Microecon Chapter 6: Supply, Demand, and Government Policies

Price Ceiling

A legal maximum on the price at which a good can be sold.

Price Floor

A legal minimum on the price at which a good can be sold.

Tax Wedge

The difference between what the buyer pays and the seller receives after a tax has been imposed

Tax Incidence

The manner in which the burden of a tax is shared among participants in a market

A binding price ceiling creates a. a shortage b. a surplus c. an equilibrium d. a shortage or a surplus depending on whether the price ceiling is set above or below the equilibrium price

a. a shortage

Which of the following takes place when a tax is placed on a good? a. an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold b. an increase in the price buyers pay, a decrease in the price sellers receive, and an increase in the quantity sold. c. a decrease in the price buyers pay, an increase in the price sellers receive, and a decrease in the quantity sold. d. a decrease in the price buyers pay, an increase in the price sellers receive, and an increase in the quantity sold.

a. an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold

The surplus caused by a binding price floor will be greatest if a. both supply and demand are elastic b. both supply and demand are inelastic c. supply is inelastic and demand is elastic d. demand is inelastic and supply is elastic

a. both supply and demand are elastic

The burden of a tax falls more heavily on the buyers in a market when a. demand is inelastic and supply is elastic b. demand is elastic and supply is inelastic c. both supply and demand are elastic d. both supply and demand are inelastic

a. demand is inelastic and supply is elastic

A tax placed on a good that is a necessity for consumers will likely generate a tax burden that a. falls heavily on buyers b. falls heavily on sellers c. is evenly distributed between buyers and sellers d. falls entirely on sellers

a. falls heavily on buyers

For a price ceiling to be a binding constraint on the market, the government must set it a. above the equilibrium price b. below the equilibrium price c. precisely at the equilibrium price d. at any price because all price ceilings are binding constraints

b. below the equilibrium price

The burden of a tax falls more heavily on the sellers in a market when a. demand is inelastic and supply is elastic b. demand is elastic and supply is inelastic c. both supply and demand are elastic d. both supply and demand are inelastic

b. demand is elastic and supply is inelastic

For which of the following products would the burden of a tax likely fall more heavily on the sellers? a. food b. entertainment c. clothing d. housing

b. entertainment

A price floor a. sets a legal maximum on the price at which a good can be sold. b. sets a legal minimum on the price at which a good can be sold. c. always determines the price at which a good must be sold. d. is not a binding constraint if it is set above the equilibrium price.

b. sets a legal minimum on the price at which a good can be sold.

Studies show that a 10% increase in the minimum wage a. decreases teenage employment by about 10 to 15% b. increases teenage employment by about 10 to 15% c. decreases teenage employment by about 1 to 3% d. increases teenage employment by about 1 to 3%

c. decreases teenage employment by about 1 to 3%

Within the supply-and-demand model, a tax collected from the buyers of a good shifts the a. demand curve upward by the size of the tax per unit b. demand curve downward by the size of the tax per unit c. supply curve upward by the size of the tax per unit d. supply curve downward by the size of the tax per unit

c. supply curve upward by the size of the tax per unit

Which of the following is an example of a price floor? a. rent controls b. restricting gasoline prices to $1.00 per gallon when the equilibrium price is $1.50 per gallon c. the minimum wage d. all of the above are price floors.

c. the minimum wage

Which side of the market is more likely to lobby government for a price floor? a. Neither buyers nor sellers desire a price floor. b. Both buyers and sellers desire a price floor. c. the sellers d. the buyers.

c. the sellers

When a tax is collected from the buyers in a market, a. the buyers bear the burden of the tax b. the sellers bear the burden of the tax c. the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers. d. the tax burden falls most heavily on the buyers.

c. the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers.

Which of the following statements is true if the government places a price ceiling on gasoline at $1.50 per gallon and the equilibrium price is $1.00 per gallon? a. There will be a shortage of gasoline b. There will be a surplus of gasoline c. A significant increase in the supply of gasoline could cause the price ceiling to become a binding constraint d. A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint

d. A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint

Which of the following statements about the burden of a tax is correct? a. The tax burden generate from a tax placed on a good consumers perceived to be a necessity will fall most heavily on the sellers of the good b. The tax burden falls most heavily on the side of the market (buyers or sellers) that is most willing to leave the market when price movements are unfavorable to them. c. The burden of a tax lands on the side of the market (buyers or sellers) from which is collected. d. The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation

d. The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation

Suppose the equilibrium price for apartments is $500 per month and the government imposes rent controls of $250. Which of the following is unlikely to occur as a result of the rent controls? a. There will be a shortage of housing. b. Landlords may discriminate among apartment renters. c. Landlords may be offered bribes to rent apartments. d. The quality of apartments will improve. e. There may be long lines of buyers waiting for apartments.

d. The quality of apartments will improve

Which of the following statements about a binding price ceiling is true? a. The surplus created by the price ceiling is greater in the short run than in the long run. b. The surplus created by the price ceiling is greater in the long run than in the short run. c. The shortage created by the price ceiling is greater in the short run than in the long run. d. The shortage created by the price ceiling is greater in the long run than in the short run.

d. The shortage created by the price ceiling is greater in the long run than in the short run.

A tax of $1 per gallon on gasoline a. increases the price buyers pay by $1 per gallon b. decreases the price sellers receive by $1 per gallon c. increases the price the buyers pay by precisely $.50 and reduces the price received by sellers by precisely $.50. d. places a tax wedge of $1 between the price the buyers pay and the price the sellers receive.

d. places a tax wedge of $1 between the price the buers pay and the price the sellers receive.