Final Exam Chapter 6 Mirco

How is the burden of a tax divided? (i) When the tax is levied on the sellers, the sellers bear a higher proportion of the tax burden. (ii) When the tax is levied on the buyers, the buyers bear a higher proportion of the tax burden. (iii) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear an equal proportion of the tax burden. (iv) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden. A. (i) and (ii) only B. (iv) only C. (i), (ii), and (iii) only D. (i), (ii), and (iv) only

(iv) only

Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle. Which of the following statements is correct? A. This tax causes the supply curve for liquor to shift upward by $1.00 at each quantity of liquor. B. The effective price received by sellers is $0.20 per bottle less than it was before the tax. C. Eighty percent of the burden of the tax falls on buyers. D. All of the above are correct.

All of the above are correct.

Suppose the secretary of labor proposes an increase in the binding, minimum wage. Does the change in employment depend on the elasticity of demand, the elasticity of supply, both elasticities, or neither? A. Elasticity of demand B. Elasticity of supply C. Both D. Neither

Elasticity of demand

Suppose the elasticity of supply and demand are: P = 223 - 3Q P = 13 + 4Q What are the consumers' price (PC) and producers' price (PP) if the government imposes a $28 per unit tax on this market? A. PC = 133; PP = 105 B. PC = 161; PP = 133 C. PC = 147; PP = 119 D. PC = 145; PP = 117

PC = 145; PP = 117

In the spring of 2008, Senators John McCain and Hillary Clinton (who were then running for president) proposed a temporary elimination of the federal gasoline tax, effective only during the summer of 2008, in order to help consumers deal with high gasoline prices. During the summer, when gasoline demand is high because of vacation driving, gasoline refiners are operating near full capacity. In light of this, who do you predict would benefit from the temporary gas tax holiday? A. Consumers B. Producers C. Consumers and producers would equally benefit. D. Neither consumers nor producers would benefit.

Producers

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding? A. Improvements in production technology reduce the costs of producing laptop computers. B. The number of firms selling laptop computers decreases. C. Consumers' income decreases, and laptop computers are a normal good. D. The number of consumers buying laptop computers decreases.

The number of firms selling laptop computers decreases.

The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. The mayor will be able to successfully divide the burden of the tax equally if the A. demand for labor is more elastic than the supply of labor. B. supply of labor is more elastic than the demand for labor. C. demand for labor and supply of labor are equally elastic. D. It is not possible for the tax burden to fall equally on firms and workers.

demand for labor and supply of labor are equally elastic.

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would A. increase by more than $1,000. B. increase by exactly $1,000. C. increase by less than $1,000. D. decrease by an indeterminate amount.

increase by less than $1,000.

Over time, housing shortages caused by rent control A. increase, because the demand for and supply of housing are more elastic in the long run. B. increase, because the demand for and supply of housing are less elastic in the long run. C. decrease, because the demand for and supply of housing are less elastic in the long run. D. decrease, because the demand for and supply of housing are more elastic in the long run.

increase, because the demand for and supply of housing are more elastic in the long run.

Suppose that the demand for lava lamps is elastic, and the supply of lava lamps is inelastic. A tax of $2 per lamp levied on lava lamps will increase the price paid by buyers of lava lamps by A. less than $1. B. $1. C. between $1 and $2. D. $2.

less than $1.

The imposition of a binding price floor on a market causes quantity demanded to be A. greater than quantity supplied. B. less than quantity supplied. C. equal to quantity supplied. D. Both a) and b) are possible.

less than quantity supplied.

If the government removes a $2 tax on buyers of cigars and imposes the same $2 tax on sellers of cigars, then the price paid by buyers will A. not change, and the price received by sellers will not change. B. not change, and the price received by sellers will decrease. C. decrease, and the price received by sellers will not change. D. decrease, and the price received by sellers will decrease.

not change, and the price received by sellers will not change.

If a price ceiling is not binding, then A. the equilibrium price is above the price ceiling. B. the equilibrium price is below the price ceiling. C. it has no legal enforcement mechanism. D. None of the above is correct because all price ceilings must be binding.

the equilibrium price is below the price ceiling.