

quantity demanded changes

Which of the following is true of a normal good?

quantity demanded falls as price rises

When a shortage is eliminated:

quantity supplied equals quantity demanded

When there is a shortage in the market, consumers tend to:

reduce the quantity consumed.

Other things remaining constant - an increase or decrease in the quantity supplied of a good at every price is:

reflected by a shift of the supply curve.

The quantity traded times the tax equals the tax

revenue

A tax imposed on buyers:

shifts the demand curve down, because a portion of the price of the good pays the tax.

A situation in which the quantity of output demanded is greater than the quantity of output supplied at the current market price is called a

shortage

When the government sets the price below market equilibrium, a

shortage