ECON Chpt 7

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia? Consumer surplus will increase. Market efficiency will increase. Producer surplus will increase. Deadweight loss will increase.

Deadweight loss will increase.

The person or firm that pays a tax bears the burden of the tax. True False

FALSE

In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). One town will tend to attract shoppers who hate driving around looking for parking. Which one? Indeterminate with the given information. Freedonia Meterville

Meterville

In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). Where will it be easier to find parking: in Freedonia or Meterville? Indeterminate with the given information. Freedonia Meterville

Meterville

In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). Which town will likely attract shoppers with higher incomes? Meterville Freedonia Indeterminate with the given information.

Meterville

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia? Quantity demanded will increase, quantity supplied will decrease, and a shortage will result. Quantity demanded will increase, quantity supplied will decrease, and a surplus will result. Quantity demanded will decrease, quantity supplied will increase, and a surplus will result. Quantity demanded will decrease, quantity supplied will increase, and a shortage will result.

Quantity demanded will decrease, quantity supplied will increase, and a surplus will result.

Price controls distribute resources in many unintended ways. In the following cases below, who will probably spend more time waiting in line to get scarce, price-controlled goods? Choose one from each pair: Retired people Working people

Retired people

A price ceiling is a legally determined maximum price that sellers may charge. True False

TRUE

If the government wants to minimize the welfare loss of a tax, it should tax goods with more inelastic demands or supplies. True False

TRUE

When the demand for a product is less elastic than the supply, consumers pay the majority of the tax on the product. True False

TRUE

There is a difference between who is legally required to send a tax payment to the government and who bears the burden of the tax. Which of the following would have the most impact on who bears the burden of an excise tax? whether the tax is based on the ability-to-pay principle or the benefits-received principle whether the tax is imposed by the federal government or a state government The motive for the tax. If the tax is designed to raise revenue, more of the burden will fall on firms. If the tax is designed to achieve a social objective (for example, to discourage smoking) more of the burden will fall on consumers. The elasticity of demand for the item that is taxed.

The elasticity of demand for the item that is taxed.

Scenario: There are 4 households in a locality. The annual income of the first household is $20,000, the annual income of the second household is $47,000, the annual income of the third household is $50,000, and the annual income of the fourth household is $71,000. Refer to the scenario above. Which family pays the highest percentage of its income as tax if income taxes collected by the local government are regressive in nature? The first household The second household The third household The fourth household

The first household

Between 2000 and 2008, the price of oil increased from $30 per barrel to $140 per barrel, and the price of gasoline in the United States rose from about $1.50 per gallon to over $4.00 per gallon. Unlike in the 1970s when oil prices spiked, there were no long lines outside gas stations. Why? Government intervened to enact gasoline rations. There was no price control on gasoline at the time. Government intervened to prevent lines.

There was no price control on gasoline at the time.

Rent control is an example of a black market. a price ceiling. a price floor. a subsidy for low-skilled workers.

a price ceiling.

Rent control is an example of a price floor. a black market. a price ceiling. a subsidy for low-skilled workers.

a price ceiling.

Which term refers to a legally established minimum price that firms may charge? a price ceiling a subsidy a tariff a price floor

a price floor

A gallon of milk costs $4 in Bonland. If the government fixes the price at $3.50, ________. the quantity of milk supplied will increase the quantity demanded of milk will fall a shortage of milk will occur in the market there will be an excess supply of milk in the market

a shortage of milk will occur in the market

If the sellers of a good are taxed for each unit sold, ________. a larger quantity of the good is sold a smaller quantity of the good is sold the price that sellers receive increases the price that buyers need to pay falls

a smaller quantity of the good is sold

When the government taxes a good or service, it increases consumer surplus for the good or service. eliminates the deadweight loss associated with the good or service. increases producer surplus for the good or service. affects the market equilibrium for that good or service.

affects the market equilibrium for that good or service.

Suppose the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price. To keep it simple, assume that people must wait in line to get bread at the controlled price. Would consumer surplus rise, fall, or can't you tell with the information given? consumer surplus increases. Indeterminate with the given information. consumer surplus decreases.

consumer surplus decreases.

The government proposes a tax on imported champagne. Buyers will bear the entire burden of the tax if the demand curve for imported champagne is horizontal. demand curve is downward sloping and the supply curve is upward sloping. supply curve for imported champagne is vertical. demand curve for imported champagne is vertical.

demand curve for imported champagne is vertical.

When the demand for a product is more elastic than the supply firms pay the majority of the tax on the product. consumers pay the majority of the tax on the product. firms pay the entire tax on the product. consumers pay the entire tax on the product.

firms pay the majority of the tax on the product.

In a city with rent-controlled apartments, all of the following are true except apartments are often in shorter supply than they would be without rent control. apartments usually rent for rates lower than the market rate. it usually takes more time to find an apartment than it would without rent control. landlords have an incentive to rent more apartments than they would without rent control.

landlords have an incentive to rent more apartments than they would without rent control.

A price floor is the ________. minimum price that a seller accepts for a good lower limit on the price of a good upper limit on the price of a good maximum willingness to pay for a good

lower limit on the price of a good

To affect the market outcome, a price ceiling must be set below the black market price. must be set below the price floor. must be set below the legal price. must be set below the equilibrium price.

must be set below the equilibrium price.

In order to be binding, a price ceiling must coincide with the free market equilibrium price. must lie below the free market equilibrium price. must be high enough for firms to earn a profit. must lie above the free market equilibrium price.

must lie below the free market equilibrium price.

The marginal income tax rate is the ________. percentage of the last dollar earned that a household pays in taxes total revenue received by the government divided by the number of taxpayers difference between the highest and lowest income tax rates charged by a state total tax paid by an individual divided by the total income earned

percentage of the last dollar earned that a household pays in taxes

The price of a gallon of gasoline in Bonland is $3.20. However, just before the election, the government decides to fix the price of gasoline at $2.80 per gallon. This is an example of a ________. positive externality negative externality price floor price ceiling

price ceiling

The government of Lithasia has decided to set a minimum price for certain agricultural products in order to safeguard the interests of farmers. This is an example of a ________. Pigouvian subsidy Pigouvian tax price ceiling price floor

price floor

A ________ tax system is one in which tax rates increase with taxable base incomes. supplementary progressive regressive proportional

progressive

In New York City, about 1 million apartments are subject to rent control by the local government. Rent control is a price floor which sets a minimum rent for apartments. is a government policy which limits apartment rental to those people whose incomes are less than $50,000 per year. only applies to those apartments which are owned and rented out by the local government. puts a legal limit on the rent that landlords can charge for an apartment.

puts a legal limit on the rent that landlords can charge for an apartment.

One reason governments impose taxes is to ________. reduce the number of transactions in an economy redistribute funds via transfer payments increase competition among producers increase the volume of exports

redistribute funds via transfer payments

Scenario: There are 4 households in a locality. The annual income of the first household is $20,000, the annual income of the second household is $47,000, the annual income of the third household is $50,000, and the annual income of the fourth household is $71,000. Refer to the scenario above. If the first household pays 20% of its income as tax, the second household pays 17.5% of its income as tax, the third household pays 13% of its income as tax, and the fourth household pays 10% of its income as tax, income taxes are ________ in nature. ordinal cardinal regressive progressive

regressive

The actual division of the burden of a tax between buyers and sellers in a market is called tax bearer. tax liability. tax parity. tax incidence.

tax incidence.

In a proportional tax system, ________. the average tax rate equals the marginal tax rate the marginal tax rate faced by an individual exceeds the average tax rate the average tax rate faced by an individual exceeds the marginal tax rate the marginal tax rate faced by all households are equal

the average tax rate equals the marginal tax rate

The demand curve for pizza in Foodieland is vertical. If a tax is imposed on each pizza bought, ________. the burden of the tax will fall entirely on the buyers the deadweight loss due to taxation will be large the burden of the tax will fall entirely on the sellers the tax incidence on the sellers will be higher than that on the buyers

the burden of the tax will fall entirely on the buyers

The tax incidence on sellers is higher if ________. the buyers and sellers of a good are equally sensitive to price changes the sellers are more sensitive to price changes than the buyers the buyers are more sensitive to price changes than the sellers the number of buyers in a market is larger than the number of sellers

the buyers are more sensitive to price changes than the sellers

If a tax is imposed on each unit of a good purchased, ________. the demand curve shifts to the right the supply curve shifts to the left the supply curve shifts to the right the demand curve shifts to the left

the demand curve shifts to the left

The tax incidence on buyers is higher if ________. the elasticity of the market demand curve is higher than the elasticity of the market supply curve the elasticity of the market supply curve is higher than the elasticity of the market demand curve the buyers and sellers of a good are equally sensitive to price changes

the elasticity of the market supply curve is higher

A price ceiling does NOT lead to a deadweight loss if ________. the equilibrium market price lies below the price ceiling the equilibrium market price lies above the price ceiling the price elasticity of market demand is greater than 1 the price elasticity of market supply is greater than 1

the equilibrium market price lies below the price ceiling

If a tax is imposed on a good,________. the quantity of the good traded in the market increases the equilibrium quantity of the good in the market falls producer surplus increases consumer surplus increases

the equilibrium quantity of the good in the market falls

A marginal tax rate is the incremental income one must earn to offset each additional dollar of tax. the fraction of each additional dollar of income that must be paid in taxes. the ratio of a change in income to a change in taxes paid. the fraction of income that must be paid in taxes.

the fraction of each additional dollar of income that must be paid in taxes.

A tax bracket is the income range within which a particular tax rate applies. the percent of taxable income paid in taxes at a specific income bracket. the range, from the high to the low tax rate, of a particular type of tax. the type of tax structure for which a range of taxes applies.

the income range within which a particular tax rate applies.

The burden of a tax falls entirely on buyers if ________. the price elasticity of demand is zero (perfectly inelastic) the income elasticity of demand is high the price elasticity of demand is greater than 1 the price elasticity of supply is unitary elastic

the price elasticity of demand is zero (perfectly inelastic)

With an increase in the demand for a good, if prices are not allowed to increase: social surplus will be maintained at maximum. a surplus will occur in the market. there will be no incentive for firms to increase the quantity supplied of the good. there will be an increase in overall efficiency in the market.

there will be no incentive for firms to increase the quantity supplied of the good.