Chapter 6/Supply, Demand, and Government Policies ✦ 31 Chapter 6 Supply, Demand, and Government Policies When the government issues ration coupons, it is an indication that the government has prohibited the use of which rationing mechanism? a merit b need c price d age If the equilibrium price of bread is $2 and the government imposes a $1.50 price ceiling on the price of bread, a more bread will be produced to meet the increased demand b there will be a shortage of bread c the demand for bread will decrease because suppliers will reduce their supply d a surplus of bread will emerge Rent controls typically end up a increasing rents received by landlords b raising property values c encouraging landlords to overspend for maintenance d discouraging new housing construction A price ceiling might be an appropriate government response to a a period of falling farm prices due to unusually good harvests b substantial increase in farm productivity due to applications of new technology in agriculture 32 ✦ Chapter 6/Supply, Demand, and Government Policies c national security crisis leading to major shortages of essential goods d period of extraordinary large surpluses of farm goods Suppose that the government places a price ceiling in the fish market, and that the ration coupons it issues are bought and sold on a ration coupon market before they are used to purchase fish. The a excess supply of fish will be eliminated b purpose of that price ceiling would be defeated c price ceiling must have been too low d price of fish set by the price ceiling would rise Assume that the government sets a ceiling on the interest rate that banks charge on loans. If the ceiling is set below the market equilibrium interest rate, the result will be a a surplus of credit b a shortage of credit c greater profits for banks issuing credit d a perfectly inelastic supply of credit in the market place In a market where the government imposes a price control, the excess demand or excess supply created will be determined by the a imposed price and the slope of the demand curve b imposed price and the slope of the supply curve c difference between quantity demanded and quantity supplied at the imposed price d difference between the imposed price and the equilibrium price Governmentcreated price floors are typically imposed to a help consumers b help producers c raise tax revenue Chapter 6/Supply, Demand, and Government Policies ✦ 33 d shift the supply curve to the right Suppose the government imposed a minimum price in a market and a reporter for a local newspaper wrote a story on it. The headline on the story would read: a “Government Action Calls for Ration Coupons” b “Rationing Price Replaces Market Price” c “Price Ceiling Replaces Equilibrium Price” d “Price Floor Protects Sellers from Low Incomes” 10 In the supply and demand schedules for socks shown here, if a price floor of $10 is imposed by the government, the quantity of socks actually purchased will be a 6 units b 10 units c 2 units d 8 units Price Quantity Quantity Per Pair Demanded Supplied $2.00 $4.00 $6.00 $8.00 $10.00 11 18 14 10 6 2 In the supply and demand schedules for socks shown here, if a price floor of $10 is imposed by the government, there will be a a surplus of socks equal to 8 pairs b shortage of socks equal to 16 pairs 34 ✦ Chapter 6/Supply, Demand, and Government Policies c surplus of socks equal to 6 pairs d market clearing quantity of 6 pairs of socks exchanged 12 When the minimum wage is set above the equilibrium market wage, a there will be an excess demand for labor at the minimum wage b it will have no effect on the quantity of labor employed c the unemployment rate will rise d the quality of the labor force will rise 13 If the government imposes a binding price floor on sugar, it may also have to a establish programs to expand supply in the private sector b establish programs to reduce demand in the private sector c produce some sugar itself d purchase the surplus sugar 14 Consider this diagram, which shows the market for wheat. A price floor of $2.00 per bushel is a binding and will generate a surplus of 100 bushels b not binding and will generate a shortage of 100 bushels c binding and will generate an equilibrium in this market d not binding 15 A tax on sales of a good, when compared to the market equilibrium without the tax, will result in a price paid by buyers and a quantity traded a higher; lower Chapter 6/Supply, Demand, and Government Policies ✦ 35 b lower; lower c higher; higher d lower; higher 16 Taxes levied directly on consumers a always hurt consumers rather than producers b always hurt producers rather than consumers c generate more revenue than taxes levied on producers d have the same effect as taxes directly levied on producers 17 The perunit tax on a good is the a difference between the list price and the actual price paid by the buyer b licensing fees and other business taxes paid by sellers, averaged over the total quantity of goods sold c difference between the total price paid by the buyer and the price received by the seller d difference between wholesale and retail prices 18 Given the market described in this diagram, the burden of the tax will fall on a buyers and sellers equally b only the buyers c only the sellers d both buyers and sellers, with sellers paying the larger share 19 A 5 percent tax is levied on products A and B, both of which have the same demand elasticity. Unit sales of A are nearly the same after the tax, while unit sales of B fall dramatically. Which of the following can we conclude? 36 ✦ Chapter 6/Supply, Demand, and Government Policies a Producers of A bear a greater share (relative to consumers) of their market’s tax burden than the producers of B b Product B has a smaller elasticity of supply than product A c Tax revenue is greater from product A d Tax revenue is greater from product B 20 Consider the impact of a tax on sellers, shown in this diagram of the market for whiskey. In this case, the total tax revenue collected by the government is a $3.00 b $1500.00 c $13,500.00 d $40,500.00 21 Consider the impact of a tax on sellers, shown in this diagram of the market for whiskey. In this case, the buyers’ share is and the sellers’ share is a $500; $500 b $6750; $6750 c $9000; $4500 d None of the above are correct 22 Suppose the government wants to raise additional tax revenues with the least disruption to prevailing demand patterns. For which product should an excise tax be levied? a Coca Cola b liquor c Cheerios d hot tubs Chapter 6/Supply, Demand, and Government Policies ✦ 37 23 The government is thinking about increasing the gasoline tax to raise additional revenue rather than to promote conservation. The tax will result in the greatest amount of tax revenue if the price elasticity of demand for gasoline equals a 1.8 b 1.4 c 1.0 d .5 24 The government is thinking about increasing the gasoline tax to promote conservation. The tax will discourage the consumption of gasoline by the greatest extent when the price elasticity of demand equals a 0.1 b 0.7 c 1.3 d 2.0 25 If a new excise tax is imposed on steak, a government’s tax revenue will decrease b government’s tax revenue will increase c amount of steak produced and sold will increase d market price of steak will decrease 26 A tax on fur coats will most likely a raise large amounts of tax revenue for the government b cause a large decline in the sales of fur coats because demand is elastic c be an effective way to tax the rich d fall mostly on the fur coat buyers rather than the producers ...32 ✦ Chapter 6/Supply, Demand, and Government Policies c national security crisis leading to major shortages of essential goods... Governmentcreated price floors are typically imposed to a help consumers b help producers c raise tax revenue Chapter 6/Supply, Demand, and Government Policies ✦ 33 d shift the supply curve to the right Suppose the government imposed a minimum price in a market and a reporter for a local ... government, there will be a a surplus of socks equal to 8 pairs b shortage of socks equal to 16 pairs 34 ✦ Chapter 6/Supply, Demand, and Government Policies c surplus of socks equal to 6 pairs d market clearing quantity of 6 pairs of socks exchanged