TEST BANK chapter 6 supply, demand, and government policies

Chapter 6/Supply, Demand, and Government Policies  115 Chapter Supply, Demand, and Government Policies TRUE/FALSE Economic policies often have effects that their architects did not intend or anticipate ANS: T DIF: REF: 6-0 NAT: Analytic LOC: The study of economics and definitions of economics TOP: Public policy MSC: Definitional Rent-control laws dictate a minimum rent that landlords may charge tenants ANS: F DIF: REF: 6-0 NAT: Analytic LOC: Supply and demand TOP: Rent control MSC: Definitional Minimum-wage laws dictate the lowest wage that firms may pay workers ANS: T DIF: REF: 6-0 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Definitional Price controls are usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers ANS: T DIF: REF: 6-0 NAT: Analytic LOC: Supply and demand TOP: Price controls MSC: Definitional Price controls can generate inequities ANS: T DIF: REF: NAT: Analytic LOC: Supply and demand MSC: Definitional 6-0 TOP: Price controls Policymakers use taxes to raise revenue for public purposes and to influence market outcomes ANS: T DIF: REF: 6-0 NAT: Analytic LOC: Supply and demand TOP: Taxes MSC: Definitional If a good or service is sold in a competitive market free of government regulation, then the price of the good or service adjusts to balance supply and demand ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Prices MSC: Definitional At the equilibrium price, the quantity that buyers want to buy exactly equals the quantity that sellers want to sell ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Prices MSC: Definitional A price ceiling is a legal minimum on the price at which a good or service can be sold ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Definitional 10 A price ceiling set above the equilibrium price is not binding ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive TOP: Price ceilings 116  Chapter 6/Supply, Demand, and Government Policies 11 If a price ceiling is not binding, then it will have no effect on the market ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: MSC: Interpretive 12 To be binding, a price ceiling must be set above the equilibrium price ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: MSC: Interpretive 13 A price ceiling set below the equilibrium price is binding ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive TOP: Price ceilings Price ceilings Price ceilings 14 A price ceiling set below the equilibrium price causes quantity demanded to exceed quantity supplied ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Shortages MSC: Interpretive 15 A price ceiling set above the equilibrium price causes quantity demanded to exceed quantity supplied ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 16 A binding price ceiling causes quantity demanded to be less than quantity supplied ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Shortages MSC: Interpretive 17 A price ceiling set below the equilibrium price causes a shortage in the market ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Shortages MSC: Interpretive 18 A price ceiling set above the equilibrium price causes a surplus in the market ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 19 A binding price ceiling causes a shortage in the market ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive TOP: Price ceilings | Shortages 20 When a binding price ceiling is imposed on a market for a good, some people who want to buy the good cannot so ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Shortages MSC: Interpretive 21 Long lines and discrimination are examples of rationing methods that may naturally develop in response to a binding price ceiling ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 22 Price ceilings are typically imposed to benefit buyers ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive TOP: Price ceilings Chapter 6/Supply, Demand, and Government Policies  117 23 Binding price ceilings benefit consumers because they allow consumers to buy all the goods they demand at a lower price ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 24 All buyers benefit from a binding price ceiling ANS: F DIF: REF: NAT: Analytic LOC: Supply and demand MSC: Interpretive 6-1 TOP: Price ceilings 25 A binding price ceiling may not help all consumers, but it does not hurt any consumers ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 26 When the government imposes a binding price ceiling on a competitive market, a surplus of the good arises, and sellers must ration the scarce goods among the large number of potential buyers ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Shortages MSC: Definitional 27 The rationing mechanisms that develop under binding price ceilings are usually inefficient ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Efficiency MSC: Interpretive 28 Price is the rationing mechanism in a free, competitive market ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive 29 Prices are inefficient rationing devices ANS: F DIF: REF: NAT: Analytic LOC: Supply and demand MSC: Interpretive TOP: Prices TOP: Prices | Efficiency 6-1 30 When free markets ration goods with prices, it is both efficient and impersonal ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Prices | Efficiency MSC: Interpretive 31 When a free market for a good reaches equilibrium, anyone who is willing and able to pay the market price can buy the good ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Prices MSC: Interpretive 32 If a price ceiling of $2 per gallon is imposed on gasoline, and the market equilibrium price is $1.50, then the price ceiling is a binding constraint on the market ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Applicative 33 If a price ceiling of $1.50 per gallon is imposed on gasoline, and the market equilibrium price is $2, then the price ceiling is a binding constraint on the market ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Applicative 118  Chapter 6/Supply, Demand, and Government Policies 34 A price ceiling caused the gasoline shortage of 1973 in the United States ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Interpretive 35 One common example of a price ceiling is rent control ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand MSC: Definitional TOP: Rent control 36 The goal of rent control is to help the poor by making housing more affordable ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Rent control MSC: Definitional 37 Economists argue that rent control is a highly efficient way to help the poor raise their standard of living ANS: F DIF: REF: 6-1 NAT: Analytic LOC: The study of economics and definitions of economics TOP: Economists | Rent control MSC: Interpretive 38 Because supply and demand are inelastic in the short run, the initial shortage caused by rent control is large ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Rent control | Elasticity MSC: Definitional 39 The primary effect of rent control in the short run is to reduce rents ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: MSC: Definitional Rent control 40 The housing shortages caused by rent control are larger in the long run than in the short run because both the supply of housing and the demand for housing are more elastic in the long run ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Rent control | Elasticity MSC: Interpretive 41 The effects of rent control in the long run include lower rents and lower-quality housing ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Rent control MSC: Interpretive 42 Rent control may lead to lower rents for those who find housing, but the quality of the housing may also be lower ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Rent control MSC: Interpretive 43 In a free market, the price of housing adjusts to eliminate the shortages that give rise to undesirable landlord behavior ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Rent control MSC: Definitional 44 A price floor is a legal minimum on the price at which a good or service can be sold ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors MSC: Definitional Chapter 6/Supply, Demand, and Government Policies  119 45 A price floor set above the equilibrium price is not binding ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive TOP: 46 If a price floor is not binding, then it will have no effect on the market ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: MSC: Interpretive 47 To be binding, a price floor must be set above the equilibrium price ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: MSC: Interpretive 48 A price floor set below the equilibrium price is binding ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive TOP: Price floors Price floors Price floors Price floors 49 A price floor set below the equilibrium price causes quantity supplied to exceed quantity demanded ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors MSC: Interpretive 50 A price floor set above the equilibrium price causes quantity supplied to exceed quantity demanded ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors | Surpluses MSC: Interpretive 51 A binding price floor causes quantity supplied to be less than quantity demanded ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors | Surpluses MSC: Interpretive 52 A price floor set below the equilibrium price causes a surplus in the market ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors MSC: Interpretive 53 A price floor set above the equilibrium price causes a surplus in the market ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors | Surpluses MSC: Interpretive 54 A binding price floor causes a shortage in the market ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive TOP: Price floors | Surpluses 55 When a binding price floor is imposed on a market for a good, some people who want to sell the good cannot so ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors | Surpluses MSC: Interpretive 56 Discrimination is an example of a rationing mechanism that may naturally develop in response to a binding price floor ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors MSC: Interpretive 120  Chapter 6/Supply, Demand, and Government Policies 57 Price floors are typically imposed to benefit buyers ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive TOP: Price floors 58 Binding price floors benefit sellers because they allow sellers to sell all the goods they want at a higher price ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors MSC: Interpretive 59 Not all sellers benefit from a binding price floor ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand MSC: Interpretive TOP: Price floors 60 A binding price floor may not help all sellers, but it does not hurt any sellers ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors MSC: Interpretive 61 The rationing mechanisms that develop under binding price floors are usually efficient ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors | Efficiency MSC: Interpretive 62 When a free market for a good reaches equilibrium, anyone who is willing and able to sell at the market price can sell the good ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Prices MSC: Interpretive 63 If the equilibrium price of an airline ticket is $400 and the government imposes a price floor of $500 on airline tickets, then fewer airline tickets will be sold than at the market equilibrium ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors MSC: Applicative 64 If the equilibrium price of an airline ticket is $500 and the government imposes a price floor of $400 on airline tickets, then fewer airline tickets will be sold than at the market equilibrium ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors MSC: Applicative 65 One common example of a price floor is the minimum wage ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets MSC: Definitional TOP: Minimum wage 66 The goal of the minimum wage is to ensure workers a minimally adequate standard of living ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Definitional 67 The United States is the only country in the world with minimum-wage laws ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Interpretive Chapter 6/Supply, Demand, and Government Policies  121 68 States in the U.S may mandate minimum wages above the federal level ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: MSC: Interpretive Minimum wage 69 In the labor markets, workers determine the supply of labor and firms determine the demand ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Labor demand | Labor supply MSC: Definitional 70 In an unregulated labor market, the wage adjusts to balance labor supply and labor demand ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Wages MSC: Interpretive 71 A binding minimum wage causes the quantity of labor demanded to exceed the quantity of labor supplied ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Interpretive 72 A binding minimum wage creates unemployment ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage | Unemployment MSC: Interpretive 73 A binding minimum wage may not help all workers, but it does not hurt any workers ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Interpretive 74 A binding minimum wage raises the incomes of those workers who have jobs, but it lowers the incomes of workers who cannot find jobs ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Definitional 75 The economy contains many labor markets for different types of workers ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Labor markets MSC: Definitional 76 The impact of the minimum wage depends on the skill and experience of the worker ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Definitional 77 Workers with high skills and much experience are not typically affected by the minimum wage ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Interpretive 78 The minimum wage has its greatest impact on the market for teenage labor ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Definitional 79 The minimum wage is more often binding for teenagers than for other members of the labor force ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Definitional 122  Chapter 6/Supply, Demand, and Government Policies 80 Studies by economists have found that a 10 percent increase in the minimum wage decreases teenage employment 10 percent ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Definitional 81 A large majority of economists favor eliminating the minimum wage ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: MSC: Interpretive Economists | Minimum wage 82 Advocates of the minimum wage admit that it has some adverse effects, but they believe that these effects are small and that a higher minimum wage makes the poor better off ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Definitional 83 If the equilibrium wage is $4 per hour and the minimum wage is $5.15 per hour, then a shortage of labor will exist ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Labor markets TOP: Minimum wage MSC: Applicative Figure 6-17 100 price S 90 80 70 60 50 40 30 20 10 D 10 20 30 40 50 60 70 80 90 100 quantity 84 Refer to Figure 6-17 A price ceiling set at $30 would result in a shortage of 20 units ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Applicative 85 Refer to Figure 6-17 A price ceiling set at $70 would result in a shortage of 40 units ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price ceilings MSC: Applicative 86 Refer to Figure 6-17 A price floor set at $60 would result in a surplus of 20 units ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors MSC: Applicative 87 Refer to Figure 6-17 A price floor set at $40 would result in a surplus of 20 units ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price floors MSC: Applicative Chapter 6/Supply, Demand, and Government Policies  123 88 Most economists are in favor of price controls as a way of allocating resources in the economy ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Economists | Price controls MSC: Interpretive 89 When policymakers set prices by legal decree, they obscure the signals that normally guide the allocation of society’s resources ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Price controls MSC: Definitional 90 Price controls often hurt those they are trying to help ANS: T DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand MSC: Definitional TOP: Price controls 91 Rent subsidies and wage subsidies are better than price controls at helping the poor because they have no costs associated with them ANS: F DIF: REF: 6-1 NAT: Analytic LOC: Supply and demand TOP: Subsidies MSC: Interpretive 92 The term tax incidence refers to how the burden of a tax is distributed among the various people who make up the economy ANS: T DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Tax incidence MSC: Definitional 93 A tax on sellers shifts the supply curve but not the demand curve ANS: T DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: MSC: Interpretive 94 A tax on sellers shifts the supply curve to the left ANS: T DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive 95 A tax on sellers increases supply ANS: F DIF: REF: NAT: Analytic LOC: Supply and demand MSC: Interpretive Taxes TOP: Taxes TOP: Taxes 6-2 96 A tax on sellers and an increase in input prices affect the supply curve in the same way ANS: T DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Taxes MSC: Interpretive 97 A tax of $1 on sellers shifts the supply curve upward by exactly $1 ANS: T DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: MSC: Applicative 98 A tax of $1 on sellers always increases the equilibrium price by $1 ANS: F DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: MSC: Applicative Taxes Taxes 124  Chapter 6/Supply, Demand, and Government Policies 99 A tax on sellers reduces the size of a market ANS: T DIF: REF: NAT: Analytic LOC: Supply and demand MSC: Interpretive 6-2 TOP: 100 A tax on sellers increases the quantity of the good sold in the market ANS: F DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: MSC: Interpretive Taxes Taxes 101 If a tax is imposed on the sellers of a product, then the tax burden will fall entirely on the sellers ANS: F DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Tax incidence MSC: Interpretive 102 A tax on sellers usually causes buyers to pay more the good and sellers to receive less for the good than they did before the tax was levied ANS: T DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Taxes MSC: Interpretive 103 A tax on buyers shifts the demand curve and the supply curve ANS: F DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive 104 A tax on buyers shifts the demand curve to the right ANS: F DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand MSC: Interpretive 105 A tax on buyers decreases demand ANS: T DIF: REF: NAT: Analytic LOC: Supply and demand MSC: Interpretive TOP: Taxes TOP: Taxes TOP: Taxes 6-2 106 A tax of $1 on buyers shifts the demand curve downward by exactly $1 ANS: T DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: MSC: Applicative 107 A tax of $1 on buyers always decreases the equilibrium price by $1 ANS: F DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: MSC: Applicative 108 A tax on buyers increases the size of a market ANS: F DIF: REF: NAT: Analytic LOC: Supply and demand MSC: Interpretive Taxes Taxes 6-2 TOP: 109 A tax on buyers decreases the quantity of the good sold in the market ANS: T DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: MSC: Interpretive Taxes Taxes 110 If a tax is imposed on the buyers of a product, then the tax burden will fall entirely on the buyers ANS: F DIF: REF: 6-2 NAT: Analytic LOC: Supply and demand TOP: Tax incidence MSC: Interpretive Chapter 6/Supply, Demand, and Government Policies  181 89 Refer to Figure 6-9 How much tax revenue does this tax generate for the government? a b c d $150 $180 $250 $300 ANS: A NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Tax revenue Figure 6-10 price 20 S 18 16 14 12 10 D D after tax 10 20 30 40 50 60 70 80 90 100 110 120 130 quantity 90 Refer to Figure 6-10 The price paid by buyers after the tax is imposed is a b c d $8 $10 $14 $18 ANS: D NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes 91 Refer to Figure 6-10 The effective price received by sellers after the tax is imposed is a b c d $8 $10 $14 $18 ANS: A NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes TOP: Taxes 92 Refer to Figure 6-10 The amount of the tax per unit is a b c d $4 $5 $6 $10 ANS: D NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 93 Refer to Figure 6-10 The per-unit burden of the tax is a b c d $4 on buyers and $6 on sellers $5 on buyers and $5 on sellers $6 on buyers and $4 on sellers $10 on buyers and $0 on sellers 182  Chapter 6/Supply, Demand, and Government Policies ANS: A NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence 94 Refer to Figure 6-10 How much tax revenue does this tax produce for the government? a b c d $480 $600 $800 $1120 ANS: B NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Tax revenue Figure 6-11 95 Refer to Figure 6-11 The equilibrium price in the market before the tax is imposed is a b c d $3.50 $5 $6 $7 ANS: B NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Equilibrium price 96 Refer to Figure 6-11 As the figure is drawn, who sends the tax payment to the government? a b c d the buyers the sellers A portion of the tax payment is sent by the buyers and the remaining portion is sent by the sellers The question of who sends the tax payment cannot be determined from the figure ANS: B NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes 97 Refer to Figure 6-11 The price paid by buyers after the tax is imposed is a b c d $2.50 $3.50 $5.00 $6.00 ANS: D NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes Chapter 6/Supply, Demand, and Government Policies  183 98 Refer to Figure 6-11 The effective price sellers receive after the tax is imposed is a b c d $2.50 $3.50 $5.00 $6.00 ANS: B NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes TOP: Taxes 99 Refer to Figure 6-11 The amount of the tax per unit is a b c d $1 $1.50 $2.50 $3.50 ANS: C NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 100 Refer to Figure 6-11 Buyers pay how much of the tax per unit? a b c d $1 $1.50 $2.50 $3.50 ANS: A NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence 101 Refer to Figure 6-11 Sellers pay how much of the tax per unit? a b c d $1.00 $1.50 $2.50 $3.50 ANS: B NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence 102 Refer to Figure 6-11 Suppose the same supply and demand curves apply and a tax of the same amount per unit as shown here is imposed Now, however, the buyers of the good, rather than the sellers, are required to pay the tax to the government Now, relative to the case depicted in the figure, a b c d the burden on buyers will be larger and the burden on sellers will be smaller the burden on buyers will be smaller and the burden on sellers will be larger the burden on buyers will be the same and the burden on sellers will be the same The relative burdens in the two cases cannot be determined without further information ANS: C NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence 103 Refer to Figure 6-11 How much tax revenue does this tax generate for the government? a b c d $75 $125 $175 $300 ANS: B NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Tax revenue 184  Chapter 6/Supply, Demand, and Government Policies Figure 6-12 price S after tax S D 10 12 14 16 quantity 104 Refer to Figure 6-12 The price paid by buyers after the tax is imposed is a b c d $3 $4 $5 $7 ANS: D NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes 105 Refer to Figure 6-12 The effective price received by sellers after the tax is imposed is a b c d $3 $4 $5 $7 ANS: B NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes 106 Refer to Figure 6-12 For every unit of the good that is sold, a b c d sellers are required to send one dollar to the government and buyers are required to send two dollars to the government sellers are required to send two dollars to the government and buyers are required to send one dollar to the government sellers are required to send three dollars to the government and buyers are required to send nothing to the government sellers are required to send nothing to the government and buyers are required to send two dollars to the government ANS: C NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes 107 Refer to Figure 6-12 Which of the following is correct? a b c d One-fourth of the burden of the tax falls on buyers and three-fourths of the burden of the tax falls on sellers One-third of the burden of the tax falls on buyers and two-thirds of the burden of the tax falls on sellers One-half of the burden of the tax falls on buyers and one-half of the burden of the tax falls on sellers Two-thirds of the burden of the tax falls on buyers and one-third of the burden of the tax falls on sellers Chapter 6/Supply, Demand, and Government Policies  185 ANS: D NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence 108 Refer to Figure 6-12 How much tax revenue does this tax produce for the government? a b c d $24 $30 $32 $56 ANS: A NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Tax revenue Figure 6-13 The vertical distance between points A and B represents the tax in the market price S A 24 16 10 B D 70 100 quantity 109 Refer to Figure 6-13 The price that buyers pay after the tax is imposed is a b c d $8 $10 $16 $24 ANS: D NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes 110 Refer to Figure 6-13 The effective price that sellers receive after the tax is imposed is a b c d $6 $10 $16 $24 ANS: B NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 111 Refer to Figure 6-13 The amount of the tax per unit is a b c d $6 $8 $14 $18 TOP: Taxes 186  Chapter 6/Supply, Demand, and Government Policies ANS: C NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes 112 Refer to Figure 6-13 The per-unit burden of the tax on buyers is a b c d $6 $8 $14 $24 ANS: B NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence 113 Refer to Figure 6-13 The per-unit burden of the tax on sellers is a b c d $6 $8 $10 $14 ANS: A NAT: Analytic MSC: Applicative DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence Figure 6-14 price S D 50 100 quantity 114 Refer to Figure 6-14 Suppose a tax of $2 per unit is imposed on this market What will be the new equilibrium quantity in this market? a b c d less than 50 units 50 units between 50 units and 100 units greater than 100 units ANS: C NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes 115 Refer to Figure 6-14 Suppose a tax of $2 per unit is imposed on this market How much will sellers receive per unit after the tax is imposed? a b c d $3 between $3 and $5 between $5 and $7 $7 ANS: B NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes Chapter 6/Supply, Demand, and Government Policies  187 116 Refer to Figure 6-14 Suppose a tax of $2 per unit is imposed on this market How much will buyers pay per unit after the tax is imposed? a b c d $3 between $3 and $5 between $5 and $7 $7 ANS: C NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes 117 Refer to Figure 6-14 Suppose a tax of $2 per unit is imposed on this market Which of the following is correct? a b c d One-fourth of the burden of the tax will fall on buyers and three-fourths of the burden of the tax will fall on sellers One-third of the burden of the tax will fall on buyers and two-thirds of the burden of the tax will fall on sellers One-half of the burden of the tax will fall on buyers and one-half of the burden of the tax will fall on sellers Two-thirds of the burden of the tax will fall on buyers and one-third of the burden of the tax will fall on sellers ANS: C NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence Figure 6-15 price S 14 10 D 25 50 quantity 118 Refer to Figure 6-15 Suppose a tax of $5 per unit is imposed on this market What will be the new equilibrium quantity in this market? a b c d less than 25 units 25 units between 25 units and 50 units greater than 50 units ANS: C NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes 119 Refer to Figure 6-15 Suppose a tax of $5 per unit is imposed on this market How much will sellers receive per unit after the tax is imposed? a b c d $5 between $5 and $10 between $10 and $14 $14 188  Chapter 6/Supply, Demand, and Government Policies ANS: B NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes 120 Refer to Figure 6-15 Suppose a tax of $5 per unit is imposed on this market How much will buyers pay per unit after the tax is imposed? a b c d $5 between $5 and $10 between $10 and $14 $14 ANS: C NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes 121 Refer to Figure 6-15 Suppose a tax of $5 per unit is imposed on this market Which of the following is correct? a b c d Buyers and sellers will share the burden of the tax equally Buyers will bear more of the burden of the tax than sellers will Sellers will bear more of the burden of the tax than buyers will Any of the above is possible ANS: C NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence 122 The federal government uses the revenue from the FICA (Federal Insurance Contribution Act) tax to pay for a b c d unemployment compensation the salaries of members of Congress Social Security and Medicare housing subsidies for low-income people ANS: C NAT: Analytic MSC: Definitional DIF: REF: LOC: Labor markets 6-2 TOP: FICA taxes 123 The Federal Insurance Contribution Act (FICA) tax is an example of a b c d a payroll tax a sales tax a farm subsidy an income subsidy ANS: A NAT: Analytic MSC: Definitional DIF: REF: LOC: Labor markets 6-2 TOP: FICA taxes 124 A payroll tax is a a b c d fixed number of dollars that every firm must pay to the government for each worker that the firm hires tax that each firm must pay to the government before the firm can hire workers and operate its business tax on the wages that firms pay their workers tax on all wages above the minimum wage ANS: C NAT: Analytic MSC: Definitional DIF: REF: LOC: Labor markets 6-2 TOP: Payroll taxes 125 Congress intended that a b c d the entire FICA tax be paid by workers the entire FICA tax be paid by firms one-quarter of the FICA tax be paid by workers, and three-quarters be paid by firms half the FICA tax be paid by workers, and half be paid by firms Chapter 6/Supply, Demand, and Government Policies  189 ANS: D NAT: Analytic MSC: Definitional DIF: REF: LOC: Labor markets 6-2 TOP: FICA taxes | Tax incidence 126 Although lawmakers legislated a fifty-fifty division of the payment of the FICA tax, a b c d the actual tax incidence is unaffected by the legislated tax incidence the employer now is required by law to pay more than 50 percent of the tax the employee now is required by law to pay more than 50 percent of the tax employers are no longer required by law to pay any portion of the tax ANS: A NAT: Analytic MSC: Interpretive DIF: REF: LOC: Labor markets 6-2 TOP: FICA taxes | Tax incidence 127 When a payroll tax is enacted, a b c d the wage received by workers falls and the wage paid by firms rises the wage received by workers falls and the wage paid by firms falls the wage received by workers rises and the wage paid by firms falls the wage received by workers rises and the wage paid by firms rises ANS: A NAT: Analytic MSC: Definitional DIF: REF: LOC: Labor markets 6-2 TOP: Payroll taxes | Wages 128 A key lesson from the payroll tax is that the a b c d tax is a tax solely on workers tax is a tax solely on firms that hire workers tax eliminates any wedge that might exist between the wage that firms pay and the wage that workers receive true burden of a tax cannot be legislated ANS: D NAT: Analytic MSC: Interpretive DIF: REF: LOC: Labor markets 6-2 TOP: Payroll taxes | Tax incidence 129 Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic If a tax is imposed in this market, then a b c d the buyers will bear a greater burden of the tax than the sellers the sellers will bear a greater burden of the tax than the buyers the buyers and sellers are likely to share the burden of the tax equally the buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information ANS: A NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 130 If a tax is imposed on a market with inelastic demand and elastic supply, then a b c d buyers will bear most of the burden of the tax sellers will bear most of the burden of the tax the burden of the tax will be shared equally between buyers and sellers it is impossible to determine how the burden of the tax will be shared ANS: A NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 131 Suppose that the demand for picture frames is inelastic and the supply of picture frames is elastic A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by a b c d less than $0.50 $0.50 between $0.50 and $1 $1 190  Chapter 6/Supply, Demand, and Government Policies ANS: C NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 132 Suppose that the demand for picture frames is inelastic and the supply of picture frames is elastic A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of picture frames by a b c d less than $0.50 $0.50 between $0.50 and $1 $1 ANS: A NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 133 In which of these cases will the tax burden fall most heavily on buyers of the good? a b c d The demand curve is relatively steep and the supply curve is relatively flat The demand curve is relatively flat and the supply curve is relatively steep The demand curve and the supply curve are both relatively flat The demand curve and the supply curve are both relatively steep ANS: A NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 134 Buyers of a good bear the larger share of the tax burden when a tax is placed on a product for which a b c d the supply is more elastic than the demand the demand in more elastic than the supply the tax is placed on the sellers of the product the tax is placed on the buyers of the product ANS: A NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 135 Suppose that a tax is placed on books If the buyers pay the majority of the tax, then we know that the a b c d demand is more inelastic than the supply supply is more inelastic than the demand government has required that buyers remit the tax payments government has required that sellers remit the tax payments ANS: A NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 136 Suppose that in a particular market, the demand curve is highly elastic and the supply curve is highly inelastic If a tax is imposed in this market, then a b c d the buyers will bear a greater burden of the tax than the sellers the sellers will bear a greater burden of the tax than the buyers the buyers and sellers are likely to share the burden of the tax equally the buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information ANS: B NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity Chapter 6/Supply, Demand, and Government Policies  191 137 If a tax is imposed on a market with inelastic supply and elastic demand, then a b c d buyers will bear most of the burden of the tax sellers will bear most of the burden of the tax the burden of the tax will be shared equally between buyers and sellers it is impossible to determine how the burden of the tax will be shared ANS: B NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 138 Suppose that the demand for picture frames is elastic and the supply of picture frames is inelastic A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by a b c d less than $0.50 $0.50 between $0.50 and $1 $1 ANS: A NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 139 Suppose that the demand for picture frames is elastic and the supply of picture frames is inelastic A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of picture frames by a b c d less than $0.50 $0.50 between $0.50 and $1 $1 ANS: C NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 140 In which of these cases will the tax burden fall most heavily on sellers of the good? a b c d The demand curve is relatively steep and the supply curve is relatively flat The demand curve is relatively flat and the supply curve is relatively steep The demand curve and the supply curve are both relatively flat The demand curve and the supply curve are both relatively steep ANS: B NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 141 Sellers of a good bear the larger share of the tax burden when a tax is placed on a product for which a b c d the supply is more elastic than the demand the demand in more elastic than the supply the tax is placed on the sellers of the product the tax is placed on the buyers of the product ANS: B NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 142 Suppose that a tax is placed on books If the sellers pay the majority of the tax, then we know that the a b c d demand is more inelastic than the supply supply is more inelastic than the demand government has required that buyers remit the tax payments government has required that sellers remit the tax payments ANS: B NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 192  Chapter 6/Supply, Demand, and Government Policies 143 The demand for salt is inelastic and the supply of salt is elastic The demand for caviar is elastic and the supply of caviar is inelastic Suppose that a tax of $1 per pound is levied on the sellers of salt and a tax of $1 per pound is levied on the buyers of caviar We would expect that most of the burden of these taxes will fall on a b c d sellers of salt and the buyers of caviar sellers of salt and the sellers of caviar buyers of salt and the sellers of caviar buyers of salt and the buyers of caviar ANS: C NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 144 Suppose the demand for macaroni is inelastic and the supply of macaroni is elastic, and the demand for cigarettes is inelastic and the supply of cigarettes is elastic If a tax were levied on the sellers of both of these commodities, we would expect that the a b c d burden of both taxes would fall more heavily on the buyers than on the sellers burden of the macaroni tax would fall more heavily on the sellers than on the buyers, and the burden of the cigarette tax would fall more heavily on the buyers than on the sellers burden of the macaroni tax would fall more heavily on the buyers than on the sellers, and the burden of the cigarette tax would fall more heavily on the sellers than on the buyers burden of both taxes would fall more heavily on the sellers than on the buyers ANS: A NAT: Analytic MSC: Analytical DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 145 Which of the following is correct? a b c d A tax burden falls more heavily on the side of the market that is more elastic A tax burden falls more heavily on the side of the market that is less elastic A tax burden falls more heavily on the side of the market that is closer to unit elastic A tax burden is distributed independently of the relative elasticities of supply and demand ANS: B NAT: Analytic MSC: Definitional DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity TOP: Tax incidence | Elasticity 146 A tax burden falls more heavily on the side of the market that a b c d has a fewer number of participants is more inelastic is closer to unit elastic is less inelastic ANS: B NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 147 Which of the following statements is true? a b c d A tax levied on buyers will never be partially paid by sellers Who actually pays a tax depends on the price elasticities of supply and demand Government can decide who actually pays a tax A tax levied on sellers always will be passed on completely to buyers ANS: B NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 148 If the government wants to reduce smoking, it should impose a tax on a b c d buyers of cigarettes sellers of cigarettes either buyers or sellers of cigarettes whichever side of the market is less elastic Chapter 6/Supply, Demand, and Government Policies  193 ANS: C NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Taxes Figure 6-16 Panel (a) Panel (b) price price S S D D quantity quantity Panel (c) price S D quantity 149 Refer to Figure 6-16 In which market will the majority of the tax burden fall on buyers? a b c d market (a) market (b) market (c) All of the above are correct ANS: B NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 150 Refer to Figure 6-16 In which market will the majority of the tax burden fall on sellers? a b c d market (a) market (b) market (c) All of the above are correct ANS: A NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax revenue | Elasticity 194  Chapter 6/Supply, Demand, and Government Policies 151 Refer to Figure 6-16 In which market will the tax burden be most equally divided between buyers and sellers? a b c d market (a) market (b) market (c) All of the above are correct ANS: C NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Tax incidence | Elasticity 152 Most labor economists believe that the supply of labor is a b c d less elastic than the demand and, therefore, firms bear most of the burden of the payroll tax less elastic than the demand and, therefore, workers bear most of the burden of the payroll tax more elastic than the demand and, therefore, workers bear most of the burden of the payroll tax more elastic than the demand and, therefore, firms bear most of the burden of the payroll tax ANS: B DIF: REF: NAT: Analytic LOC: Labor markets TOP: Payroll taxes | Tax incidence | Elasticity 6-2 MSC: Interpretive 153 Lawmakers designed the burden of the FICA payroll tax to be split evenly between workers and firms Labor economists believe that a b c d lawmakers may have actually achieved their goal, since statistics show that the tax burden is currently equally divided the tax raises too little revenue for the government and so it should be eliminated firms bear most of the burden of the tax workers bear most of the burden of the tax ANS: D NAT: Analytic MSC: Interpretive DIF: REF: LOC: Labor markets 6-2 TOP: FICA taxes | Tax incidence 154 In 1990, Congress passed a new luxury tax on items such as yachts, private airplanes, furs, jewelry, and expensive cars The goal of the tax was to a b c d raise revenue from the wealthy prevent wealthy people from buying luxuries force producers of luxury goods to reduce employment limit exports of luxury goods to other countries ANS: A NAT: Analytic MSC: Definitional DIF: REF: LOC: Supply and demand 6-2 TOP: Luxury tax 155 Which of the following was not a result of the luxury tax imposed by Congress in 1990? a b c d The larger part of the tax burden fell on sellers A larger part of the tax burden fell on the middle class than on the rich Even the wealthy demanded fewer luxury goods The tax was never repealed or even modified ANS: D NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 TOP: Luxury tax | Tax incidence TOP: Luxury tax | Tax incidence 156 The burden of a luxury tax falls a b c d more on the rich than on the middle class more on the poor than on the rich more on the middle class than on the rich equally on the rich, the middle class, and the poor ANS: C NAT: Analytic MSC: Interpretive DIF: REF: LOC: Supply and demand 6-2 Chapter 6/Supply, Demand, and Government Policies  195 ... Definitional DIF: REF: LOC: Supply and demand 6- 0 TOP: Taxes 134  Chapter 6/ Supply, Demand, and Government Policies Sec01 - Supply, Demand, and Government Policies - Controls on Prices MULTIPLE... LOC: Supply and demand 6- 1 TOP: Price ceilings 160  Chapter 6/ Supply, Demand, and Government Policies Figure 6- 4 price 10 S D 10 20 30 40 50 60 70 80 quantity 1 36 Refer to Figure 6- 4 For a price... REF: LOC: Supply and demand 6- 1 158  Chapter 6/ Supply, Demand, and Government Policies Figure 6- 3 price 20 18 16 S 14 12 10 D 10 20 30 40 50 60 70 80 quantity 128 Refer to Figure 6- 3 Which of the