Chapter 6

Chapter 6 Supply, Demand, and Government Policies
TRUE/F !SE 1. Economic policies often have effects that their architects did not intend or anticipate. ANS: T DIF: 1 REF: 6NAT: Anal!tic "#$: The st%d! of economics and definitions of economics T#&: &%'lic polic! (S$: Definitional ). Rent-control la*s dictate a minim%m rent that landlords ma! char+e tenants. ANS: F DIF: 1 REF: 6NAT: Anal!tic "#$: S%ppl! and demand T#&: Rent control (S$: Definitional ,. (inim%m-*a+e la*s dictate the lo*est *a+e that firms ma! pa! *or-ers. ANS: T DIF: 1 REF: 6NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Definitional .. &rice controls are %s%all! enacted *hen polic!ma-ers 'elieve that the mar-et price of a +ood or service is %nfair to '%!ers or sellers. ANS: T DIF: 1 REF: 6NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice controls (S$: Definitional /. &rice controls can +enerate ine0%ities. ANS: T DIF: 1 REF: NAT: Anal!tic "#$: S%ppl! and demand (S$: Definitional 6T#&: &rice controls
6. &olic!ma-ers %se ta1es to raise reven%e for p%'lic p%rposes and to infl%ence mar-et o%tcomes. ANS: T DIF: 1 REF: 6NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1es (S$: Definitional 2. If a +ood or service is sold in a competitive mar-et free of +overnment re+%lation3 then the price of the +ood or service ad4%sts to 'alance s%ppl! and demand. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rices (S$: Definitional 5. At the e0%ili'ri%m price3 the 0%antit! that '%!ers *ant to '%! e1actl! e0%als the 0%antit! that sellers *ant to sell. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rices (S$: Definitional 6. A price ceilin+ is a le+al minim%m on the price at *hich a +ood or service can 'e sold. ANS: F DIF: 1 REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s (S$: Definitional 1 . A price ceilin+ set a'ove the e0%ili'ri%m price is not 'indin+. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive
T#&:
&rice ceilin+s
11/
116
$hapter 67S%ppl!3 Demand3 and 8overnment &olicies
11. If a price ceilin+ is not 'indin+3 then it *ill have no effect on the mar-et. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Interpretive 1). To 'e 'indin+3 a price ceilin+ m%st 'e set a'ove the e0%ili'ri%m price. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Interpretive 1,. A price ceilin+ set 'elo* the e0%ili'ri%m price is 'indin+. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive
&rice ceilin+s
&rice ceilin+s
T#&:
&rice ceilin+s
1.. A price ceilin+ set 'elo* the e0%ili'ri%m price ca%ses 0%antit! demanded to e1ceed 0%antit! s%pplied. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s 9 Shorta+es (S$: Interpretive 1/. A price ceilin+ set a'ove the e0%ili'ri%m price ca%ses 0%antit! demanded to e1ceed 0%antit! s%pplied. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s (S$: Interpretive 16. A 'indin+ price ceilin+ ca%ses 0%antit! demanded to 'e less than 0%antit! s%pplied. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s 9 Shorta+es (S$: Interpretive 12. A price ceilin+ set 'elo* the e0%ili'ri%m price ca%ses a shorta+e in the mar-et. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s 9 Shorta+es (S$: Interpretive 15. A price ceilin+ set a'ove the e0%ili'ri%m price ca%ses a s%rpl%s in the mar-et. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s (S$: Interpretive 16. A 'indin+ price ceilin+ ca%ses a shorta+e in the mar-et. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive ) .
T#&:
&rice ceilin+s 9 Shorta+es
:hen a 'indin+ price ceilin+ is imposed on a mar-et for a +ood3 some people *ho *ant to '%! the +ood cannot do so. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s 9 Shorta+es (S$: Interpretive )1. "on+ lines and discrimination are e1amples of rationin+ methods that ma! nat%rall! develop in response to a 'indin+ price ceilin+. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s (S$: Interpretive )). &rice ceilin+s are t!picall! imposed to 'enefit '%!ers. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive
T#&:
&rice ceilin+s

),.
112
;indin+ price ceilin+s 'enefit cons%mers 'eca%se the! allo* cons%mers to '%! all the +oods the! demand at a lo*er price. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s (S$: Interpretive ).. All '%!ers 'enefit from a 'indin+ price ceilin+. ANS: F DIF: ) REF: NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive 6-1 T#&: &rice ceilin+s
)/. A 'indin+ price ceilin+ ma! not help all cons%mers3 '%t it does not h%rt an! cons%mers. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s (S$: Interpretive )6. :hen the +overnment imposes a 'indin+ price ceilin+ on a competitive mar-et3 a s%rpl%s of the +ood arises3 and sellers m%st ration the scarce +oods amon+ the lar+e n%m'er of potential '%!ers. ANS: F DIF: 1 REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s 9 Shorta+es (S$: Definitional )2. The rationin+ mechanisms that develop %nder 'indin+ price ceilin+s are %s%all! inefficient. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s 9 Efficienc! (S$: Interpretive )5. &rice is the rationin+ mechanism in a free3 competitive mar-et. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive )6. &rices are inefficient rationin+ devices. ANS: F DIF: ) REF: NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive 6-1 T#&: &rices 9 Efficienc!
T#&:
&rices
, . :hen free mar-ets ration +oods *ith prices3 it is 'oth efficient and impersonal. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rices 9 Efficienc! (S$: Interpretive ,1. :hen a free mar-et for a +ood reaches e0%ili'ri%m3 an!one *ho is *illin+ and a'le to pa! the mar-et price can '%! the +ood. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rices (S$: Interpretive ,). If a price ceilin+ of <) per +allon is imposed on +asoline3 and the mar-et e0%ili'ri%m price is <1./ 3 then the price ceilin+ is a 'indin+ constraint on the mar-et. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s (S$: Applicative ,,. If a price ceilin+ of <1./ per +allon is imposed on +asoline3 and the mar-et e0%ili'ri%m price is <)3 then the price ceilin+ is a 'indin+ constraint on the mar-et. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s (S$: Applicative
115
,.. A price ceilin+ ca%sed the +asoline shorta+e of 162, in the =nited States. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s (S$: Interpretive ,/. #ne common e1ample of a price ceilin+ is rent control. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand (S$: Definitional
T#&:
Rent control
,6. The +oal of rent control is to help the poor '! ma-in+ ho%sin+ more afforda'le. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: Rent control (S$: Definitional ,2. Economists ar+%e that rent control is a hi+hl! efficient *a! to help the poor raise their standard of livin+. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: The st%d! of economics and definitions of economics T#&: Economists 9 Rent control (S$: Interpretive ,5. ;eca%se s%ppl! and demand are inelastic in the short r%n3 the initial shorta+e ca%sed '! rent control is lar+e. ANS: F DIF: 1 REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: Rent control 9 Elasticit! (S$: Definitional ,6. The primar! effect of rent control in the short r%n is to red%ce rents. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Definitional . .
Rent control
The ho%sin+ shorta+es ca%sed '! rent control are lar+er in the lon+ r%n than in the short r%n 'eca%se 'oth the s%ppl! of ho%sin+ and the demand for ho%sin+ are more elastic in the lon+ r%n. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: Rent control 9 Elasticit! (S$: Interpretive .1. The effects of rent control in the lon+ r%n incl%de lo*er rents and lo*er-0%alit! ho%sin+. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: Rent control (S$: Interpretive .). Rent control ma! lead to lo*er rents for those *ho find ho%sin+3 '%t the 0%alit! of the ho%sin+ ma! also 'e lo*er. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: Rent control (S$: Interpretive .,. In a free mar-et3 the price of ho%sin+ ad4%sts to eliminate the shorta+es that +ive rise to %ndesira'le landlord 'ehavior. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: Rent control (S$: Definitional ... A price floor is a le+al minim%m on the price at *hich a +ood or service can 'e sold. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors (S$: Definitional

./. A price floor set a'ove the e0%ili'ri%m price is not 'indin+. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive
116
T#&:
&rice floors
.6. If a price floor is not 'indin+3 then it *ill have no effect on the mar-et. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Interpretive .2. To 'e 'indin+3 a price floor m%st 'e set a'ove the e0%ili'ri%m price. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Interpretive .5. A price floor set 'elo* the e0%ili'ri%m price is 'indin+. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive
&rice floors
&rice floors
T#&:
&rice floors
.6. A price floor set 'elo* the e0%ili'ri%m price ca%ses 0%antit! s%pplied to e1ceed 0%antit! demanded. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors (S$: Interpretive / . A price floor set a'ove the e0%ili'ri%m price ca%ses 0%antit! s%pplied to e1ceed 0%antit! demanded. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors 9 S%rpl%ses (S$: Interpretive /1. A 'indin+ price floor ca%ses 0%antit! s%pplied to 'e less than 0%antit! demanded. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors 9 S%rpl%ses (S$: Interpretive /). A price floor set 'elo* the e0%ili'ri%m price ca%ses a s%rpl%s in the mar-et. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors (S$: Interpretive /,. A price floor set a'ove the e0%ili'ri%m price ca%ses a s%rpl%s in the mar-et. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors 9 S%rpl%ses (S$: Interpretive /.. A 'indin+ price floor ca%ses a shorta+e in the mar-et. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive //.
T#&:
&rice floors 9 S%rpl%ses
:hen a 'indin+ price floor is imposed on a mar-et for a +ood3 some people *ho *ant to sell the +ood cannot do so. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors 9 S%rpl%ses (S$: Interpretive /6. Discrimination is an e1ample of a rationin+ mechanism that ma! nat%rall! develop in response to a 'indin+ price floor. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors (S$: Interpretive
1)
/2. &rice floors are t!picall! imposed to 'enefit '%!ers. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive
T#&:
&rice floors
/5. ;indin+ price floors 'enefit sellers 'eca%se the! allo* sellers to sell all the +oods the! *ant at a hi+her price. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors (S$: Interpretive /6. Not all sellers 'enefit from a 'indin+ price floor. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive
T#&:
&rice floors
6 . A 'indin+ price floor ma! not help all sellers3 '%t it does not h%rt an! sellers. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors (S$: Interpretive 61. The rationin+ mechanisms that develop %nder 'indin+ price floors are %s%all! efficient. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors 9 Efficienc! (S$: Interpretive 6). :hen a free mar-et for a +ood reaches e0%ili'ri%m3 an!one *ho is *illin+ and a'le to sell at the mar-et price can sell the +ood. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rices (S$: Interpretive 6,. If the e0%ili'ri%m price of an airline tic-et is <. and the +overnment imposes a price floor of </ tic-ets3 then fe*er airline tic-ets *ill 'e sold than at the mar-et e0%ili'ri%m. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors (S$: Applicative 6.. If the e0%ili'ri%m price of an airline tic-et is </ and the +overnment imposes a price floor of <. tic-ets3 then fe*er airline tic-ets *ill 'e sold than at the mar-et e0%ili'ri%m. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors (S$: Applicative 6/. #ne common e1ample of a price floor is the minim%m *a+e. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets (S$: Definitional on airline
on airline
T#&:
(inim%m *a+e
66. The +oal of the minim%m *a+e is to ens%re *or-ers a minimall! ade0%ate standard of livin+. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Definitional 62. The =nited States is the onl! co%ntr! in the *orld *ith minim%m-*a+e la*s. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Interpretive

65. States in the =.S. ma! mandate minim%m *a+es a'ove the federal level. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (S$: Interpretive
1)1
(inim%m *a+e
66. In the la'or mar-ets3 *or-ers determine the s%ppl! of la'or and firms determine the demand. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: "a'or demand 9 "a'or s%ppl! (S$: Definitional 2 . In an %nre+%lated la'or mar-et3 the *a+e ad4%sts to 'alance la'or s%ppl! and la'or demand. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: :a+es (S$: Interpretive 21. A 'indin+ minim%m *a+e ca%ses the 0%antit! of la'or demanded to e1ceed the 0%antit! of la'or s%pplied. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Interpretive 2). A 'indin+ minim%m *a+e creates %nemplo!ment. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e 9 =nemplo!ment (S$: Interpretive 2,. A 'indin+ minim%m *a+e ma! not help all *or-ers3 '%t it does not h%rt an! *or-ers. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Interpretive 2.. A 'indin+ minim%m *a+e raises the incomes of those *or-ers *ho have 4o's3 '%t it lo*ers the incomes of *or-ers *ho cannot find 4o's. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Definitional 2/. The econom! contains man! la'or mar-ets for different t!pes of *or-ers. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: "a'or mar-ets (S$: Definitional 26. The impact of the minim%m *a+e depends on the s-ill and e1perience of the *or-er. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Definitional 22. :or-ers *ith hi+h s-ills and m%ch e1perience are not t!picall! affected '! the minim%m *a+e. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Interpretive 25. The minim%m *a+e has its +reatest impact on the mar-et for teena+e la'or. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Definitional 26. The minim%m *a+e is more often 'indin+ for teena+ers than for other mem'ers of the la'or force. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Definitional
1))
5 .
St%dies '! economists have fo%nd that a 1 percent increase in the minim%m *a+e decreases teena+e emplo!ment 1 percent. ANS: F DIF: 1 REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Definitional 51. A lar+e ma4orit! of economists favor eliminatin+ the minim%m *a+e. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (S$: Interpretive 5).
Economists 9 (inim%m *a+e
Advocates of the minim%m *a+e admit that it has some adverse effects3 '%t the! 'elieve that these effects are small and that a hi+her minim%m *a+e ma-es the poor 'etter off. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Definitional 5,. If the e0%ili'ri%m *a+e is <. per ho%r and the minim%m *a+e is </.1/ per ho%r3 then a shorta+e of la'or *ill e1ist. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e (S$: Applicative Figure 6-17
price 1 6 5 2 6 / . , ) 1 1 ) , . / 6 2 5 6 1 D quantity S
5.. Re"er to Fi#ure 6$%&' A price ceilin+ set at <, *o%ld res%lt in a shorta+e of ) %nits. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s (S$: Applicative 5/. Re"er to Fi#ure 6$%&' A price ceilin+ set at <2 *o%ld res%lt in a shorta+e of . %nits. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s (S$: Applicative 56. Re"er to Fi#ure 6$%&' A price floor set at <6 *o%ld res%lt in a s%rpl%s of ) %nits. ANS: T DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors (S$: Applicative 52. Re"er to Fi#ure 6$%&' A price floor set at <. *o%ld res%lt in a s%rpl%s of ) %nits. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice floors (S$: Applicative

55. (ost economists are in favor of price controls as a *a! of allocatin+ reso%rces in the econom!. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: Economists 9 &rice controls (S$: Interpretive 56.
1),
:hen polic!ma-ers set prices '! le+al decree3 the! o'sc%re the si+nals that normall! +%ide the allocation of societ!>s reso%rces. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice controls (S$: Definitional 6 . &rice controls often h%rt those the! are tr!in+ to help. ANS: T DIF: 1 REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand (S$: Definitional 61.
T#&:
&rice controls
Rent s%'sidies and *a+e s%'sidies are 'etter than price controls at helpin+ the poor 'eca%se the! have no costs associated *ith them. ANS: F DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: S%'sidies (S$: Interpretive 6). The term ta1 incidence refers to ho* the '%rden of a ta1 is distri'%ted amon+ the vario%s people *ho ma-e %p the econom!. ANS: T DIF: 1 REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1 incidence (S$: Definitional 6,. A ta1 on sellers shifts the s%ppl! c%rve '%t not the demand c%rve. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Interpretive 6.. A ta1 on sellers shifts the s%ppl! c%rve to the left. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive 6/. A ta1 on sellers increases s%ppl!. ANS: F DIF: ) REF: NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive 6-) T#&: Ta1es
Ta1es
T#&:
Ta1es
66. A ta1 on sellers and an increase in inp%t prices affect the s%ppl! c%rve in the same *a!. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1es (S$: Interpretive 62. A ta1 of <1 on sellers shifts the s%ppl! c%rve %p*ard '! e1actl! <1. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Applicative 65. A ta1 of <1 on sellers al*a!s increases the e0%ili'ri%m price '! <1. ANS: F DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Applicative
Ta1es
Ta1es
1).

6-) T#&: Ta1es
66. A ta1 on sellers red%ces the si?e of a mar-et. ANS: T DIF: ) REF: NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive
1 . A ta1 on sellers increases the 0%antit! of the +ood sold in the mar-et. ANS: F DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Interpretive
Ta1es
1 1. If a ta1 is imposed on the sellers of a prod%ct3 then the ta1 '%rden *ill fall entirel! on the sellers. ANS: F DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1 incidence (S$: Interpretive 1 ). A ta1 on sellers %s%all! ca%ses '%!ers to pa! more the +ood and sellers to receive less for the +ood than the! did 'efore the ta1 *as levied. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1es (S$: Interpretive 1 ,. A ta1 on '%!ers shifts the demand c%rve and the s%ppl! c%rve. ANS: F DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive 1 .. A ta1 on '%!ers shifts the demand c%rve to the ri+ht. ANS: F DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive 1 /. A ta1 on '%!ers decreases demand. ANS: T DIF: ) REF: NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive 6-) T#&: Ta1es
T#&:
Ta1es
T#&:
Ta1es
1 6. A ta1 of <1 on '%!ers shifts the demand c%rve do*n*ard '! e1actl! <1. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Applicative 1 2. A ta1 of <1 on '%!ers al*a!s decreases the e0%ili'ri%m price '! <1. ANS: F DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Applicative 1 5. A ta1 on '%!ers increases the si?e of a mar-et. ANS: F DIF: ) REF: NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive 6-) T#&:
Ta1es
Ta1es
Ta1es
1 6. A ta1 on '%!ers decreases the 0%antit! of the +ood sold in the mar-et. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Interpretive
Ta1es
11 . If a ta1 is imposed on the '%!ers of a prod%ct3 then the ta1 '%rden *ill fall entirel! on the '%!ers. ANS: F DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1 incidence (S$: Interpretive
1)/
111. A ta1 on '%!ers %s%all! ca%ses '%!ers to pa! more the +ood and sellers to receive less for the +ood than the! did 'efore the ta1 *as levied. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1es (S$: Interpretive 11). :hether a ta1 is levied on sellers or '%!ers3 ta1es disco%ra+e mar-et activit!. ANS: T DIF: 1 REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1es (S$: Definitional 11,. :hether a ta1 is levied on sellers or '%!ers3 ta1es enco%ra+e mar-et activit!. ANS: F DIF: 1 REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1es (S$: Definitional 11.. :hether a ta1 is levied on sellers or '%!ers3 '%!ers and sellers %s%all! share the '%rden of ta1es. ANS: T DIF: 1 REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1 incidence (S$: Definitional 11/. Ta1es levied on sellers and ta1es levied on '%!ers are e0%ivalent. ANS: T DIF: 1 REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: (S$: Definitional
Ta1es
116. The *ed+e 'et*een the '%!ers> price and the sellers> price is the same3 re+ardless of *hether the ta1 is levied on '%!ers or sellers. ANS: T DIF: 1 REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1es (S$: Definitional 112. The ta1 incidence depends on *hether the ta1 is levied on '%!ers or sellers. ANS: F DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1 incidence (S$: Interpretive 115. "a*ma-ers can decide *hether the '%!ers or the sellers m%st send a ta1 to the +overnment3 '%t the! cannot le+islate the tr%e '%rden of a ta1. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1 incidence (S$: Interpretive 116. A ta1 on +olf cl%'s *ill ca%se '%!ers of +olf cl%'s to pa! a hi+her price3 sellers of +olf cl%'s to receive a lo*er price3 and fe*er +olf cl%'s to 'e sold. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1es (S$: Applicative 1) . FI$A is an e1ample of a pa!roll ta13 *hich is a ta1 on the *a+es that firms pa! their *or-ers. ANS: T DIF: 1 REF: 6-) NAT: Anal!tic "#$: "a'or mar-ets T#&: FI$A ta1 (S$: Definitional 1)1. Since half of the FI$A ta1 is paid '! firms and the other half is paid '! *or-ers3 the '%rden of the ta1 m%st fall e0%all! on firms and *or-ers. ANS: F DIF: ) REF: 6-) NAT: Anal!tic "#$: "a'or mar-ets T#&: FI$A ta1 incidence (S$: Interpretive
1)6
1)). ;%!ers and sellers al*a!s share the '%rden of a ta1 e0%all!. ANS: F DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive 1),. ;%!ers and sellers rarel! share the '%rden of a ta1 e0%all!. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand (S$: Interpretive
T#&:
Ta1 incidence
T#&:
Ta1 incidence
1).. :ho 'ears the ma4orit! of a ta1 '%rden depends on *hether the ta1 is placed on the '%!ers or the sellers. ANS: F DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1 incidence (S$: Interpretive 1)/. :ho 'ears the ma4orit! of a ta1 '%rden depends on the relative elasticit! of s%ppl! and demand. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1 incidence 9 Elasticit! (S$: Interpretive 1)6. If the demand c%rve is ver! elastic and the s%ppl! c%rve is ver! inelastic in a mar-et3 then the sellers *ill 'ear a +reater '%rden of a ta1 imposed on the mar-et3 even if the ta1 is imposed on the '%!ers. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1 incidence 9 Elasticit! (S$: Interpretive 1)2. If the demand c%rve is ver! inelastic and the s%ppl! c%rve is ver! elastic in a mar-et3 then the sellers *ill 'ear a +reater '%rden of a ta1 imposed on the mar-et3 even if the ta1 is imposed on the '%!ers. ANS: F DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1 incidence 9 Elasticit! (S$: Interpretive 1)5. A ta1 '%rden falls more heavil! on the side of the mar-et that is less elastic. ANS: T DIF: 1 REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1 incidence 9 Elasticit! (S$: Definitional 1)6. The ta1 '%rden falls more heavil! on the side of the mar-et that is more inelastic. ANS: T DIF: 1 REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1 incidence 9 Elasticit! (S$: Definitional 1, . A ta1 on a mar-et *ith elastic demand and elastic s%ppl! *ill shrin- the mar-et more than a ta1 on a mar-et *ith inelastic demand and inelastic s%ppl! *ill shrin- the mar-et. ANS: T DIF: , REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1es 9 Elasticit! (S$: Anal!tical 1,1. (ost la'or economists 'elieve that the s%ppl! of la'or is m%ch more elastic than the demand. ANS: F DIF: 1 REF: 6-) NAT: Anal!tic "#$: "a'or mar-ets T#&: Elasticit! (S$: Definitional 1,). :or-ers3 rather than firms3 'ear most of the '%rden of the pa!roll ta1. ANS: T DIF: 1 REF: 6-) NAT: Anal!tic "#$: "a'or mar-ets T#&: (S$: Definitional
&a!roll ta1 incidence
1)2
1,,. (ost of the '%rden of a l%1%r! ta1 falls on the middle class *or-ers *ho prod%ce l%1%r! +oods rather than on the rich *ho '%! them. ANS: T DIF: ) REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: "%1%r! ta1 incidence (S$: Interpretive S()RT *S+ER 1. ANS:
wage S
=sin+ a s%ppl! and demand dia+ram3 sho* a la'or mar-et *ith a 'indin+ minim%m *a+e. =se the dia+ram to sho* those *ho are helped '! the minim%m *a+e and those *ho are h%rt '! the minim%m *a+e.
(inim%m *a+e *1
D 0 01 0) quantity
Those *ho are helped '! the minim%m *a+e are the *or-ers *ho are still emplo!ed and no* receive the hi+her *a+e. In the dia+ram3 those *o%ld 'e meas%red '! the 0%antit! of la'or demanded at the minim%m *a+e3 0 . The minim%m *a+e creates %nemplo!ment e0%al to the difference 'et*een the 0%antit! of la'or s%pplied and the 0%antit! demanded at the minim%m *a+e3 0)-0 . The perceptive st%dent mi+ht note that the %nemplo!ed +ro%p can 'e divided into those *ho lose their 4o's as a res%lt of the minim%m *a+e @the competitive e0%ili'ri%m 0%antit! of la'or min%s the 0%antit! demanded at the minim%m *a+e3 01-0 A3 and those *ho enter the mar-et as a res%lt of the hi+her *a+e '%t cannot find emplo!ment @0%antit! of la'or s%pplied at the minim%m *a+e min%s the competitive e0%ili'ri%m 0%antit!3 0)-01A. The '%!ers of the la'or @emplo!ersA are also *orse off 'eca%se the! have to pa! a hi+her *a+e for la'or and3 hence3 hire a smaller 0%antit!. DIF: ) REF: "#$: "a'or mar-ets (S$: Interpretive ). a. '. c. =sin+ the +raph sho*n3 anal!?e the effect a <, price ceilin+ *o%ld have on the mar-et for ten-speed 'ic!cles. :o%ld this 'e a 'indin+ price ceilin+B =sin+ the +raph sho*n3 anal!?e the effect a <2 price floor *o%ld have on this mar-et for ten-speed 'ic!cles. :o%ld this 'e a 'indin+ price floorB :h! *o%ld polic!ma-ers choose to impose a price ceilin+ or price floorB 6-1 NAT: Anal!tic T#&: (inim%m *a+e
1)5
1 6 5 2 6 / . , ) 1

price
quantity
ANS: a. '. c. For this e1ample3 a <, price ceilin+ *o%ld ca%se a shorta+e of .3 'ic!cles. A price ceilin+ is 'indin+ if it is set at an! price 'elo* e0%ili'ri%m price. Since the e0%ili'ri%m price in this mar-et is </ 3 this *o%ld 'e a 'indin+ price ceilin+. For this e1ample3 a <2 price floor *o%ld ca%se a s%rpl%s of .3 'ic!cles. A price floor is 'indin+ if it is set at an! price a'ove e0%ili'ri%m price. Since the e0%ili'ri%m price in this mar-et is </ 3 this *o%ld 'e a 'indin+ price floor. (ore than one reason ma! e1ist for polic!ma-ers to impose a price ceilin+ or price floor in a mar-et. #ften this is done in an attempt to increase e0%alit!C a price ceilin+ ma! 'e imposed if polic!ma-ers perceive the e0%ili'ri%m price to 'e %nfair to '%!ers3 and a price floor ma! 'e imposed if polic!ma-ers perceive the e0%ili'ri%m price to 'e %nfair to sellers. 6-1 NAT: Anal!tic T#&: &rice ceilin+s 9 &rice floors
DIF: ) REF: "#$: S%ppl! and demand (S$: Applicative ,.
=sin+ the +raph sho*n3 ans*er the follo*in+ 0%estions. a. '. c. d. e. f. +. :hat *as the e0%ili'ri%m price in this mar-et 'efore the ta1B :hat is the amo%nt of the ta1B Do* m%ch of the ta1 *ill the '%!ers pa!B Do* m%ch of the ta1 *ill the sellers pa!B Do* m%ch *ill the '%!er pa! for the prod%ct after the ta1 is imposedB Do* m%ch *ill the seller receive after the ta1 is imposedB As a res%lt of the ta13 *hat has happened to the level of mar-et activit!B

1 6 5 2 6 / . , ) 1 1 ) , . / 6 2 D after ta1 5 quantity D price
1)6
ANS: a. '. c. d. e. f. +. <6 <. <1 <, <2 <, As a res%lt of the ta13 the level of mar-et activit! has fallen3 from 6 %nits 'o%+ht and sold to onl! / %nits 'o%+ht and sold. 6-) NAT: Anal!tic T#&: Ta1es 9 Ta1 incidence
DIF: ) REF: "#$: S%ppl! and demand (S$: Applicative ..
=sin+ the +raph sho*n3 ans*er the follo*in+ 0%estions. a. :hat *as the e0%ili'ri%m price in this mar-et 'efore the ta1B '. :hat is the amo%nt of the ta1B c. Do* m%ch of the ta1 *ill the '%!ers pa!B d. Do* m%ch of the ta1 *ill the sellers pa!B
1,
e. f. +.

Do* m%ch *ill the '%!er pa! for the prod%ct after the ta1 is imposedB Do* m%ch *ill the seller receive after the ta1 is imposedB As a res%lt of the ta13 *hat has happened to the level of mar-et activit!B
ANS: a. '. c. d. e. f. +. </ <, <) <1 <2 <. As a res%lt of the ta13 the level of mar-et activit! has fallen3 from 1 %nits 'o%+ht and sold to onl! 5 %nits 'o%+ht and sold. 6-) NAT: Anal!tic T#&: Ta1es 9 Ta1 incidence
DIF: ) REF: "#$: S%ppl! and demand (S$: Applicative /.
=sin+ the +raph sho*n3 in *hich the vertical distance 'et*een points A and ; represents the ta1 in the mar-et3 ans*er the follo*in+ 0%estions. a. :hat *as the e0%ili'ri%m price and 0%antit! in this mar-et 'efore the ta1B '. :hat is the amo%nt of the ta1B c. Do* m%ch of the ta1 *ill the '%!ers pa!B d. Do* m%ch of the ta1 *ill the sellers pa!B e. Do* m%ch *ill the '%!er pa! for the prod%ct after the ta1 is imposedB f. Do* m%ch *ill the seller receive after the ta1 is imposedB +. As a res%lt of the ta13 *hat has happened to the level of mar-et activit!B

price
1,1
S 11 A
5 6
quantity
ANS: a. '. c. d. e. f. +. E0%ili'ri%m price *as <5 and e0%ili'ri%m 0%antit! *as 53 %nits. The ta1 is </. ;%!ers *ill pa! <,. Sellers *ill pa! <). <11. <6. Instead of 53 %nits 'o%+ht and sold3 onl! 63 *ill 'e 'o%+ht and sold. 6-) NAT: Anal!tic T#&: Ta1es 9 Ta1 incidence
DIF: ) REF: "#$: S%ppl! and demand (S$: Applicative
1,)
6. Do* does elasticit! affect the '%rden of a ta1B E%stif! !o%r ans*er %sin+ s%ppl! and demand dia+rams. ANS:
The ta1 '%rden falls more heavil! on the side of the mar-et that is more inelastic. DIF: ) REF: "#$: S%ppl! and demand (S$: Interpretive 6-) NAT: Anal!tic T#&: Ta1 incidence 9 Elasticit!
Sec,, $ Supply, Demand, and Government Policies

-U!T.P!E C().CE 1. :hich of the follo*in+ is not correctB a. Economists have t*o roles: scientist and polic! adviser. '. As scientists3 economists develop and test theories to e1plain the *orld aro%nd them. c. Economic policies rarel! have effects that their architects did not intend or anticipate. d. As polic! advisers3 economists %se their theories to help chan+e the *orld for the 'etter.
ANS: $ DIF: 1 REF: 6NAT: Anal!tic "#$: The st%d! of economics and definitions of economics T#&: Economists 9 &%'lic polic! (S$: Definitional ). Rent-control la*s dictate a. the e1act rent that landlords m%st char+e tenants. '. a ma1im%m rent that landlords ma! char+e tenants. c. a minim%m rent that landlords ma! char+e tenants. d. a minim%m rent and a ma1im%m rent that landlords ma! char+e tenants.

ANS: ; NAT: Anal!tic (S$: Definitional ,. DIF: 1 REF: "#$: S%ppl! and demand 6T#&: Rent control
1,,
(inim%m-*a+e la*s dictate a. the e1act *a+e that firms m%st pa! *or-ers. '. a ma1im%m *a+e that firms ma! pa! *or-ers. c. a minim%m *a+e that firms ma! pa! *or-ers. d. a minim%m *a+e and a ma1im%m *a+e that firms ma! pa! *or-ers. DIF: 1 REF: "#$: "a'or mar-ets 6T#&: (inim%m *a+e
ANS: $ NAT: Anal!tic (S$: Definitional ..
&rice controls are %s%all! enacted a. as a means of raisin+ reven%e for p%'lic p%rposes. '. *hen polic!ma-ers 'elieve that the mar-et price of a +ood or service is %nfair to '%!ers or sellers. c. *hen polic!ma-ers detect inefficiencies in a mar-et. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6T#&: &rice controls
ANS: ; NAT: Anal!tic (S$: Interpretive /.
The presence of a price control in a mar-et for a +ood or service %s%all! is an indication that a. an ins%fficient 0%antit! of the +ood or service *as 'ein+ prod%ced in that mar-et to meet the p%'lic>s need. '. the %s%al forces of s%ppl! and demand *ere not a'le to esta'lish an e0%ili'ri%m price in that mar-et. c. polic!ma-ers 'elieved that the price that prevailed in that mar-et in the a'sence of price controls *as %nfair to '%!ers or sellers. d. polic!ma-ers correctl! 'elieved that3 in that mar-et3 price controls *o%ld +enerate no ine0%ities of their o*n. DIF: ) REF: "#$: S%ppl! and demand 6T#&: &rice controls
ANS: $ NAT: Anal!tic (S$: Interpretive 6.
&rice controls a. al*a!s prod%ce a fair o%tcome. '. al*a!s prod%ce an efficient o%tcome. c. can +enerate ine0%ities of their o*n. d. ;oth @aA and @'A are correct. DIF: ) REF: "#$: S%ppl! and demand 6T#&: &rice controls
&olic!ma-ers %se ta1es a. to raise reven%e for p%'lic p%rposes3 '%t not to infl%ence mar-et o%tcomes. '. 'oth to raise reven%e for p%'lic p%rposes and to infl%ence mar-et o%tcomes. c. *hen the! reali?e that price controls alone are ins%fficient to correct mar-et ine0%ities. d. onl! in those mar-ets in *hich the '%rden of the ta1 falls clearl! on the sellers. DIF: 1 REF: "#$: S%ppl! and demand 6T#&: Ta1es
ANS: ; NAT: Anal!tic (S$: Definitional
1,.
Sec,% $ Supply, Demand, and Government Policies $ Controls on Prices

-U!T.P!E C().CE 1. In a competitive mar-et free of +overnment re+%lation3 a. price ad4%sts %ntil 0%antit! demanded is +reater than 0%antit! s%pplied. '. price ad4%sts %ntil 0%antit! demanded is less than 0%antit! s%pplied. c. price ad4%sts %ntil 0%antit! demanded e0%als 0%antit! s%pplied. d. s%ppl! ad4%sts to meet demand at ever! price. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rices
ANS: $ NAT: Anal!tic (S$: Interpretive ).
A le+al ma1im%m on the price at *hich a +ood can 'e sold is called a price a. floor. '. s%'sid!. c. s%pport. d. ceilin+. DIF: 1 REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
ANS: D NAT: Anal!tic (S$: Definitional ,.
A price ceilin+ is a. often imposed on mar-ets in *hich Fc%tthroat competitionG *o%ld prevail *itho%t a price ceilin+. '. a le+al ma1im%m on the price at *hich a +ood can 'e sold. c. often imposed *hen sellers of a +ood are s%ccessf%l in their attempts to convince the +overnment that the mar-et o%tcome is %nfair *itho%t a price ceilin+. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
ANS: ; NAT: Anal!tic (S$: Interpretive ..
:hich of the follo*in+ is the most li-el! e1planation for the imposition of a price ceilin+ on the mar-et for mil-B a. &olic!ma-ers have st%died the effects of the price ceilin+ caref%ll!3 and the! reco+ni?e that the price ceilin+ is advanta+eo%s for societ! as a *hole. '. ;%!ers of mil-3 reco+ni?in+ that the price ceilin+ is +ood for them3 have press%red polic!ma-ers into imposin+ the price ceilin+. c. Sellers of mil-3 reco+ni?in+ that the price ceilin+ is +ood for them3 have press%red polic!ma-ers into imposin+ the price ceilin+. d. ;%!ers and sellers of mil- have a+reed that the price ceilin+ is +ood for 'oth of them and have therefore press%red polic!ma-ers into imposin+ the price ceilin+. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
ANS: ; NAT: Anal!tic (S$: Interpretive /.
If a price ceilin+ is not 'indin+3 then a. the e0%ili'ri%m price is a'ove the price ceilin+. '. the e0%ili'ri%m price is 'elo* the price ceilin+. c. it has no le+al enforcement mechanism. d. (ore than one of the a'ove is correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
ANS: ; NAT: Anal!tic (S$: Interpretive

6. If a price ceilin+ is not 'indin+3 then a. there *ill 'e a s%rpl%s in the mar-et. '. there *ill 'e a shorta+e in the mar-et. c. the mar-et *ill 'e less efficient than it *o%ld 'e *itho%t the price ceilin+. d. there *ill 'e no effect on the mar-et price or 0%antit! sold. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
1,/
ANS: D NAT: Anal!tic (S$: Interpretive 2.
If a non'indin+ price ceilin+ is imposed on a mar-et3 then a. the 0%antit! sold in the mar-et *ill decrease. '. the 0%antit! sold in the mar-et *ill sta! the same. c. the price in the mar-et *ill increase. d. the price in the mar-et *ill decrease. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
ANS: ; NAT: Anal!tic (S$: Interpretive 5.
A price ceilin+ *ill 'e 'indin+ onl! if it is set a. e0%al to the e0%ili'ri%m price. '. a'ove the e0%ili'ri%m price. c. 'elo* the e0%ili'ri%m price. d. either a'ove or 'elo* the e0%ili'ri%m price. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
A price ceilin+ is 'indin+ *hen it is set a. a'ove the e0%ili'ri%m price3 ca%sin+ a shorta+e. '. a'ove the e0%ili'ri%m price3 ca%sin+ a s%rpl%s. c. 'elo* the e0%ili'ri%m price3 ca%sin+ a shorta+e. d. 'elo* the e0%ili'ri%m price3 ca%sin+ a s%rpl%s. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
ANS: $ NAT: Anal!tic (S$: Interpretive 1 .
To sa! that a price ceilin+ is 'indin+ is to sa! that the price ceilin+ a. res%lts in a s%rpl%s. '. is set a'ove the e0%ili'ri%m price. c. ca%ses 0%antit! demanded to e1ceed 0%antit! s%pplied. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
A shorta+e res%lts *hen a. a non'indin+ price ceilin+ is imposed on a mar-et. '. a non'indin+ price ceilin+ is removed from a mar-et. c. a 'indin+ price ceilin+ is imposed on a mar-et. d. a 'indin+ price ceilin+ is removed from a mar-et. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
ANS: $ NAT: Anal!tic (S$: Interpretive 1).
The imposition of a 'indin+ price ceilin+ on a mar-et ca%ses 0%antit! demanded to 'e a. +reater than 0%antit! s%pplied. '. less than 0%antit! s%pplied. c. e0%al to 0%antit! s%pplied. d. ;oth @aA and @'A are possi'le.
1,6

DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
ANS: A NAT: Anal!tic (S$: Interpretive 1,.
If a price ceilin+ is a 'indin+ constraint on a mar-et3 then a. the e0%ili'ri%m price m%st 'e 'elo* the price ceilin+. '. the 0%antit! s%pplied m%st e1ceed the 0%antit! demanded. c. sellers cannot sell all the! *ant to sell at the price ceilin+. d. '%!ers cannot '%! all the! *ant to '%! at the price ceilin+. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
ANS: D NAT: Anal!tic (S$: Interpretive 1..
:hich of the follo*in+ o'servations *o%ld 'e consistent *ith the imposition of a 'indin+ price ceilin+ on a mar-etB a. A smaller 0%antit! of the +ood is 'o%+ht and sold after the price ceilin+ 'ecomes effective. '. A smaller 0%antit! of the +ood is demanded after the price ceilin+ 'ecomes effective. c. A lar+er 0%antit! of the +ood is s%pplied after the price ceilin+ 'ecomes effective. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
ANS: A NAT: Anal!tic (S$: Interpretive 1/.
If a 'indin+ price ceilin+ is imposed on the comp%ter mar-et3 then a. the demand for comp%ters *ill increase. '. the s%ppl! of comp%ters *ill decrease. c. a shorta+e of comp%ters *ill develop. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
If a 'indin+ price ceilin+ is imposed on the comp%ter mar-et3 then a. the 0%antit! of comp%ters demanded *ill increase. '. the 0%antit! of comp%ters s%pplied *ill decrease. c. a shorta+e of comp%ters *ill develop. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
S%ppose the e0%ili'ri%m price of a ph!sical e1amination @Hph!sicalHA '! a doctor is <) 3 and the +overnment imposes a price ceilin+ of <1/ per ph!sical. As a res%lt of the price ceilin+3 a. the demand c%rve for ph!sicals shifts to the ri+ht. '. the s%ppl! c%rve for ph!sicals shifts to the left. c. the 0%antit! demanded of ph!sicals increases and the 0%antit! s%pplied of ph!sicals decreases. d. the n%m'er of ph!sicals performed sta!s the same. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
S%ppose the +overnment has imposed a price ceilin+ on televisions. :hich of the follo*in+ events co%ld transform the price ceilin+ from one that is not 'indin+ into one that is 'indin+B a. Firms e1pect the price of televisions to fall in the f%t%re. '. The n%m'er of firms sellin+ televisions decreases. c. $ons%mersI income decreases3 and televisions are a normal +ood. d. The n%m'er of cons%mers '%!in+ televisions decreases.

ANS: ; NAT: Anal!tic (S$: Anal!tical 16. DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
1,2
S%ppose the +overnment has imposed a price ceilin+ on cell%lar phones. :hich of the follo*in+ events co%ld transform the price ceilin+ from one that is 'indin+ to one that is not 'indin+B a. $ell%lar phones 'ecome more pop%lar. '. Traditional land line phones 'ecome more e1pensive. c. The components %sed to prod%ce cell%lar phones 'ecome more e1pensive. d. A technolo+ical advance ma-es cell%lar phone prod%ction less e1pensive. DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
ANS: D NAT: Anal!tic (S$: Anal!tical ) .
If the +overnment removes a 'indin+ price ceilin+ from a mar-et3 then the price paid '! '%!ers *ill a. increase and the 0%antit! sold in the mar-et *ill increase. '. increase and the 0%antit! sold in the mar-et *ill decrease. c. decrease and the 0%antit! sold in the mar-et *ill increase. d. decrease and the 0%antit! sold in the mar-et *ill decrease. DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
ANS: A NAT: Anal!tic (S$: Anal!tical )1.
If the +overnment removes a 'indin+ price ceilin+ from a mar-et3 then the price received '! sellers *ill a. decrease and the 0%antit! sold in the mar-et *ill decrease. '. decrease and the 0%antit! sold in the mar-et *ill increase. c. increase and the 0%antit! sold in the mar-et *ill decrease. d. increase and the 0%antit! sold in the mar-et *ill increase. DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
ANS: D NAT: Anal!tic (S$: Anal!tical )).
:hen a 'indin+ price ceilin+ is imposed on a mar-et3 a. price no lon+er serves as a rationin+ device. '. the 0%antit! s%pplied at the price ceilin+ e1ceeds the 0%antit! that *o%ld have 'een s%pplied *itho%t the price ceilin+. c. all '%!ers 'enefit. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
ANS: A NAT: Anal!tic (S$: Interpretive ),.
:hen a 'indin+ price ceilin+ is imposed on a mar-et to 'enefit '%!ers3 a. ever! '%!er in the mar-et 'enefits. '. ever! seller in the mar-et 'enefits3 too. c. ever! '%!er *ho *ants to '%! the +ood *ill 'e a'le to do so3 '%t onl! if the! *ait in lon+ lines. d. some '%!ers *ill not 'e a'le to '%! an! amo%nt of the +ood. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
ANS: D NAT: Anal!tic (S$: Interpretive )..
:hen a 'indin+ price ceilin+ is imposed on a mar-et to 'enefit '%!ers3 a. no '%!ers act%all! do 'enefit. '. some '%!ers 'enefit3 '%t no '%!ers are harmed. c. some '%!ers 'enefit and some '%!ers are harmed. d. all '%!ers 'enefit. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
ANS: $ NAT: Anal!tic (S$: Interpretive
1,5
)/.

In response to a shorta+e ca%sed '! the imposition of a 'indin+ price ceilin+ on a mar-et3 a. price *ill no lon+er 'e the mechanism that rations scarce reso%rces. '. lon+ lines of '%!ers ma! develop. c. sellers co%ld ration the +ood or service accordin+ to their o*n personal 'iases. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
ANS: D NAT: Anal!tic (S$: Interpretive )6.
As rationin+ mechanisms3 prices a. and lon+ lines are efficient. '. are efficient3 '%t lon+ lines are inefficient. c. are inefficient3 '%t lon+ lines are efficient. d. and lon+ lines are inefficient. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Efficienc!
ANS: ; NAT: Anal!tic (S$: Interpretive )2.
As a rationin+ mechanism3 discrimination accordin+ to seller 'ias is a. efficient and fair. '. efficient3 '%t potentiall! %nfair. c. inefficient3 '%t fair. d. inefficient and potentiall! %nfair. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Efficienc!
ANS: D NAT: Anal!tic (S$: Interpretive )5.
"on+ lines a. and discrimination accordin+ to seller 'ias are 'oth inefficient rationin+ mechanisms 'eca%se the! 'oth *aste '%!ers> time. '. and discrimination accordin+ to seller 'ias are 'oth inefficient rationin+ mechanisms 'eca%se the +ood does not necessaril! +o to the '%!er *ho val%es it most hi+hl!. c. are an inefficient rationin+ mechanism 'eca%se the! *aste '%!ers> time3 and discrimination accordin+ to seller 'ias is an inefficient rationin+ mechanism 'eca%se the +ood does not necessaril! +o to the '%!er *ho val%es it most hi+hl!. d. are an inefficient rationin+ mechanism 'eca%se the +ood does not necessaril! +o to the '%!er *ho val%es it most hi+hl!3 and discrimination accordin+ to seller 'ias is an inefficient rationin+ mechanism 'eca%se it *astes '%!ers> time. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Efficienc!
ANS: $ NAT: Anal!tic (S$: Interpretive )6.
In a free3 competitive mar-et3 *hat is the rationin+ mechanismB a. seller 'ias '. '%!er 'ias c. +overnment la* d. price DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rices
ANS: D NAT: Anal!tic (S$: Interpretive , .
:hich of the follo*in+ *o%ld 'e the least li-el! res%lt of a 'indin+ price ceilin+ imposed on the mar-et for rental carsB a. an acc%m%lation of dirt in the interior of rental cars '. poor en+ine maintenance in rental cars c. free +asoline +iven to people as an incentive to a rent a car d. slo* replacement of old rental cars *ith ne* ones

ANS: $ NAT: Anal!tic (S$: Applicative ,1. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
1,6
:hen #&E$ raised the price of cr%de oil in the 162 s3 it ca%sed the a. demand for +asoline to increase. '. demand for +asoline to decrease. c. s%ppl! of +asoline to increase. d. s%ppl! of +asoline to decrease. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: #&E$ 9 S%ppl!
ANS: D NAT: Anal!tic (S$: Interpretive ,).
:hen #&E$ raised the price of cr%de oil in the 162 s3 it ca%sed the a. s%ppl! of +asoline to decrease. '. 0%antit! of +asoline demanded to decrease. c. e0%ili'ri%m price of +asoline to increase. d. All of the a'ove are correct. 6-1 (S$: Interpretive
ANS: D DIF: ) REF: NAT: Anal!tic "#$: S%ppl! and demand T#&: #&E$ 9 S%ppl! 9 J%antit! demanded 9 &rices ,,.
:hen #&E$ raised the price of cr%de oil in the 162 s3 it ca%sed the a. =nited States> non'indin+ price floor on +asoline to 'ecome 'indin+. '. =nited States> 'indin+ price floor on +asoline to 'ecome non'indin+. c. =nited States> non'indin+ price ceilin+ on +asoline to 'ecome 'indin+. d. =nited States> 'indin+ price ceilin+ on +asoline to 'ecome non'indin+. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: #&E$ 9 &rice ceilin+s
ANS: $ NAT: Anal!tic (S$: Interpretive ,..
In the =nited States3 'efore #&E$ increased the price of cr%de oil in 162,3 there *as a. no price ceilin+ on +asoline. '. a non'indin+ price ceilin+ on +asoline. c. a 'indin+ price ceilin+ on +asoline. d. a non'indin+ price floor on +asoline. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
ANS: ; NAT: Anal!tic (S$: Interpretive ,/.
Economists 'lame the lon+ lines at +asoline stations in the =.S. in the 162 s on a. =.S. +overnment re+%lations pertainin+ to the price of +asoline. '. the #r+ani?ation of &etrole%m E1portin+ $o%ntries @#&E$A. c. ma4or oil companies operatin+ in the =.S. d. cons%mers *ho 'o%+ht +asoline fre0%entl!3 even *hen their carsI +asoline tan-s *ere nearl! f%ll. 6-1 (S$: Interpretive
ANS: A DIF: ) REF: NAT: Anal!tic "#$: S%ppl! and demand T#&: Economists 9 &rice ceilin+s 9 Shorta+es ,6.
#ther than #&E$3 the shorta+e of +asoline in the =.S. in the 162 s co%ld also 'e 'lamed on a. a sharp increase in the demand for +asoline that *as 'ro%+ht on '! the Kietnam :ar. '. the +overnment>s polic! of maintainin+ a price ceilin+ on +asoline. c. an indifference amon+ =.S. cons%mers to*ard conservation. d. the lac- of s%'stit%tes for cr%de oil.
ANS: ; DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: #&E$ 9 &rice ceilin+s 9 Shorta+es (S$: Interpretive
1.
,2.

In the 162 s3 lon+ lines at +as stations in the =nited States *ere primaril! a res%lt of the fact that a. #&E$ raised the price of cr%de oil in *orld mar-ets. '. =.S. +asoline prod%cers raised the price of +asoline. c. the =.S. +overnment maintained a price ceilin+ on +asoline. d. Americans t!picall! comm%ted lon+ distances. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
ANS: $ NAT: Anal!tic (S$: Interpretive ,5.
Rent control a. serves as an e1ample of ho* a social pro'lem can 'e alleviated or even solved '! +overnment policies. '. serves as an e1ample of a price ceilin+. c. is re+arded '! most economists as an efficient *a! of helpin+ the poor. d. is the most efficient *a! to allocate scarce ho%sin+ reso%rces. DIF: 1 REF: "#$: S%ppl! and demand 6-1 T#&: Rent control
ANS: ; NAT: Anal!tic (S$: Definitional ,6.
The +oal of rent control is to a. facilitate controlled economic e1periments in %r'an areas. '. help landlords '! ass%rin+ them a lo* vacanc! rate for their apartments. c. help the poor '! ass%rin+ them an ade0%ate s%ppl! of apartments. d. help the poor '! ma-in+ ho%sin+ more afforda'le. DIF: 1 REF: "#$: S%ppl! and demand 6-1 T#&: Rent control
ANS: D NAT: Anal!tic (S$: Definitional . .
Economists +enerall! 'elieve that rent control is a. an efficient and fair *a! to help the poor. '. inefficient3 '%t the 'est availa'le means of solvin+ a serio%s social pro'lem. c. a hi+hl! inefficient *a! to help the poor raise their standard of livin+. d. an efficient *a! to allocate ho%sin+3 '%t not a +ood *a! to help the poor. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: Economists 9 Rent control
ANS: $ NAT: Anal!tic (S$: Interpretive .1.
#ne economist has ar+%ed that rent control is Hthe 'est *a! to destro! a cit!3 other than 'om'in+.H :h! *o%ld an economist sa! thisB a. De fears that lo* rents *ill ca%se lo*-income people to move into the cit!3 red%cin+ the 0%alit! of life for other people. '. De fears that rent control *ill 'enefit landlords at the e1pense of tenants3 increasin+ ine0%alit! in the cit!. c. De fears that rent controls *ill ca%se a constr%ction 'oom3 *hich *ill ma-e the cit! cro*ded and more poll%ted. d. De fears that rent control *ill eliminate the incentive to maintain '%ildin+s3 leadin+ to a deterioration of the cit!. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: Economists 9 Rent control
ANS: D NAT: Anal!tic (S$: Interpretive .).
In the ho%sin+ mar-et3 rent control ca%ses a. 0%antit! s%pplied and 0%antit! demanded to fall. '. 0%antit! s%pplied to fall and 0%antit! demanded to rise. c. 0%antit! s%pplied to rise and 0%antit! demanded to fall. d. 0%antit! s%pplied and 0%antit! demanded to rise.
ANS: ; DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: Rent control 9 J%antit! demanded 9 J%antit! s%pplied
(S$: Interpretive

.,. :hich of the follo*in+ is not a short-r%n effect of rent control on the ho%sin+ mar-etB a. red%ced rents '. a lar+e shorta+e c. a small increase in 0%antit! demanded d. a small decrease in 0%antit! s%pplied DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: Rent control 9 Short r%n
1.1
ANS: ; NAT: Anal!tic (S$: Interpretive ...
#ver time3 ho%sin+ shorta+es ca%sed '! rent control a. increase3 'eca%se the demand for and s%ppl! of ho%sin+ are less elastic in the lon+ r%n. '. increase3 'eca%se the demand for and s%ppl! of ho%sin+ are more elastic in the lon+ r%n. c. decrease3 'eca%se the demand for and s%ppl! of ho%sin+ are less elastic in the lon+ r%n. d. decrease3 'eca%se the demand for and s%ppl! of ho%sin+ are more elastic in the lon+ r%n.
ANS: ; DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: Rent control 9 "on+ r%n 9 Elasticit! (S$: Interpretive ./. :hich of the follo*in+ statements a'o%t the effects of rent control is correctB a. The short-r%n effect of rent control is a s%rpl%s of apartments3 and the lon+-r%n effect of rent control is a shorta+e of apartments. '. The short-r%n effect of rent control is a relativel! small shorta+e of apartments3 and the lon+-r%n effect of rent control is a lar+er shorta+e of apartments. c. In the lon+ r%n3 rent control leads to a shorta+e of apartments and an improvement in the 0%alit! of availa'le apartments. d. The effects of rent control are ver! noticea'le to the p%'lic in the short r%n 'eca%se the primar! effects of rent control occ%r ver! 0%ic-l!. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: Rent control 9 "on+ r%n
ANS: ; NAT: Anal!tic (S$: Interpretive .6.
The lon+-r%n effects of rent controls are a +ood ill%stration of the principle that a. societ! faces a short-r%n tradeoff 'et*een %nemplo!ment and inflation. '. the cost of somethin+ is *hat !o% +ive %p to +et it. c. people respond to incentives. d. +overnment can sometimes improve on mar-et o%tcomes. 6-1 (S$: Interpretive
ANS: $ DIF: ) REF: NAT: Anal!tic "#$: S%ppl! and demand T#&: Rent control 9 "on+ r%n 9 Incentives .2.
:hich of the follo*in+ is not a rationin+ mechanism %sed '! landlords in cities *ith rent controlB a. *aitin+ lists '. race c. price d. 'ri'es DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: Rent control
=nder rent control3 'ri'er! is a mechanism to a. 'rin+ the total price of an apartment @incl%din+ the 'ri'eA closer to the e0%ili'ri%m price. '. allocate ho%sin+ to the poorest individ%als in the mar-et. c. force the total price of an apartment @incl%din+ the 'ri'eA to 'e less than the mar-et price. d. allocate ho%sin+ to the most deservin+ tenants. DIF: 1 REF: "#$: S%ppl! and demand 6-1 T#&: Rent control
ANS: A NAT: Anal!tic (S$: Interpretive
1.)
.6.

=nder rent control3 landlords cease to 'e responsive to tenantsI concerns a'o%t the 0%alit! of the ho%sin+ 'eca%se a. *ith rent control3 the +overnment +%arantees landlords a minim%m level of profit. '. the! 'ecome resi+ned to the fact that man! of their apartments are +oin+ to 'e vacant at an! +iven time. c. *ith shorta+es and *aitin+ lists3 the! have no incentive to maintain and improve their propert!. d. *ith rent control3 it 'ecomes the +overnmentIs responsi'ilit! to maintain rental ho%sin+. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: Rent control
ANS: $ NAT: Anal!tic (S$: Interpretive / .
=nder rent control3 tenants can e1pect a. lo*er rent and hi+her 0%alit! ho%sin+. '. lo*er rent and lo*er 0%alit! ho%sin+. c. hi+her rent and a shorta+e of rental ho%sin+. d. hi+her rent and a s%rpl%s of rental ho%sin+. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: Rent control
ANS: ; NAT: Anal!tic (S$: Interpretive /1.
:hich of the follo*in+ is not a res%lt of rent controlB a. fe*er ne* apartments offered for rent '. less maintenance provided '! landlords c. 'ri'er! d. hi+her 0%alit! ho%sin+ DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: Rent control
ANS: D NAT: Anal!tic (S$: Interpretive /).
A le+al minim%m on the price at *hich a +ood can 'e sold is called a price a. s%'sid!. '. floor. c. s%pport. d. ceilin+. DIF: 1 REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
ANS: ; NAT: Anal!tic (S$: Definitional /,.
A price floor is a. a le+al minim%m on the price at *hich a +ood can 'e sold. '. often imposed *hen sellers of a +ood are s%ccessf%l in their attempts to convince the +overnment that the mar-et o%tcome is %nfair *itho%t a price floor. c. a so%rce of inefficienc! in a mar-et. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 Efficienc!
ANS: D NAT: Anal!tic (S$: Interpretive /..
:hich of the follo*in+ is the most li-el! e1planation for the imposition of a price floor on the mar-et for cornB a. &olic!ma-ers have st%died the effects of the price floor caref%ll!3 and the! reco+ni?e that the price floor is advanta+eo%s for societ! as a *hole. '. ;%!ers and sellers of corn have a+reed that the price floor is +ood for 'oth of them and have therefore press%red polic! ma-ers into imposin+ the price floor. c. ;%!ers of corn3 reco+ni?in+ that the price floor is +ood for them3 have press%red polic!ma-ers into imposin+ the price floor. d. Sellers of corn3 reco+ni?in+ that the price floor is +ood for them3 have press%red polic!ma-ers into imposin+ the price floor.

ANS: D NAT: Anal!tic (S$: Interpretive //. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
1.,
If a price floor is not 'indin+3 then a. the e0%ili'ri%m price is a'ove the price floor. '. the e0%ili'ri%m price is 'elo* the price floor. c. it has no le+al enforcement mechanism. d. (ore than one of the a'ove is correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
ANS: A NAT: Anal!tic (S$: Interpretive /6.
If a price floor is not 'indin+3 then a. there *ill 'e a s%rpl%s in the mar-et. '. there *ill 'e a shorta+e in the mar-et. c. there *ill 'e no effect on the mar-et price or 0%antit! sold. d. the mar-et *ill 'e less efficient than it *o%ld 'e *itho%t the price floor. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
ANS: $ NAT: Anal!tic (S$: Interpretive /2.
If a non'indin+ price floor is imposed on a mar-et3 then a. the 0%antit! sold in the mar-et *ill decrease. '. the 0%antit! sold in the mar-et *ill sta! the same. c. the price in the mar-et *ill increase. d. the price in the mar-et *ill decrease. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
A price floor *ill 'e 'indin+ onl! if it is set a. e0%al to the e0%ili'ri%m price. '. a'ove the e0%ili'ri%m price. c. 'elo* the e0%ili'ri%m price. d. either a'ove or 'elo* the e0%ili'ri%m price. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
A price floor is 'indin+ *hen it is set a. a'ove the e0%ili'ri%m price3 ca%sin+ a shorta+e. '. a'ove the e0%ili'ri%m price3 ca%sin+ a s%rpl%s. c. 'elo* the e0%ili'ri%m price3 ca%sin+ a shorta+e. d. 'elo* the e0%ili'ri%m price3 ca%sin+ a s%rpl%s. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
ANS: ; NAT: Anal!tic (S$: Interpretive 6 .
To sa! that a price floor is 'indin+ is to sa! that the price floor a. res%lts in a shorta+e. '. is set 'elo* the e0%ili'ri%m price. c. ca%ses 0%antit! s%pplied to e1ceed 0%antit! demanded. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
1..
61.

A s%rpl%s res%lts *hen a. a non'indin+ price floor is imposed on a mar-et. '. a non'indin+ price floor is removed from a mar-et. c. a 'indin+ price floor is imposed on a mar-et. d. a 'indin+ price floor is removed from a mar-et. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
ANS: $ NAT: Anal!tic (S$: Interpretive 6).
The imposition of a 'indin+ price floor on a mar-et ca%ses 0%antit! demanded to 'e a. +reater than 0%antit! s%pplied. '. less than 0%antit! s%pplied. c. e0%al to 0%antit! s%pplied. d. ;oth @aA and @'A are possi'le. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
ANS: ; NAT: Anal!tic (S$: Interpretive 6,.
If a price floor is a 'indin+ constraint on a mar-et3 then a. the e0%ili'ri%m price m%st 'e a'ove the price floor. '. the 0%antit! demanded m%st e1ceed the 0%antit! s%pplied. c. sellers cannot sell all the! *ant to sell at the price floor. d. '%!ers cannot '%! all the! *ant to '%! at the price floor. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
ANS: $ NAT: Anal!tic (S$: Interpretive 6..
:hich of the follo*in+ o'servations *o%ld 'e consistent *ith the imposition of a 'indin+ price floor on a mar-etB a. A smaller 0%antit! of the +ood is 'o%+ht and sold after the price floor 'ecomes effective. '. A lar+er 0%antit! of the +ood is demanded after the price floor 'ecomes effective. c. A smaller 0%antit! of the +ood is s%pplied after the price floor 'ecomes effective. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
If a 'indin+ price floor is imposed on the video +ame mar-et3 then a. the demand for video +ames *ill decrease. '. the s%ppl! of video +ames *ill increase. c. a s%rpl%s of video +ames *ill develop. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
If a 'indin+ price floor is imposed on the video +ame mar-et3 then a. the 0%antit! of video +ames demanded *ill decrease. '. the 0%antit! of video +ames s%pplied *ill increase. c. a s%rpl%s of video +ames *ill develop. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
ANS: D NAT: Anal!tic (S$: Interpretive

62.
1./
S%ppose the e0%ili'ri%m price of a ph!sical e1amination @Hph!sicalHA '! a doctor is <) 3 and the +overnment imposes a price floor of <)/ per ph!sical. As a res%lt of the price floor3 a. the demand c%rve for ph!sicals shifts to the left. '. the s%ppl! c%rve for ph!sicals shifts to the ri+ht. c. the 0%antit! demanded of ph!sicals decreases and the 0%antit! of ph!sicals doctors *ant to +ive increases. d. the n%m'er of ph!sicals performed sta!s the same. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
S%ppose the +overnment has imposed a price floor on televisions. :hich of the follo*in+ events co%ld transform the price floor from one that is not 'indin+ into one that is 'indin+B a. Firms e1pect the price of televisions to rise in the f%t%re. '. The n%m'er of firms sellin+ televisions decreases. c. $ons%mersI income decreases3 and televisions are a normal +ood. d. The n%m'er of cons%mers '%!in+ televisions increases. DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
ANS: $ NAT: Anal!tic (S$: Anal!tical 66.
S%ppose the +overnment has imposed a price floor on cell%lar phones. :hich of the follo*in+ events co%ld transform the price floor from one that is 'indin+ to one that is not 'indin+B a. $ell%lar phones 'ecome less pop%lar. '. Traditional land line phones 'ecome more e1pensive. c. The components %sed to prod%ce cell%lar phones 'ecome less e1pensive. d. Firms e1pect the price of cell%lar phones to fall in the f%t%re. DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
ANS: ; NAT: Anal!tic (S$: Anal!tical 2 .
If the +overnment removes a 'indin+ price floor from a mar-et3 then the price paid '! '%!ers *ill a. increase and the 0%antit! sold in the mar-et *ill increase. '. increase and the 0%antit! sold in the mar-et *ill decrease. c. decrease and the 0%antit! sold in the mar-et *ill increase. d. decrease and the 0%antit! sold in the mar-et *ill decrease. DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
ANS: $ NAT: Anal!tic (S$: Anal!tical 21.
If the +overnment removes a 'indin+ price floor from a mar-et3 then the price received '! sellers *ill a. decrease and the 0%antit! sold in the mar-et *ill decrease. '. decrease and the 0%antit! sold in the mar-et *ill increase. c. increase and the 0%antit! sold in the mar-et *ill decrease. d. increase and the 0%antit! sold in the mar-et *ill increase. DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
ANS: ; NAT: Anal!tic (S$: Anal!tical 2).
:hen a 'indin+ price floor is imposed on a mar-et3 a. price no lon+er serves as a rationin+ device. '. the 0%antit! s%pplied at the price floor e1ceeds the 0%antit! that *o%ld have 'een s%pplied *itho%t the price floor. c. onl! some sellers 'enefit. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
1.6
2,.

:hen a 'indin+ price floor is imposed on a mar-et to 'enefit sellers3 a. ever! seller in the mar-et 'enefits. '. ever! '%!er in the mar-et 'enefits3 too. c. ever! seller *ho *ants to sell the +ood *ill 'e a'le to do so3 '%t onl! if the! appeal to the personal 'iases of the '%!ers. d. some sellers *ill not 'e a'le to sell an! amo%nt of the +ood. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
ANS: D NAT: Anal!tic (S$: Interpretive 2..
:hen a 'indin+ price floor is imposed on a mar-et to 'enefit sellers3 a. no sellers act%all! do 'enefit. '. some sellers 'enefit3 '%t no sellers are harmed. c. some sellers 'enefit and some sellers are harmed. d. all sellers 'enefit. DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
ANS: $ NAT: Anal!tic (S$: Interpretive 2/.
A 'indin+ price floor *ill red%ce a firmIs total reven%e a. al*a!s. '. *hen demand is elastic. c. *hen demand is inelastic. d. never.
ANS: ; DIF: , REF: 6-1 NAT: Anal!tic "#$: Elasticit! T#&: &rice floors 9 &rice elasticit! of demand 9 Total reven%e 26. An e1ample of a price floor is a. the re+%lation of +asoline prices in the =.S. in the 162 s. '. rent control. c. the minim%m *a+e. d. an! restriction on price that leads to a shorta+e. DIF: 1 REF: "#$: "a'or mar-ets 6-1
(S$: Anal!tical
ANS: $ NAT: Anal!tic (S$: Definitional 22.
T#&:
(inim%m *a+e
The minim%m *a+e is an e1ample of a. a price ceilin+. '. a price floor. c. a *a+e s%'sid!. d. a ta1. DIF: 1 REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
ANS: ; NAT: Anal!tic (S$: Definitional 25.
:hich of the follo*in+ is correctB a. Rent control and the minim%m *a+e are 'oth e1amples of price ceilin+s. '. Rent control is an e1ample of a price ceilin+3 and the minim%m *a+e is an e1ample of a price floor. c. Rent control is an e1ample of a price floor3 and the minim%m *a+e is an e1ample of a price ceilin+. d. Rent control and the minim%m *a+e are 'oth e1amples of price floors.
ANS: ; DIF: ) REF: 6-1 NAT: Anal!tic "#$: S%ppl! and demand T#&: Rent control 9 (inim%m *a+e (S$: Interpretive

26. (inim%m-*a+e la*s dictate the a. avera+e price emplo!ers m%st pa! for la'or. '. hi+hest price emplo!ers ma! pa! for la'or. c. lo*est price emplo!ers ma! pa! for la'or. d. the hi+hest and lo*est prices emplo!ers ma! pa! for la'or. DIF: 1 REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
1.2
ANS: $ NAT: Anal!tic (S$: Definitional 5 .
The =.S. $on+ress first instit%ted a minim%m *a+e in a. 1226. '. 151). c. 16,5. d. 162/. DIF: 1 REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
ANS: $ NAT: Anal!tic (S$: Definitional 51.
The minim%m *a+e *as instit%ted to ens%re *or-ers a. a middle-class standard of livin+. '. emplo!ment. c. a minimall! ade0%ate standard of livin+. d. %nemplo!ment compensation. DIF: 1 REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
ANS: $ NAT: Anal!tic (S$: Definitional 5).
In ) 23 the =.S. minim%m *a+e accordin+ to federal la* *as a. <..)/ per ho%r. '. </.1/ per ho%r. c. </.2/ per ho%r. d. <2.)/ per ho%r. DIF: 1 REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
ANS: ; NAT: Anal!tic (S$: Definitional 5,.
The =.S. minim%m *a+e accordin+ to federal la* is sched%led to increase to a. </.1/ per ho%r '! ) 1 . '. </.2/ per ho%r '! ) 1 . c. <2.)/ per ho%r '! ) 1 . d. <1 .)/ per ho%r '! ) 1 . DIF: 1 REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
ANS: $ NAT: Anal!tic (S$: Definitional 5..
:hich of the follo*in+ is not correctB a. Some states in the =.S. mandate minim%m *a+es a'ove the federal level. '. (ost E%ropean nations have minim%m-*a+e la*s. c. The =.S. minim%m *a+e is si+nificantl! hi+her than the minim%m *a+es in France and the =nited Lin+dom. d. The =.S. $on+ress first instit%ted a minim%m *a+e *ith the Fair "a'or Standards Act. DIF: ) REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
1.5
5/.

:hich of the follo*in+ is correctB a. :or-ers determine the s%ppl! of la'or3 and firms determine the demand for la'or. '. :or-ers determine the demand for la'or3 and firms determine the s%ppl! of la'or. c. The la'or mar-et is a sin+le mar-et for all different t!pes of *or-ers. d. The price of the prod%ct prod%ced '! la'or ad4%sts to 'alance the s%ppl! of la'or and the demand for la'or.
ANS: A DIF: ) REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: "a'or demand 9 "a'or s%ppl! (S$: Interpretive 56. If the minim%m *a+e e1ceeds the e0%ili'ri%m *a+e3 then a. the 0%antit! demanded of la'or *ill e1ceed the 0%antit! s%pplied. '. the 0%antit! s%pplied of la'or *ill e1ceed the 0%antit! demanded. c. the minim%m *a+e *ill not 'e 'indin+. d. there *ill 'e no %nemplo!ment. DIF: ) REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
A minim%m *a+e that is set a'ove a mar-etIs e0%ili'ri%m *a+e *ill res%lt in a. an e1cess demand for la'or3 that is3 %nemplo!ment. '. an e1cess demand for la'or3 that is3 a shorta+e of *or-ers. c. an e1cess s%ppl! of la'or3 that is3 %nemplo!ment. d. an e1cess s%ppl! of la'or3 that is3 a shorta+e of *or-ers.
ANS: $ DIF: ) REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e 9 =nemplo!ment (S$: Interpretive 55. A minim%m *a+e that is set 'elo* a mar-etIs e0%ili'ri%m *a+e *ill res%lt in a. an e1cess demand for la'or3 that is3 %nemplo!ment. '. an e1cess demand for la'or3 that is3 a shorta+e of *or-ers. c. an e1cess s%ppl! of la'or3 that is3 %nemplo!ment. d. None of the a'ove is correct. DIF: ) REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
A 'indin+ minim%m *a+e a. alters 'oth the 0%antit! demanded and 0%antit! s%pplied of la'or. '. affects onl! the 0%antit! of la'or demandedC it does not affect the 0%antit! of la'or s%pplied. c. has no effect on the 0%antit! of la'or demanded or the 0%antit! of la'or s%pplied. d. ca%ses onl! temporar! %nemplo!ment3 since the mar-et *ill ad4%st and eliminate an! temporar! s%rpl%s of *or-ers. DIF: ) REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
ANS: A NAT: Anal!tic (S$: Interpretive 6 .
The minim%m *a+e3 if it is 'indin+3 raises the incomes of a. no *or-ers. '. onl! those *or-ers *ho cannot find 4o's. c. onl! those *or-ers *ho have 4o's. d. all *or-ers. DIF: ) REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e 9 Income

61. The minim%m *a+e3 if it is 'indin+3 lo*ers the incomes of a. no *or-ers. '. onl! those *or-ers 'ecome %nemplo!ed. c. onl! those *or-ers *ho have 4o's. d. all *or-ers. DIF: ) REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e 9 Income
1.6
ANS: ; NAT: Anal!tic (S$: Interpretive 6).
:hich of the follo*in+ is not correctB a. The econom! contains man! la'or mar-ets for different t!pes of *or-ers. '. The impact of the minim%m *a+e depends on the s-ill and e1perience of the *or-er. c. The minim%m *a+e is 'indin+ for *or-ers *ith hi+h s-ills and m%ch e1perience. d. The minim%m *a+e is not 'indin+ *hen the e0%ili'ri%m *a+e is a'ove the minim%m *a+e. DIF: ) REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
ANS: $ NAT: Anal!tic (S$: Interpretive 6,.
The minim%m *a+e has its +reatest impact on the mar-et for a. female la'or. '. older la'or. c. 'lac- la'or. d. teena+e la'or. DIF: 1 REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
ANS: D NAT: Anal!tic (S$: Definitional 6..
The minim%m *a+e does not appl! to a. 4o's for teena+ers. '. 4o's for mem'ers of minorit! +ro%ps. c. %npaid internships. d. 4o's that incl%de on-the-4o' trainin+. DIF: 1 REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
ANS: $ NAT: Anal!tic (S$: Definitional 6/.
St%dies of the effects of the minim%m *a+e t!picall! find that a 1 percent increase in the minim%m *a+e depresses teena+e emplo!ment '! a'o%t a. percent. '. 1 to , percent. c. / to 2 percent. d. 1 percent. DIF: 1 REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
ANS: ; NAT: Anal!tic (S$: Definitional 66.
:hich of the follo*in+ is correctB a. St%dies of the effects of the minim%m *a+e t!picall! find that a 1 percent increase in the minim%m *a+e raises the avera+e *a+e of teena+ers '! 1 percent. '. The drop in teena+e emplo!ment ca%sed '! a 1 percent increase in the minim%m *a+e is not si+nificant. c. The minim%m *a+e is more often 'indin+ for teena+ers than for other mem'ers of the la'or force. d. Enforcement of minim%m-*a+e la*s is perfect. DIF: ) REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
1/
62.

:hich of the follo*in+ is not correctB a. In a ) 6 s%rve! of &h.D. economists3 .2 percent favored eliminatin+ the minim%m *a+e. '. In a ) 6 s%rve! of &h.D. economists3 1. percent *o%ld maintain the minim%m *a+e at its c%rrent level. c. In a ) 6 s%rve! of &h.D. economists3 ,5 percent *o%ld increase the minim%m *a+e. d. In a ) 6 s%rve! of &h.D. economists3 1 percent *o%ld decrease the minim%m *a+e. DIF: 1 REF: "#$: "a'or mar-ets 6-1 T#&: Economists 9 (inim%m *a+e
ANS: D NAT: Anal!tic (S$: Definitional 65.
Advocates of the minim%m *a+e a. den! that the minim%m *a+e prod%ces an! adverse effects. '. emphasi?e the 'enefits to teena+ers of increases in the minim%m *a+e. c. emphasi?e the lo* ann%al incomes of those *ho *or- for the minim%m *a+e. d. All of the a'ove are correct. DIF: ) REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
#pponents of the minim%m *a+e point o%t that the minim%m *a+e a. enco%ra+es teena+ers to drop o%t of school. '. prevents some *or-ers from +ettin+ needed on-the-4o' trainin+. c. contri'%tes to the pro'lem of %nemplo!ment. d. All of the a'ove are correct. DIF: ) REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
ANS: D NAT: Anal!tic (S$: Interpretive 1
. The proportion of minim%m-*a+e earners *ho are in families *ith incomes 'elo* the povert! line is a. less than one-third. '. 'et*een one-third and one-half. c. 'et*een one-half and t*o-thirds. d. +reater than t*o-thirds. DIF: 1 REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
ANS: A NAT: Anal!tic (S$: Definitional
1 1. There are several criticisms of the minim%m *a+e. :hich of the follo*in+ is not one of those criticismsB a. The minim%m *a+e often h%rts those people *ho it is intended to help. '. The minim%m *a+e res%lts in an e1cess s%ppl! of lo*-s-illed la'or. c. The minim%m *a+e prevents some %ns-illed *or-ers from +ettin+ needed on-the-4o' trainin+. d. The minim%m *a+e fails to raise the *a+e of an! emplo!ed person. ANS: D NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: "a'or mar-ets 6-1 T#&: (inim%m *a+e
1 ). An o%tcome that can res%lt from either a price ceilin+ or a price floor is a. a s%rpl%s in the mar-et. '. a shorta+e in the mar-et. c. a non'indin+ price control. d. lon+ lines of fr%strated '%!ers. ANS: $ NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 &rice floors

1 ,. An o%tcome that can res%lt from either a price ceilin+ or a price floor is a. an enhancement of efficienc!. '. %ndesira'le rationin+ mechanisms. c. a s%rpl%s. d. a shorta+e. ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 &rice floors
1/1
1 .. &rice ceilin+s and price floors that are 'indin+ a. are desira'le 'eca%se the! ma-e mar-ets more efficient and more fair. '. ca%se s%rpl%ses and shorta+es to persist since price cannot ad4%st to the mar-et e0%ili'ri%m price. c. can have the effect of restorin+ a mar-et to e0%ili'ri%m. d. are imposed 'eca%se the! can ma-e the poor in the econom! 'etter off *itho%t ca%sin+ adverse effects. ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 &rice floors
1 /. :hen +overnment imposes a price ceilin+ or a price floor on a mar-et3 a. price no lon+er serves as a rationin+ device. '. efficienc! in the mar-et is enhanced. c. shorta+es and s%rpl%ses are eliminated. d. '%!ers and sellers 'oth 'ecome 'etter off. ANS: A NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 &rice floors
1 6. Mo% have responsi'ilit! for economic polic! in the co%ntr! of Freedonia. Recentl!3 the nei+h'orin+ co%ntr! of S!lvania has c%t off all e1ports of oran+es to Freedonia. Darpo3 *ho is one of !o%r advisors3 s%++ests that !o% sho%ld impose a 'indin+ price ceilin+ in order to avoid a shorta+e of oran+es. $hico3 another one of !o%r advisors3 ar+%es that *itho%t a 'indin+ price floor3 a shorta+e *ill certainl! develop. Neppo3 a third advisor3 sa!s that the 'est *a! to avoid a shorta+e of oran+es is to ta-e no action at all. :hich of !o%r three advisors is most li-el! to have st%died economicsB a. Darpo '. $hico c. Neppo d. Apparentl!3 all three advisors have st%died economics3 '%t their vie*s on positive economics are different. ANS: $ NAT: Anal!tic (S$: Applicative Table 6-1 &rice < <1 <) <, <. </ <6 J%antit! Demanded 1) 1 5 6 . ) J%antit! S%pplied ) . 6 5 1 1) DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 &rice floors
1/)
1 2. Re"er to Ta/le 6$%' :hich of the follo*in+ price ceilin+s *o%ld 'e 'indin+ in this mar-etB a. <) '. <, c. <. d. </ ANS: A NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
1 5. Re"er to Ta/le 6$%' :hich of the follo*in+ price floors *o%ld 'e 'indin+ in this mar-etB a. <1 '. <) c. <, d. <. ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
1 6. Re"er to Ta/le 6$%' S%ppose the +overnment imposes a price ceilin+ of <1 on this mar-et. :hat *ill 'e the si?e of the shorta+e in this mar-etB a. %nits '. ) %nits c. 5 %nits d. 1 %nits ANS: $ NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
11 . Re"er to Ta/le 6$%' S%ppose the +overnment imposes a price ceilin+ of </ on this mar-et. :hat *ill 'e the si?e of the shorta+e in this mar-etB a. %nits '. ) %nits c. 5 %nits d. 1 %nits ANS: A NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
111. Re"er to Ta/le 6$%' S%ppose the +overnment imposes a price floor of <1 on this mar-et. :hat *ill 'e the si?e of the s%rpl%s in this mar-etB a. %nits '. ) %nits c. 5 %nits d. 1 %nits ANS: A NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
11). Re"er to Ta/le 6$%' S%ppose the +overnment imposes a price floor of </ on this mar-et. :hat *ill 'e the si?e of the s%rpl%s in this mar-etB a. %nits '. ) %nits c. 5 %nits d. 1 %nits ANS: $ NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses

Table 6-2 &rice < </ <1 <1/ <) <)/ J%antit! Demanded )/ ) 1/ 1 / J%antit! S%pplied 2/ 1/ ))/ , ,2/
1/,
11,. Re"er to Ta/le 6$0' :hich of the follo*in+ statements is correctB a. A price ceilin+ set at </ *ill 'e 'indin+ and *ill res%lt in a shorta+e of / %nits. '. A price ceilin+ set at </ *ill 'e 'indin+ and *ill res%lt in a shorta+e of 2/ %nits. c. A price ceilin+ set at </ *ill 'e 'indin+ and *ill res%lt in a shorta+e of 1)/ %nits. d. A price ceilin+ set at </ *ill not 'e 'indin+. ANS: $ NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
11.. Re"er to Ta/le 6$0' :hich of the follo*in+ statements is correctB a. A price ceilin+ set at <1/ *ill 'e 'indin+ and *ill res%lt in a shorta+e of / %nits. '. A price ceilin+ set at <1/ *ill 'e 'indin+ and *ill res%lt in a shorta+e of 1 %nits. c. A price ceilin+ set at <1/ *ill 'e 'indin+ and *ill res%lt in a shorta+e of 1)/ %nits. d. A price ceilin+ set at <1/ *ill not 'e 'indin+. ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
11/. Re"er to Ta/le 6$0' :hich of the follo*in+ statements is correctB a. A price floor set at <) *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of / %nits. '. A price floor set at <) *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of 1 %nits. c. A price floor set at <) *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of )/ %nits. d. A price floor set at <) *ill not 'e 'indin+. ANS: $ NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
116. Re"er to Ta/le 6$0' :hich of the follo*in+ statements is correctB a. A price floor set at </ *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of / %nits. '. A price floor set at </ *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of 2/ %nits. c. A price floor set at </ *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of 1)/ %nits. d. A price floor set at </ *ill not 'e 'indin+. ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
1/.
Table 6-3 The follo*in+ ta'le contains the demand sched%le and s%ppl! sched%le for a mar-et for a partic%lar +ood. S%ppose sellers of the +ood s%ccessf%ll! lo''! $on+ress to impose a price floor <) a'ove the e0%ili'ri%m price in this mar-et. &rice < <1 <) <, <. </ <6 J%antit! Demanded 1/ 1, 11 6 2 / , J%antit! S%pplied , 6 6 1) 1/ 15
112. Re"er to Ta/le 6$1' Do* man! %nits of the +ood are sold after the imposition of the price floorB a. / '. 6 c. 1 d. 1/ ANS: A NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
115. Re"er to Ta/le 6$1' Follo*in+ the imposition of a price floor <) a'ove the e0%ili'ri%m price3 irate '%!ers convince $on+ress to repeal the price floor and to impose a price ceilin+ <1 'elo* the former price floor. The res%ltin+ mar-et price is a. <). '. <,. c. <.. d. </. ANS: ; NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 &rice floors
116. Re"er to Ta/le 6$1' Follo*in+ the imposition of a price floor <) a'ove the e0%ili'ri%m price3 irate '%!ers convince $on+ress to repeal the price floor and to impose a price ceilin+ <1 'elo* the former price floor. The res%ltin+ shorta+e is a. %nits. '. ) %nits. c. / %nits. d. 2 %nits. ANS: A DIF: , REF: NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s 9 &rice floors 9 Shorta+es 6-1 (S$: Anal!tical

Table 6-4
1//
The follo*in+ ta'le contains the demand sched%le and s%ppl! sched%le for a mar-et for a partic%lar +ood. S%ppose sellers of the +ood s%ccessf%ll! lo''! $on+ress to impose a price floor <, a'ove the e0%ili'ri%m price in this mar-et. &rice < <1 <) <, <. </ <6 J%antit! Demanded 1/ 1, 11 6 2 / , J%antit! S%pplied , 6 6 1) 1/ 15
1) . Re"er to Ta/le 6$2' Do* man! %nits of the +ood are sold after the imposition of the price floorB a. , '. 6 c. 1/ d. 15 ANS: A NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
1)1. Re"er to Ta/le 6$2' Follo*in+ the imposition of a price floor <, a'ove the e0%ili'ri%m price3 irate '%!ers convince $on+ress to repeal the price floor and to impose a price ceilin+ <1 'elo* the former price floor. The res%ltin+ mar-et price is a. <). '. <,. c. <.. d. </. ANS: ; NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 &rice floors
1)). Re"er to Ta/le 6$2' Follo*in+ the imposition of a price floor <, a'ove the e0%ili'ri%m price3 irate '%!ers convince $on+ress to repeal the price floor and to impose a price ceilin+ <1 'elo* the former price floor. The res%ltin+ shorta+e is a. %nits. '. . %nits. c. / %nits. d. 1 %nits. ANS: A DIF: , REF: NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s 9 &rice floors 9 Shorta+es 6-1 (S$: Anal!tical
1/6

Panel 3a4
price S price S
Figure 6-1 Panel 3/4
price ceilin+
price ceilin+ D quantity D quantity
1),. Re"er to Fi#ure 6$%. A 'indin+ price ceilin+ is sho*n in a. panel @aA '%t not panel @'A. '. panel @'A '%t not panel @aA. c. 'oth panel @aA and panel @'A. d. neither panel @aA nor panel @'A. ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
1).. Re"er to Fi#ure 6$%. In *hich panel@sA of the fi+%re *o%ld there 'e a shorta+e of the +ood at the price ceilin+B a. panel @aA '%t not panel @'A '. panel @'A '%t not panel @aA c. 'oth panel @aA and panel @'A d. neither panel @aA nor panel @'A ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
1)/. Re"er to Fi#ure 6$%. The sit%ation in panel @aA ma! 'e descri'ed as one in *hich a. the price ceilin+ is not 'indin+. '. the price ceilin+ reall! f%nctions as a price floor. c. a s%rpl%s of the +ood *ill 'e o'served. d. ;oth @'A and @cA are correct. ANS: A NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s

Figure 6-2 Panel 3a4
price of wheat S price of wheat S
1/2
Panel 3/4
price floor
price floor D quantity D quantity
1)6. Re"er to Fi#ure 6$0. A 'indin+ price floor is sho*n in a. 'oth panel @aA and panel @'A. '. panel @aA '%t not panel @'A. c. panel @'A '%t not panel @aA. d. neither panel @aA nor panel @'A. ANS: $ NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
1)2. Re"er to Fi#ure 6$0. In panel @'A3 there *ill 'e a. a shorta+e of *heat. '. e0%ili'ri%m in the mar-et. c. a s%rpl%s of *heat. d. lines of people *aitin+ to '%! *heat. ANS: $ NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
1/5
) 15 16 1. 1) 1 5 6 . )

price
Figure 6-3
quantity
1)5. Re"er to Fi#ure 6$1. :hich of the follo*in+ price ceilin+s *o%ld 'e 'indin+ in this mar-etB a. <5. '. <1 . c. <1). d. <1.. ANS: A NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
1)6. Re"er to Fi#ure 6$1. :hich of the follo*in+ price floors *o%ld 'e 'indin+ in this mar-etB a. <6. '. <5. c. <1 . d. <1). ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
1, . Re"er to Fi#ure 6$1. :hich of the follo*in+ statements is correctB a. A price ceilin+ set at <1) *o%ld 'e 'indin+3 '%t a price ceilin+ set at <5 *o%ld not 'e 'indin+. '. A price floor set at <5 *o%ld 'e 'indin+3 '%t a price ceilin+ set at <5 *o%ld not 'e 'indin+. c. A price ceilin+ set at <6 *o%ld res%lt in a s%rpl%s. d. A price floor set at <11 *o%ld res%lt in a s%rpl%s. ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
1,1. Re"er to Fi#ure 6$1. If the +overnment imposes a price ceilin+ of <5 on this mar-et3 then there *ill 'e a a. shorta+e of . '. shorta+e of 1 . c. shorta+e of ) . d. shorta+e of . . ANS: $ NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
1,). Re"er to Fi#ure 6$1. If the +overnment imposes a price ceilin+ of <1) on this mar-et3 then there *ill 'e a a. shorta+e of . '. shorta+e of 1 . c. shorta+e of ) . d. shorta+e of . .

ANS: A NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
1/6
1,,. Re"er to Fi#ure 6$1. If the +overnment imposes a price floor of <6 on this mar-et3 then there *ill 'e a a. s%rpl%s of . '. s%rpl%s of ) . c. s%rpl%s of , . d. s%rpl%s of . . ANS: A NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
1,.. Re"er to Fi#ure 6$1. If the +overnment imposes a price floor of <1. on this mar-et3 then there *ill 'e a a. s%rpl%s of . '. s%rpl%s of ) . c. s%rpl%s of , . d. s%rpl%s of . . ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
1,/. Re"er to Fi#ure 6$1. In *hich of the follo*in+ cases *o%ld sellers have to develop a rationin+ mechanismB a. A price ceilin+ is set at <5. '. A price ceilin+ is set at <1). c. A price floor is set at <5. d. A price floor is set at <1). ANS: A NAT: Anal!tic (S$: Applicative Figure 6-4
1 6 5 2 6 / . , ) 1 1 ) , . / 6 2 5 quantity D price S
DIF: ) REF: "#$: S%ppl! and demand
6-1 T#&: &rice ceilin+s
1,6. Re"er to Fi#ure 6$2. For a price ceilin+ to 'e 'indin+ in this mar-et3 it *o%ld have to 'e set at a. an! price 'elo* <6. '. a price 'et*een <, and <6. c. a price 'et*een <6 and <6. d. an! price a'ove <6. ANS: A NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
16
1,2. Re"er to Fi#ure 6$2. For a price floor to 'e 'indin+ in this mar-et3 it *o%ld have to 'e set at a. an! price 'elo* <6. '. a price 'et*een <, and <6. c. a price 'et*een <6 and <6. d. an! price a'ove <6. ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors
1,5. Re"er to Fi#ure 6$2. :hich of the follo*in+ price controls *o%ld ca%se a shorta+e of ) %nits of the +oodB a. a price ceilin+ of <. '. a price ceilin+ of </ c. a price floor of <2 d. a price floor of <5 ANS: ; NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
1,6. Re"er to Fi#ure 6$2. :hich of the follo*in+ price controls *o%ld ca%se a s%rpl%s of ) %nits of the +oodB a. a price ceilin+ of <. '. a price ceilin+ of </ c. a price floor of <2 d. a price floor of <5 ANS: $ NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
1. . Re"er to Fi#ure 6$2. S%ppose a price ceilin+ of </ is imposed on this mar-et. As a res%lt3 a. the 0%antit! of the +ood s%pplied decreases '! ) %nits. '. the demand c%rve shifts to the left so as to no* pass thro%+h the point @0%antit! O . 3 price O </A. c. '%!ers> total e1pendit%re on the +ood decreases '! <1 . d. the price of the +ood contin%es to serve as the rationin+ mechanism. ANS: $ NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
1.1. Re"er to Fi#ure 6$2. S%ppose a price floor of <2 is imposed on this mar-et. As a res%lt3 a. '%!ers> total e1pendit%re on the +ood decreases '! <) . '. the s%ppl! c%rve shifts to the left so as to no* pass thro%+h the point @0%antit! O . 3 price O <2A. c. the 0%antit! of the +ood demanded decreases '! ) %nits. d. the price of the +ood contin%es to serve as the rationin+ mechanism. ANS: A NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors

Figure 6-5
1 6 5 2 6 / . , ) 1 / 1 1/ ) )/ , ,/ . ./ / // 6 6/ 2 2/ 5 5/ quantity D S price
161
1.). Re"er to Fi#ure 6$5. If the +overnment imposes a price ceilin+ of <) on this mar-et3 then the res%lt is a a. shorta+e of %nits of the +ood. '. shorta+e of . %nits of the +ood. c. shorta+e of 6 %nits of the +ood. d. shorta+e of 5/ %nits of the +ood. ANS: $ NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
1.,. Re"er to Fi#ure 6$5. If the +overnment imposes a price floor of </ on this mar-et3 then the res%lt is a a. s%rpl%s of %nits of the +ood. '. s%rpl%s of ) %nits of the +ood. c. s%rpl%s of , %nits of the +ood. d. s%rpl%s of // %nits of the +ood. ANS: $ NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
1... Re"er to Fi#ure 6$5. The price of the +ood *o%ld contin%e to serve as the rationin+ mechanism if a. a price ceilin+ of <. is imposed. '. a price ceilin+ of </ is imposed. c. a price floor of <, is imposed. d. All of the a'ove are correct. ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 &rice floors
1./. Re"er to Fi#ure 6$5. :hen a certain price control is imposed on this mar-et3 the res%ltin+ 0%antit! of the +ood that is act%all! 'o%+ht and sold is s%ch that '%!ers are *illin+ and a'le to pa! a ma1im%m of P1 dollars per %nit for that 0%antit! and sellers are *illin+ and a'le to accept a minim%m of P) dollars per %nit for that 0%antit!. If P1 - P) O <,3 then the price control in 0%estion is a. a price ceilin+ of <). . '. a price ceilin+ of </. . c. a price floor of </. . d. either a price ceilin+ of <). or a price floor of </. . ANS: D NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 &rice floors
16)

price
Figure 6-6
1) 11 1 6 5 2 6 / . , ) 1 , 6 6 1) 1/ 15 )1 ). )2 , D quantity S
1.6. Re"er to Fi#ure 6$6' :hich of the follo*in+ statements is correctB a. A price ceilin+ set at <. *ill 'e 'indin+ and *ill res%lt in a shorta+e of , %nits. '. A price ceilin+ set at <. *ill 'e 'indin+ and *ill res%lt in a shorta+e of 6 %nits. c. A price ceilin+ set at <2 *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of 6 %nits. d. A price ceilin+ set at <2 *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of 1) %nits. ANS: ; NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
1.2. Re"er to Fi#ure 6$6' :hich of the follo*in+ statements is correctB a. A price floor set at <. *ill 'e 'indin+ and *ill res%lt in a shorta+e of , %nits. '. A price floor set at <. *ill 'e 'indin+ and *ill res%lt in a shorta+e of 6 %nits. c. A price floor set at <2 *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of 6 %nits. d. A price floor set at <2 *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of 1) %nits. ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses

Figure 6-7
price ). )) ) 15 16 1. 1) 1 5 6 . ) ) . 6 5 1 1) 1. 16 15 ) D quantity S
16,
1.5. Re"er to Fi#ure 6$&' :hich of the follo*in+ statements is correctB a. A price ceilin+ set at <6 *ill 'e 'indin+ and *ill res%lt in a shorta+e of 5 %nits. '. A price ceilin+ set at <6 *ill 'e 'indin+ and *ill res%lt in a shorta+e of . %nits. c. A price ceilin+ set at <16 *ill 'e 'indin+ and *ill res%lt in a shorta+e of 1) %nits. d. A price ceilin+ set at <16 *ill 'e 'indin+ and *ill res%lt in a shorta+e of 6 %nits. ANS: A NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
1.6. Re"er to Fi#ure 6$&' :hich of the follo*in+ statements is correctB a. A price floor set at <6 *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of 5 %nits. '. A price floor set at <6 *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of . %nits. c. A price floor set at <16 *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of 1) %nits. d. A price floor set at <16 *ill 'e 'indin+ and *ill res%lt in a s%rpl%s of 6 %nits. ANS: $ NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice floors 9 S%rpl%ses
16.

price of gasoline S)
Figure 6-8
&, &)
S1 price ceilin+
&1
D J, J1 quantity of gasoline
1/ . Re"er to Fi#ure 6$6. :hen the price ceilin+ applies in this mar-et and the s%ppl! c%rve for +asoline shifts from S1 to S)3 a. the mar-et price *ill increase to &,. '. a s%rpl%s *ill occ%r at the ne* mar-et price of &). c. the mar-et price *ill sta! at &1. d. a shorta+e *ill occ%r at the ne* mar-et price of &). ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 Shorta+es
1/1. Re"er to Fi#ure 6$6. :hen the price ceilin+ applies in this mar-et and the s%ppl! c%rve for +asoline shifts from S1 to S)3 the res%ltin+ 0%antit! of +asoline that is 'o%+ht and sold is a. less than J,. '. J,. c. 'et*een J1 and J,. d. at least J1. ANS: A NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s
1/). Re"er to Fi#ure 6$6. :hich of the follo*in+ statements 'est relates the fi+%re to the events that occ%rred in the =nited States in the 162 sB a. ;%!ers of +asoline paid a price of &1 'efore 162,C the! paid a price of &) after #&E$ increased the price of cr%de oil in 162,3 and there *as a shorta+e of +asoline at that price. '. ;%!ers of +asoline paid a price of &1 'efore 162,C the! paid a price of &, after #&E$ increased the price of cr%de oil in 162,3 and there *as a shorta+e of +asoline at that price. c. ;%!ers of +asoline paid a price of &) 'efore 162,C the! paid a price of &, after #&E$ increased the price of cr%de oil in 162,3 *ith no shorta+e of +asoline at that price. d. The price ceilin+ *as 'indin+ 'efore 162,C the price ceilin+ *as no lon+er 'indin+ after #&E$ increased the price of cr%de oil in 162,. ANS: A NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: #&E$ 9 &rice ceilin+s
1/,. :hen polic!ma-ers set prices '! le+al decree3 the! a. are %s%all! follo*in+ the advice of mainstream economists. '. improve the or+ani?ation of economic activit!. c. o'sc%re the si+nals that normall! +%ide the allocation of societ!>s reso%rces. d. are demonstratin+ a *illin+ness to sacrifice fairness for the sa-e of a +ain in efficienc!.

ANS: $ NAT: Anal!tic (S$: Definitional DIF: 1 REF: "#$: S%ppl! and demand 6-1 T#&: &rice ceilin+s 9 &rice floors
16/
1/.. :hich of the follo*in+ is not a f%nction of prices in a mar-et s!stemB a. &rices have the cr%cial 4o' of 'alancin+ s%ppl! and demand. '. &rices send si+nals to '%!ers and sellers to help them ma-e rational economic decisions. c. &rices coordinate economic activit!. d. &rices ens%re an e0%al distri'%tion of +oods and services amon+ cons%mers. ANS: D NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rices 9 (ar-et econom!
1//. :hich of the follo*in+ is correctB a. &rice controls al*a!s help those the! are desi+ned to help. '. &rice controls never help those the! are desi+ned to help. c. &rice controls often h%rt those the! are desi+ned to help. d. &rice controls al*a!s h%rt those the! are desi+ned to help. ANS: $ NAT: Anal!tic (S$: Definitional DIF: 1 REF: "#$: S%ppl! and demand 6-1 T#&: &rice controls
1/6. An alternative to rent-control la*s that *o%ld not red%ce the 0%antit! of ho%sin+ s%pplied is a. the pa!ment '! +overnment of a fraction of a poor famil!>s rent. '. hi+her ta1es on rental income earned '! landlords. c. a polic! that prevents landlords from evictin+ tenants. d. a polic! that allo*s +overnment to confiscate residential propert! for the p%rpose of commercial development. ANS: A NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: Rent control 9 Rent s%'sidies
1/2. =nli-e minim%m *a+e la*s3 *a+e s%'sidies a. disco%ra+e firms from hirin+ the *or-in+ poor. '. ca%se %nemplo!ment. c. help onl! *ealth! *or-ers. d. raise the livin+ standards of the *or-in+ poor *itho%t creatin+ %nemplo!ment. ANS: D DIF: ) REF: 6-1 NAT: Anal!tic "#$: "a'or mar-ets T#&: (inim%m *a+e 9 :a+e s%'sidies (S$: Interpretive 1/5. The Earned Income Ta1 $redit is an e1ample of a. a minim%m-*a+e la*. '. a price ceilin+. c. a *a+e s%'sid!. d. a rent s%'sid!. ANS: $ NAT: Anal!tic (S$: Definitional DIF: 1 REF: "#$: "a'or mar-ets 6-1 T#&: Earned Income Ta1 $redit
1/6. #ne disadvanta+e of +overnment s%'sidies over price controls is that s%'sidies a. prevent the attainment of e0%ili'ri%m in the mar-ets in *hich the! are imposed. '. ma-e hi+her ta1es necessar!. c. are al*a!s %nfair to those *ith lo* incomes. d. ca%se %nemplo!ment. ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-1 T#&: &rice controls 9 S%'sidies
166
Sec,0 $ Supply, Demand, and Government Policies $ Ta7es

-U!T.P!E C().CE 1. The term ta1 incidence refers to a. *hether '%!ers or sellers of a +ood are re0%ired to send ta1 pa!ments to the +overnment. '. *hether the demand c%rve or the s%ppl! c%rve shifts *hen the ta1 is imposed. c. the distri'%tion of the ta1 '%rden 'et*een '%!ers and sellers. d. *idespread vie* that ta1es al*a!s *ill 'e a fact of life. DIF: 1 REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
ANS: $ NAT: Anal!tic (S$: Definitional ).
If a ta1 is levied on the sellers of a prod%ct3 then the demand c%rve a. *ill shift do*n. '. *ill shift %p. c. *ill 'ecome flatter. d. *ill not shift. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
ANS: D NAT: Anal!tic (S$: Interpretive ,.
If a ta1 is levied on the sellers of a prod%ct3 then the s%ppl! c%rve a. *ill shift %p. '. *ill shift do*n. c. *ill 'ecome flatter. d. *ill not shift. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!
ANS: A NAT: Anal!tic (S$: Interpretive ..
If a ta1 is levied on the sellers of a prod%ct3 then there *ill 'e a@nA a. do*n*ard shift of the demand c%rve. '. %p*ard shift of the demand c%rve. c. movement %p and to the left alon+ the demand c%rve. d. movement do*n and to the ri+ht alon+ the demand c%rve. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
ANS: $ NAT: Anal!tic (S$: Interpretive /.
If a ta1 is levied on the sellers of a prod%ct3 then there *ill 'e a@nA a. do*n*ard shift of the s%ppl! c%rve. '. %p*ard shift of the s%ppl! c%rve. c. movement %p and to the ri+ht alon+ the s%ppl! c%rve. d. movement do*n and to the left alon+ the s%ppl! c%rve. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!
A ta1 on the sellers of TKs a. leads sellers to s%ppl! a smaller 0%antit! at ever! price. '. leads '%!ers to demand a smaller 0%antit! at ever! price. c. leads sellers to s%ppl! a lar+er 0%antit! at ever! price. d. ;oth @aA and @'A are correct. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!

2. A ta1 levied on the sellers of 'l%e'erries a. increases sellers> costs3 red%ces profits3 and shifts the s%ppl! c%rve %p. '. increases sellers> costs3 red%ces profits3 and shifts the s%ppl! c%rve do*n. c. decreases sellers> costs3 increases profits3 and shifts the s%ppl! c%rve %p. d. decreases sellers> costs3 increases profits3 and shifts the s%ppl! c%rve do*n. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!
162
ANS: A NAT: Anal!tic (S$: Interpretive 5.
A ta1 on sellers *ill a. shift the demand c%rve %p*ards '! the amo%nt of the ta1. '. shift the demand c%rve do*n*ards '! the amo%nt of the ta1. c. shift the s%ppl! c%rve %p*ards '! the amo%nt of the ta1. d. shift the s%ppl! c%rve do*n*ards '! the amo%nt of the ta1. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!
:hen a ta1 is imposed on the sellers of a +ood3 the s%ppl! c%rve shifts a. %p*ard '! the amo%nt of the ta1. '. do*n*ard '! the amo%nt of the ta1. c. %p*ard '! less than the amo%nt of the ta1. d. do*n*ard '! less than the amo%nt of the ta1. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!
ANS: A NAT: Anal!tic (S$: Interpretive 1 .
A <). ta1 levied on the sellers of mail'o1es *ill shift the s%ppl! c%rve a. %p*ard '! e1actl! <). . '. %p*ard '! less than <). . c. do*n*ard '! e1actl! <). . d. do*n*ard '! less than <). . DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!
ANS: A NAT: Anal!tic (S$: Interpretive 11. A< a. '. c. d.
.1 ta1 levied on the sellers of chocolate 'ars *ill ca%se the s%ppl! c%rve for chocolate 'ars to shift do*n '! < .1 . s%ppl! c%rve for chocolate 'ars to shift %p '! < .1 . demand c%rve for chocolate 'ars to shift do*n '! < .1 . demand c%rve for chocolate 'ars to shift %p '! < .1 . DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!
ANS: ; NAT: Anal!tic (S$: Interpretive 1).
A ta1 on the sellers of popcorn a. increases the si?e of the popcorn mar-et. '. decreases the si?e of the popcorn mar-et. c. has no effect on the si?e of the popcorn mar-et. d. ma! increase3 decrease3 or have no effect on the si?e of the popcorn mar-et. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: ; NAT: Anal!tic (S$: Interpretive 1,.
:hen a ta1 is placed on the sellers of a prod%ct3 a. '%!ers pa! more and sellers receive more than the! did 'efore the ta1. '. '%!ers pa! more and sellers receive less than the! did 'efore the ta1. c. '%!ers pa! less and sellers receive more than the! did 'efore the ta1. d. '%!ers pa! less and sellers receive less than the! did 'efore the ta1.
165

DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: ; NAT: Anal!tic (S$: Interpretive 1..
A ta1 on the sellers of coffee *ill a. increase the price of coffee paid '! '%!ers3 increase the effective price of coffee received '! sellers3 and increase the e0%ili'ri%m 0%antit! of coffee. '. increase the price of coffee paid '! '%!ers3 increase the effective price of coffee received '! sellers3 and decrease the e0%ili'ri%m 0%antit! of coffee. c. increase the price of coffee paid '! '%!ers3 decrease the effective price of coffee received '! sellers3 and increase the e0%ili'ri%m 0%antit! of coffee. d. increase the price of coffee paid '! '%!ers3 decrease the effective price of coffee received '! sellers3 and decrease the e0%ili'ri%m 0%antit! of coffee. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: D NAT: Anal!tic (S$: Interpretive 1/.
A ta1 imposed on the sellers of a +ood *ill a. raise the price paid '! '%!ers and lo*er the e0%ili'ri%m 0%antit!. '. raise the price paid '! '%!ers and raise the e0%ili'ri%m 0%antit!. c. raise the effective price received '! sellers and lo*er the e0%ili'ri%m 0%antit!. d. raise the effective price received '! sellers and raise the e0%ili'ri%m 0%antit!. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
A ta1 imposed on the sellers of a +ood *ill a. lo*er the price paid '! '%!ers and lo*er the e0%ili'ri%m 0%antit!. '. lo*er the price paid '! '%!ers and raise the e0%ili'ri%m 0%antit!. c. lo*er the effective price received '! sellers and lo*er the e0%ili'ri%m 0%antit!. d. lo*er the effective price received '! sellers and raise the e0%ili'ri%m 0%antit!. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
A ta1 imposed on the sellers of a +ood *ill a. raise 'oth the price '%!ers pa! and the effective price sellers receive. '. raise the price '%!ers pa! and lo*er the effective price sellers receive. c. lo*er the price '%!ers pa! and raise the effective price sellers receive. d. lo*er 'oth the price '%!ers pa! and the effective price sellers receive. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
:hen a ta1 is placed on the sellers of a prod%ct3 the a. si?e of the mar-et decreases. '. effective price received '! sellers decreases and the price paid '! '%!ers increases. c. s%ppl! of the prod%ct decreases. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!
If the +overnment levies a </ ta1 per car on sellers of cars3 then the price paid '! '%!ers of cars *o%ld a. increase '! more than </ . '. increase '! e1actl! </ . c. increase '! less than </ . d. decrease '! an indeterminate amo%nt.

ANS: $ NAT: Anal!tic (S$: Interpretive ) . DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
166
If the +overnment levies a </ ta1 per car on sellers of cars3 then the price received '! sellers of cars *o%ld a. decrease '! less than </ . '. decrease '! e1actl! </ . c. decrease '! more than </ . d. increase '! an indeterminate amo%nt. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: A NAT: Anal!tic (S$: Interpretive )1.
:hen a ta1 is placed on the sellers of cell phones3 a. the si?e of the cell phone mar-et and the effective price received '! sellers 'oth increase. '. the si?e of the cell phone mar-et increases3 '%t the effective price received '! sellers decreases. c. the si?e of the cell phone mar-et decreases3 '%t the effective price received '! sellers increases. d. the si?e of the cell phone mar-et and the effective price received '! sellers 'oth decrease. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: D NAT: Anal!tic (S$: Interpretive )).
:hen a ta1 is placed on the sellers of cell phones3 a. the si?e of the cell phone mar-et and the price paid '! '%!ers 'oth increase. '. the si?e of the cell phone mar-et increases3 '%t the price paid '! '%!ers decreases. c. the si?e of the cell phone mar-et decreases3 '%t the price paid '! '%!ers increases. d. the si?e of the cell phone mar-et and the price paid '! '%!ers 'oth decrease. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: $ NAT: Anal!tic (S$: Interpretive ),.
:hen a ta1 is placed on the sellers of lemonade3 a. the sellers 'ear the entire '%rden of the ta1. '. the '%!ers 'ear the entire '%rden of the ta1. c. the '%rden of the ta1 *ill 'e al*a!s 'e e0%all! divided 'et*een the '%!ers and the sellers. d. the '%rden of the ta1 *ill 'e shared '! the '%!ers and the sellers3 '%t the division of the '%rden is not al*a!s e0%al. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
ANS: D NAT: Anal!tic (S$: Interpretive )..
If a ta1 is levied on the sellers of s%+ar3 then a. '%!ers *ill 'ear the entire '%rden of the ta1. '. sellers *ill 'ear the entire '%rden of the ta1. c. '%!ers and sellers *ill share the '%rden of the ta1. d. the +overnment *ill 'ear the entire '%rden of the ta1. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
ANS: $ NAT: Anal!tic (S$: Interpretive )/.
If the +overnment passes a la* re0%irin+ sellers of motorc!cles to send </ to the +overnment for ever! motorc!cle the! sell3 then a. the s%ppl! c%rve for motorc!cles shifts do*n*ard '! </ . '. sellers of motorc!cles receive </ less per motorc!cle than the! *ere receivin+ 'efore the ta1. c. '%!ers of motorc!cles are %naffected '! the ta1. d. None of the a'ove is correct. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
12
)6.

S%ppose sellers of li0%or are re0%ired to send <1. to the +overnment for ever! 'ottle of li0%or the! sell. F%rther3 s%ppose this ta1 ca%ses the price paid '! '%!ers of li0%or to rise '! < .5 per 'ottle. :hich of the follo*in+ statements is correctB a. This ta1 ca%ses the s%ppl! c%rve for li0%or to shift %p*ard '! <1. at each 0%antit! of li0%or. '. The effective price received '! sellers is < .) per 'ottle less than it *as 'efore the ta1. c. Ei+ht! percent of the '%rden of the ta1 falls on '%!ers. d. All of the a'ove are correct.
ANS: D DIF: , REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1es 9 S%ppl! 9 Ta1 incidence (S$: Anal!tical )2. S%ppose sellers of li0%or are re0%ired to send <1. to the +overnment for ever! 'ottle of li0%or the! sell. F%rther3 s%ppose this ta1 ca%ses the price paid '! '%!ers of li0%or to rise '! < .6 per 'ottle. :hich of the follo*in+ statements is correctB a. The effective price received '! sellers is < .. per 'ottle less than it *as 'efore the ta1. '. Si1t! percent of the '%rden of the ta1 falls on sellers. c. This ta1 ca%ses the demand c%rve for li0%or to shift do*n*ard '! <1. at each 0%antit! of li0%or. d. All of the a'ove are correct. DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: A NAT: Anal!tic (S$: Anal!tical )5.
S%ppose there is c%rrentl! a ta1 of </ per tic-et on airline tic-ets. Sellers of airline tic-ets are re0%ired to pa! the ta1 to the +overnment. If the ta1 is red%ced from </ per tic-et to <, per tic-et3 then a. the demand c%rve *ill shift %p*ard '! <) 3 and the price paid '! '%!ers *ill decrease '! less than <) . '. the demand c%rve *ill shift %p*ard '! <) 3 and the price paid '! '%!ers *ill decrease '! <) . c. the s%ppl! c%rve *ill shift do*n*ard '! <) 3 and the effective price received '! sellers *ill increase '! less than <) . d. the s%ppl! c%rve *ill shift do*n*ard '! <) 3 and the effective price received '! sellers *ill increase '! <) . DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!
ANS: $ NAT: Anal!tic (S$: Anal!tical )6.
S%ppose there is c%rrentl! a ta1 of </ per tic-et on airline tic-ets. Sellers of airline tic-ets are re0%ired to pa! the ta1 to the +overnment. If the ta1 is red%ced from </ per tic-et to <, per tic-et3 then a. the demand c%rve *ill shift %p*ard '! <) 3 and the effective price received '! sellers *ill increase '! <) . '. the demand c%rve *ill shift %p*ard '! <) 3 and the effective price received '! sellers *ill increase '! less than <) . c. the s%ppl! c%rve *ill shift do*n*ard '! <) 3 and the price paid '! '%!ers *ill decrease '! <) . d. the s%ppl! c%rve *ill shift do*n*ard '! <) 3 and the price paid '! '%!ers *ill decrease '! less than <) . DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!
ANS: D NAT: Anal!tic (S$: Anal!tical , .
:hen a ta1 is levied on sellers of tea3 a. the *ell-'ein+ of 'oth sellers and '%!ers of tea is %naffected. '. sellers of tea are made *orse off and the *ell-'ein+ of '%!ers is %naffected. c. sellers of tea are made *orse off and '%!ers of tea are made 'etter off. d. sellers and '%!ers of tea 'oth are made *orse off. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es

,1. If a ta1 is levied on the '%!ers of a prod%ct3 then the s%ppl! c%rve a. *ill not shift. '. *ill shift %p. c. *ill shift do*n. d. *ill 'ecome flatter. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!
121
ANS: A NAT: Anal!tic (S$: Interpretive ,).
If a ta1 is levied on the '%!ers of a prod%ct3 then the demand c%rve a. *ill not shift. '. *ill shift do*n. c. *ill shift %p. d. *ill 'ecome flatter. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
ANS: ; NAT: Anal!tic (S$: Interpretive ,,.
If a ta1 is levied on the '%!ers of a prod%ct3 then there *ill 'e a@nA a. do*n*ard shift of the s%ppl! c%rve. '. %p*ard shift of the s%ppl! c%rve. c. movement %p and to the ri+ht alon+ the s%ppl! c%rve. d. movement do*n and to the left alon+ the s%ppl! c%rve. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 S%ppl!
ANS: D NAT: Anal!tic (S$: Interpretive ,..
If a ta1 is levied on the '%!ers of a prod%ct3 then there *ill 'e a@nA a. %p*ard shift of the demand c%rve. '. do*n*ard shift of the demand c%rve. c. movement %p and to the left alon+ the demand c%rve. d. movement do*n and to the ri+ht alon+ the demand c%rve. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
ANS: ; NAT: Anal!tic (S$: Interpretive ,/.
A ta1 on the '%!ers of TKs a. leads sellers to s%ppl! a smaller 0%antit! at ever! price. '. leads '%!ers to demand a smaller 0%antit! at ever! price. c. leads '%!ers to demand a lar+er 0%antit! at ever! price. d. ;oth @aA and @'A are correct. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
ANS: ; NAT: Anal!tic (S$: Interpretive ,6.
A ta1 on '%!ers *ill a. shift the demand c%rve %p*ards '! the amo%nt of the ta1. '. shift the demand c%rve do*n*ards '! the amo%nt of the ta1. c. shift the s%ppl! c%rve %p*ards '! the amo%nt of the ta1. d. shift the s%ppl! c%rve do*n*ards '! the amo%nt of the ta1. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
:hen a ta1 is imposed on the '%!ers of a +ood3 the demand c%rve shifts a. %p*ard '! the amo%nt of the ta1. '. do*n*ard '! the amo%nt of the ta1. c. %p*ard '! less than the amo%nt of the ta1. d. do*n*ard '! less than the amo%nt of the ta1.
12)

DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
A <). ta1 levied on the '%!ers of la*nmo*ers *ill shift the demand c%rve a. %p*ard '! e1actl! <). . '. %p*ard '! less than <). . c. do*n*ard '! e1actl! <). . d. do*n*ard '! less than <). . DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
ANS: $ NAT: Anal!tic (S$: Interpretive ,6. A< a. '. c. d.
.1 ta1 levied on the '%!ers of soc-s *ill ca%se the s%ppl! c%rve for soc-s to shift do*n '! < .1 . s%ppl! c%rve for soc-s to shift %p '! < .1 . demand c%rve for soc-s to shift do*n '! < .1 . demand c%rve for soc-s to shift %p '! < .1 . DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
ANS: $ NAT: Anal!tic (S$: Interpretive . .
A ta1 on the '%!ers of popcorn a. increases the si?e of the popcorn mar-et. '. decreases the si?e of the popcorn mar-et. c. has no effect on the si?e of the popcorn mar-et. d. ma! increase3 decrease3 or have no effect on the si?e of the popcorn mar-et. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
:hen a ta1 is placed on the '%!ers of a prod%ct3 a. '%!ers pa! more and sellers receive more than the! did 'efore the ta1. '. '%!ers pa! more and sellers receive less than the! did 'efore the ta1. c. '%!ers pa! less and sellers receive more than the! did 'efore the ta1. d. '%!ers pa! less and sellers receive less than the! did 'efore the ta1. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: ; NAT: Anal!tic (S$: Interpretive .).
A ta1 on the '%!ers of coffee *ill a. increase the price of coffee paid '! '%!ers3 decrease the effective price of coffee received '! sellers3 and decrease the e0%ili'ri%m 0%antit! of coffee. '. increase the price of coffee paid '! '%!ers3 decrease the effective price of coffee received '! sellers3 and increase the e0%ili'ri%m 0%antit! of coffee. c. increase the price of coffee paid '! '%!ers3 increase the effective price of coffee received '! sellers3 and decrease the e0%ili'ri%m 0%antit! of coffee. d. increase the price of coffee paid '! '%!ers3 increase the effective price of coffee received '! sellers3 and increase the e0%ili'ri%m 0%antit! of coffee. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: A NAT: Anal!tic (S$: Interpretive .,.
A ta1 imposed on the '%!ers of a +ood *ill a. raise the price paid '! '%!ers and lo*er the e0%ili'ri%m 0%antit!. '. raise the price paid '! '%!ers and raise the e0%ili'ri%m 0%antit!. c. raise the effective price received '! sellers and lo*er the e0%ili'ri%m 0%antit!. d. raise the effective price received '! sellers and raise the e0%ili'ri%m 0%antit!.

ANS: A NAT: Anal!tic (S$: Interpretive ... DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
12,
A ta1 imposed on the '%!ers of a +ood *ill a. lo*er the price paid '! '%!ers and lo*er the e0%ili'ri%m 0%antit!. '. lo*er the price paid '! '%!ers and raise the e0%ili'ri%m 0%antit!. c. lo*er the effective price received '! sellers and lo*er the e0%ili'ri%m 0%antit!. d. lo*er the effective price received '! sellers and raise the e0%ili'ri%m 0%antit!. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: $ NAT: Anal!tic (S$: Interpretive ./.
A ta1 imposed on the '%!ers of a +ood *ill a. raise 'oth the price '%!ers pa! and the effective price sellers receive. '. raise the price '%!ers pa! and lo*er the effective price sellers receive. c. lo*er the price '%!ers pa! and raise the effective price sellers receive. d. lo*er 'oth the price '%!ers pa! and the effective price sellers receive. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
:hen a ta1 is placed on the '%!ers of a prod%ct3 the a. si?e of the mar-et decreases. '. effective price received '! sellers decreases and the price paid '! '%!ers increases. c. demand for the prod%ct decreases. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
ANS: D NAT: Anal!tic (S$: Interpretive .2.
If the +overnment levies a </ ta1 per car on '%!ers of cars3 then the price paid '! '%!ers of cars *o%ld a. increase '! less than </ . '. increase '! e1actl! </ . c. increase '! more than </ . d. decrease '! an indeterminate amo%nt. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: A NAT: Anal!tic (S$: Interpretive .5.
If the +overnment levies a </ ta1 per car on '%!ers of cars3 then the price received '! sellers of cars *o%ld a. decrease '! more than </ . '. decrease '! e1actl! </ . c. decrease '! less than </ . d. increase '! an indeterminate amo%nt. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
:hen a ta1 is placed on the '%!ers of cell phones3 a. the si?e of the cell phone mar-et and the effective price received '! sellers 'oth decrease. '. the si?e of the cell phone mar-et decreases3 '%t the effective price received '! sellers increases. c. the si?e of the cell phone mar-et increases3 '%t the effective price received '! sellers decreases. d. the si?e of the cell phone mar-et and the effective price received '! sellers 'oth increase. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
12.
/ .

:hen a ta1 is placed on the '%!ers of cell phones3 a. the si?e of the cell phone mar-et and the price paid '! '%!ers 'oth decrease. '. the si?e of the cell phone mar-et decreases3 '%t the price paid '! '%!ers increases. c. the si?e of the cell phone mar-et increases3 '%t the price paid '! '%!ers decreases. d. the si?e of the cell phone mar-et and the price paid '! '%!ers 'oth increase. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
:hen a ta1 is placed on the '%!ers of lemonade3 a. the sellers 'ear the entire '%rden of the ta1. '. the '%!ers 'ear the entire '%rden of the ta1. c. the '%rden of the ta1 *ill 'e al*a!s 'e e0%all! divided 'et*een the '%!ers and the sellers. d. the '%rden of the ta1 *ill 'e shared '! the '%!ers and the sellers3 '%t the division of the '%rden is not al*a!s e0%al. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
ANS: D NAT: Anal!tic (S$: Interpretive /).
If a ta1 is levied on the '%!ers of s%+ar3 then a. '%!ers *ill 'ear the entire '%rden of the ta1. '. sellers *ill 'ear the entire '%rden of the ta1. c. '%!ers and sellers *ill share the '%rden of the ta1. d. the +overnment *ill 'ear the entire '%rden of the ta1. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
ANS: $ NAT: Anal!tic (S$: Interpretive /,.
If the +overnment passes a la* re0%irin+ '%!ers of motorc!cles to send </ to the +overnment for ever! motorc!cle the! '%!3 then a. the demand c%rve for motorc!cles shifts do*n*ard '! </ . '. '%!ers of motorc!cles pa! </ more per motorc!cle than the! *ere pa!in+ 'efore the ta1. c. sellers of motorc!cles are %naffected '! the ta1. d. All of the a'ove are correct. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
ANS: A NAT: Anal!tic (S$: Interpretive /..
S%ppose '%!ers of li0%or are re0%ired to send <1. to the +overnment for ever! 'ottle of li0%or the! '%!. F%rther3 s%ppose this ta1 ca%ses the effective price received '! sellers of li0%or to fall '! < .5 per 'ottle. :hich of the follo*in+ statements is correctB a. This ta1 ca%ses the demand c%rve for li0%or to shift do*n*ard '! <1. at each 0%antit! of li0%or. '. The price paid '! '%!ers is < .) per 'ottle more than it *as 'efore the ta1. c. Ei+ht! percent of the '%rden of the ta1 falls on sellers. d. All of the a'ove are correct.
ANS: D DIF: , REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: Ta1es 9 Demand 9 Ta1 incidence (S$: Anal!tical //. S%ppose '%!ers of li0%or are re0%ired to send <1. to the +overnment for ever! 'ottle of li0%or the! '%!. F%rther3 s%ppose this ta1 ca%ses the effective price received '! sellers of li0%or to fall '! < .6 per 'ottle. :hich of the follo*in+ statements is correctB a. This ta1 ca%ses the s%ppl! c%rve for li0%or to shift %p*ard '! <1. at each 0%antit! of li0%or. '. The price paid '! '%!ers is < .. per 'ottle more than it *as 'efore the ta1. c. Si1t! percent of the '%rden of the ta1 falls on '%!ers. d. All of the a'ove are correct. DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: ; NAT: Anal!tic (S$: Anal!tical

/6. S%ppose there is c%rrentl! a ta1 of </ per tic-et on airline tic-ets. ;%!ers of airline tic-ets are re0%ired to pa! the ta1 to the +overnment. If the ta1 is red%ced from </ per tic-et to <, per tic-et3 then a. the demand c%rve *ill shift %p*ard '! <) 3 and the price paid '! '%!ers *ill decrease '! less than <) . '. the demand c%rve *ill shift %p*ard '! <) 3 and the price paid '! '%!ers *ill decrease '! <) . c. the s%ppl! c%rve *ill shift do*n*ard '! <) 3 and the effective price received '! sellers *ill increase '! less than <) . d. the s%ppl! c%rve *ill shift do*n*ard '! <) 3 and the effective price received '! sellers *ill increase '! <) . DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
12/
ANS: A NAT: Anal!tic (S$: Anal!tical /2.
S%ppose there is c%rrentl! a ta1 of </ per tic-et on airline tic-ets. ;%!ers of airline tic-ets are re0%ired to pa! the ta1 to the +overnment. If the ta1 is red%ced from </ per tic-et to <, per tic-et3 then a. the demand c%rve *ill shift %p*ard '! <) 3 and the effective price received '! sellers *ill increase '! <) . '. the demand c%rve *ill shift %p*ard '! <) 3 and the effective price received '! sellers *ill increase '! less than <) . c. the s%ppl! c%rve *ill shift do*n*ard '! <) 3 and the price paid '! '%!ers *ill decrease '! <) . d. the s%ppl! c%rve *ill shift do*n*ard '! <) 3 and the price paid '! '%!ers *ill decrease '! less than <) . DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es 9 Demand
ANS: ; NAT: Anal!tic (S$: Anal!tical /5.
:hen a ta1 is levied on '%!ers of tea3 a. '%!ers of tea and sellers of tea 'oth are made *orse off. '. '%!ers of tea are made *orse off and the *ell-'ein+ of sellers is %naffected. c. '%!ers of tea are made *orse off and sellers of tea are made 'etter off. d. the *ell-'ein+ of 'oth '%!ers of tea and sellers of tea is %naffected. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: A NAT: Anal!tic (S$: Interpretive /6.
:hich of the follo*in+ statements is correct concernin+ the '%rden of a ta1 imposed on candlesB a. ;%!ers 'ear the entire '%rden of the ta1. '. Sellers 'ear the entire '%rden of the ta1. c. ;%!ers and sellers share the '%rden of the ta1. d. :e have to -no* *hether it is the '%!ers or the sellers that are re0%ired to pa! the ta1 to the +overnment in order to ma-e this determination. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
ANS: $ NAT: Anal!tic (S$: Interpretive 6 .
:hich of the follo*in+ is not correctB a. Ta1es levied on sellers and ta1es levied on '%!ers are not e0%ivalent. '. A ta1 places a *ed+e 'et*een the price that '%!ers pa! and the price that sellers receive. c. The *ed+e 'et*een the '%!ers> price and the sellers> price is the same3 re+ardless of *hether the ta1 is levied on '%!ers or sellers. d. In the ne* after-ta1 e0%ili'ri%m3 '%!ers and sellers share the '%rden of the ta1. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
126
61.

If the +overnment removes a ta1 on sellers of a +ood and imposes the same ta1 on '%!ers of the +ood3 then the price paid '! '%!ers *ill a. increase and the price received '! sellers *ill increase. '. increase and the price received '! sellers *ill not chan+e. c. not chan+e and the price received '! sellers *ill increase. d. not chan+e and the price received '! sellers *ill not chan+e. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: D NAT: Anal!tic (S$: Interpretive 6).
If the +overnment removes a ta1 on '%!ers of a +ood and imposes the same ta1 on sellers of the +ood3 then the price paid '! '%!ers *ill a. not chan+e and the price received '! sellers *ill not chan+e. '. not chan+e and the price received '! sellers *ill decrease. c. decrease and the price received '! sellers *ill not chan+e. d. decrease and the price received '! sellers *ill decrease. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: A NAT: Anal!tic (S$: Interpretive 6,.
In the final anal!sis3 ta1 incidence a. depends on the le+islated '%rden. '. is entirel! random. c. depends on the forces of s%ppl! and demand. d. falls entirel! on '%!ers or entirel! on sellers. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
ANS: $ NAT: Anal!tic (S$: Interpretive 6..
If the +overnment removes a ta1 on a +ood3 then the 0%antit! of the +ood sold *ill a. increase. '. decrease. c. not chan+e. d. All of the a'ove are possi'le. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
If the +overnment removes a ta1 on a +ood3 then the price paid '! '%!ers *ill a. increase and the price received '! sellers *ill increase. '. increase and the price received '! sellers *ill decrease. c. decrease and the price received '! sellers *ill increase. d. decrease and the price received '! sellers *ill decrease. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
:hich of the follo*in+ ca%ses a shorta+e of a +oodB a. a 'indin+ price floor '. a 'indin+ price ceilin+ c. a ta1 on the +ood d. (ore than one of the a'ove is correct. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: &rice ceilin+s 9 Shorta+es
ANS: ; NAT: Anal!tic (S$: Interpretive

62. :hich of the follo*in+ ca%ses a s%rpl%s of a +oodB a. a 'indin+ price floor '. a 'indin+ price ceilin+ c. a ta1 on the +ood d. (ore than one of the a'ove is correct. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: &rice floors 9 S%rpl%ses
122
:hich of the follo*in+ ca%ses the price paid '! '%!ers to 'e different than the price received '! sellersB a. a 'indin+ price floor '. a 'indin+ price ceilin+ c. a ta1 on the +ood d. (ore than one of the a'ove is correct. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
The price paid '! '%!ers in a mar-et *ill increase if the +overnment a. increases a 'indin+ price floor in that mar-et. '. increases a 'indin+ price ceilin+ in that mar-et. c. decreases a ta1 on the +ood sold in that mar-et. d. (ore than one of the a'ove is correct. DIF: , REF: "#$: S%ppl! and demand 6-) T#&: &rice ceilin+s 9 &rice floors
ANS: D NAT: Anal!tic (S$: Anal!tical 2 .
The price paid '! '%!ers in a mar-et *ill increase if the +overnment a. decreases a 'indin+ price floor in that mar-et. '. increases a 'indin+ price ceilin+ in that mar-et. c. decreases a ta1 on the +ood sold in that mar-et. d. imposes a 'indin+ price ceilin+ in that mar-et. DIF: , REF: "#$: S%ppl! and demand 6-) T#&: &rice ceilin+s
ANS: ; NAT: Anal!tic (S$: Anal!tical 21.
The price paid '! '%!ers in a mar-et *ill decrease if the +overnment a. increases a 'indin+ price floor in that mar-et. '. increases a 'indin+ price ceilin+ in that mar-et. c. decreases a ta1 on the +ood sold in that mar-et. d. (ore than one of the a'ove is correct. DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: $ NAT: Anal!tic (S$: Anal!tical 2).
The price paid '! '%!ers in a mar-et *ill decrease if the +overnment a. imposes a 'indin+ price floor in that mar-et. '. increases a 'indin+ price ceilin+ in that mar-et. c. increases a ta1 on the +ood sold in that mar-et. d. decreases a 'indin+ price floor in that mar-et. DIF: , REF: "#$: S%ppl! and demand 6-) T#&: &rice floors
ANS: D NAT: Anal!tic (S$: Anal!tical 2,.
The price received '! sellers in a mar-et *ill increase if the +overnment a. decreases a 'indin+ price floor in that mar-et. '. decreases a 'indin+ price ceilin+ in that mar-et. c. decreases a ta1 on the +ood sold in that mar-et. d. None of the a'ove is correct.
125

DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: $ NAT: Anal!tic (S$: Anal!tical 2..
The price received '! sellers in a mar-et *ill increase if the +overnment a. decreases a 'indin+ price floor in that mar-et. '. increases a 'indin+ price ceilin+ in that mar-et. c. increases a ta1 on the +ood sold in that mar-et. d. imposes a 'indin+ price ceilin+ in that mar-et. DIF: , REF: "#$: S%ppl! and demand 6-) T#&: &rice ceilin+s
ANS: ; NAT: Anal!tic (S$: Anal!tical 2/.
The price received '! sellers in a mar-et *ill decrease if the +overnment a. increases a 'indin+ price floor in that mar-et. '. increases a 'indin+ price ceilin+ in that mar-et. c. decreases a ta1 on the +ood sold in that mar-et. d. None of the a'ove is correct.
ANS: D DIF: , REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s 9 &rice floors 9 Ta1es (S$: Anal!tical 26. The price received '! sellers in a mar-et *ill decrease if the +overnment a. imposes a 'indin+ price floor in that mar-et. '. decreases a 'indin+ price ceilin+ in that mar-et. c. decreases a ta1 on the +ood sold in that mar-et. d. increases a 'indin+ price floor in that mar-et. DIF: , REF: "#$: S%ppl! and demand 6-) T#&: &rice ceilin+s
ANS: ; NAT: Anal!tic (S$: Anal!tical 22.
The 0%antit! sold in a mar-et *ill increase if the +overnment a. decreases a 'indin+ price floor in that mar-et. '. decreases a 'indin+ price ceilin+ in that mar-et. c. increases a ta1 on the +ood sold in that mar-et. d. (ore than one of the a'ove is correct. DIF: , REF: "#$: S%ppl! and demand 6-) T#&: &rice floors
ANS: A NAT: Anal!tic (S$: Anal!tical 25.
The 0%antit! sold in a mar-et *ill increase if the +overnment a. decreases a 'indin+ price floor in that mar-et. '. increases a 'indin+ price ceilin+ in that mar-et. c. decreases a ta1 on the +ood sold in that mar-et. d. (ore than one of the a'ove is correct.
ANS: D DIF: , REF: 6-) NAT: Anal!tic "#$: S%ppl! and demand T#&: &rice ceilin+s 9 &rice floors 9 Ta1es (S$: Anal!tical 26. The 0%antit! sold in a mar-et *ill decrease if the +overnment a. decreases a 'indin+ price floor in that mar-et. '. decreases a 'indin+ price ceilin+ in that mar-et. c. decreases a ta1 on the +ood sold in that mar-et. d. (ore than one of the a'ove is correct. DIF: , REF: "#$: S%ppl! and demand 6-) T#&: &rice ceilin+s

5 . The 0%antit! sold in a mar-et *ill decrease if the +overnment a. decreases a 'indin+ price floor in that mar-et. '. increases a 'indin+ price ceilin+ in that mar-et. c. increases a ta1 on the +ood sold in that mar-et. d. (ore than one of the a'ove is correct. DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
126
ANS: $ NAT: Anal!tic (S$: Anal!tical Figure 6-9

1 6 5 2 6 / . , ) 1 1 ) , . price
D D after ta1 / 6 2 5 quantity
51.
Re"er to Fi#ure 6$8. The e0%ili'ri%m price in the mar-et 'efore the ta1 is imposed is a. <1. '. <). c. </. d. <6. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: E0%ili'ri%m price
ANS: D NAT: Anal!tic (S$: Applicative 5).
Re"er to Fi#ure 6$8. As the fi+%re is dra*n3 *ho sends the ta1 pa!ment to the +overnmentB a. the '%!ers '. the sellers c. A portion of the ta1 pa!ment is sent '! the '%!ers and the remainin+ portion is sent '! the sellers. d. The 0%estion of *ho sends the ta1 pa!ment cannot 'e determined from the fi+%re. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: A NAT: Anal!tic (S$: Applicative 5,.
Re"er to Fi#ure 6$8. The price that '%!ers pa! after the ta1 is imposed is a. </. '. <6. c. <2. d. <5. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: D NAT: Anal!tic (S$: Applicative 5..
Re"er to Fi#ure 6$8. The effective price that sellers receive after the ta1 is imposed is a. </. '. <6. c. <2. d. <5.
15

ANS: A NAT: Anal!tic (S$: Applicative 5/.
Re"er to Fi#ure 6$8. The amo%nt of the ta1 per %nit is a. <1. '. <1./ . c. <). d. <,. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: D NAT: Anal!tic (S$: Applicative 56.
Re"er to Fi#ure 6$8. The '%rden of the ta1 on '%!ers is a. <1 per %nit. '. <1./ per %nit. c. <) per %nit. d. <, per %nit. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
ANS: $ NAT: Anal!tic (S$: Applicative 52.
Re"er to Fi#ure 6$8. The '%rden of the ta1 on sellers is a. <1 per %nit. '. <1./ per %nit. c. <) per %nit. d. <, per %nit. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
ANS: A NAT: Anal!tic (S$: Applicative 55.
Re"er to Fi#ure 6$8. S%ppose the same s%ppl! and demand c%rves appl! and a ta1 of the same amo%nt per %nit as sho*n here is imposed. No*3 ho*ever3 the sellers of the +ood3 rather than the '%!ers3 are re0%ired to pa! the ta1 to the +overnment. No*3 relative to the case depicted in the fi+%re3 a. the '%rden on '%!ers *ill 'e lar+er and the '%rden on sellers *ill 'e smaller. '. the '%rden on '%!ers *ill 'e smaller and the '%rden on sellers *ill 'e lar+er. c. the '%rden on '%!ers *ill 'e the same and the '%rden on sellers *ill 'e the same. d. The relative '%rdens in the t*o cases cannot 'e determined *itho%t f%rther information. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
ANS: $ NAT: Anal!tic (S$: Applicative 56.
Re"er to Fi#ure 6$8. Do* m%ch ta1 reven%e does this ta1 +enerate for the +overnmentB a. <1/ '. <15 c. <)/ d. <, DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 reven%e
ANS: A NAT: Anal!tic (S$: Applicative

Figure 6-10
) 15 16 1. 1) 1 5 6 . ) 1 ) , . / 6 2 5 6 D after ta1 1 11 1) 1, quantity D price S
151
6 .
Re"er to Fi#ure 6$%,. The price paid '! '%!ers after the ta1 is imposed is a. <5. '. <1 . c. <1.. d. <15. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
Re"er to Fi#ure 6$%,. The effective price received '! sellers after the ta1 is imposed is a. <5. '. <1 . c. <1.. d. <15. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: A NAT: Anal!tic (S$: Applicative 6).
Re"er to Fi#ure 6$%,. The amo%nt of the ta1 per %nit is a. <.. '. </. c. <6. d. <1 . DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: D NAT: Anal!tic (S$: Applicative 6,.
Re"er to Fi#ure 6$%,. The per-%nit '%rden of the ta1 is a. <. on '%!ers and <6 on sellers. '. </ on '%!ers and </ on sellers. c. <6 on '%!ers and <. on sellers. d. <1 on '%!ers and < on sellers. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
ANS: A NAT: Anal!tic (S$: Applicative 6..
Re"er to Fi#ure 6$%,. Do* m%ch ta1 reven%e does this ta1 prod%ce for the +overnmentB a. <.5 '. <6 c. <5 d. <11)
15)

DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 reven%e
ANS: ; NAT: Anal!tic (S$: Applicative Figure 6-11
6/.
Re"er to Fi#ure 6$%%. The e0%ili'ri%m price in the mar-et 'efore the ta1 is imposed is a. <,./ . '. </. c. <6. d. <2. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: E0%ili'ri%m price
ANS: ; NAT: Anal!tic (S$: Applicative 66.
Re"er to Fi#ure 6$%%. As the fi+%re is dra*n3 *ho sends the ta1 pa!ment to the +overnmentB a. the '%!ers '. the sellers c. A portion of the ta1 pa!ment is sent '! the '%!ers and the remainin+ portion is sent '! the sellers. d. The 0%estion of *ho sends the ta1 pa!ment cannot 'e determined from the fi+%re. DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: ; NAT: Anal!tic (S$: Applicative 62.
Re"er to Fi#ure 6$%%. The price paid '! '%!ers after the ta1 is imposed is a. <)./ . '. <,./ . c. </. . d. <6. . DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
Re"er to Fi#ure 6$%%. The effective price sellers receive after the ta1 is imposed is a. <)./ . '. <,./ . c. </. . d. <6. . DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
ANS: ; NAT: Anal!tic (S$: Applicative

66. Re"er to Fi#ure 6$%%. The amo%nt of the ta1 per %nit is a. <1. '. <1./ . c. <)./ . d. <,./ . DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
15,
ANS: $ NAT: Anal!tic (S$: Applicative 1
. Re"er to Fi#ure 6$%%. ;%!ers pa! ho* m%ch of the ta1 per %nitB a. <1. '. <1./ . c. <)./ . d. <,./ . DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
ANS: A NAT: Anal!tic (S$: Applicative
1 1. Re"er to Fi#ure 6$%%. Sellers pa! ho* m%ch of the ta1 per %nitB a. <1. . '. <1./ . c. <)./ . d. <,./ . ANS: ; NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
1 ). Re"er to Fi#ure 6$%%. S%ppose the same s%ppl! and demand c%rves appl! and a ta1 of the same amo%nt per %nit as sho*n here is imposed. No*3 ho*ever3 the '%!ers of the +ood3 rather than the sellers3 are re0%ired to pa! the ta1 to the +overnment. No*3 relative to the case depicted in the fi+%re3 a. the '%rden on '%!ers *ill 'e lar+er and the '%rden on sellers *ill 'e smaller. '. the '%rden on '%!ers *ill 'e smaller and the '%rden on sellers *ill 'e lar+er. c. the '%rden on '%!ers *ill 'e the same and the '%rden on sellers *ill 'e the same. d. The relative '%rdens in the t*o cases cannot 'e determined *itho%t f%rther information. ANS: $ NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
1 ,. Re"er to Fi#ure 6$%%. Do* m%ch ta1 reven%e does this ta1 +enerate for the +overnmentB a. <2/ '. <1)/ c. <12/ d. <, ANS: ; NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 reven%e
15.

price
Figure 6-12
6 5 2 6 / . , ) 1 ) . 6 5 1 1) D S S after ta1
1.
16
quantity
1 .. Re"er to Fi#ure 6$%0. The price paid '! '%!ers after the ta1 is imposed is a. <,. '. <.. c. </. d. <2. ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
1 /. Re"er to Fi#ure 6$%0. The effective price received '! sellers after the ta1 is imposed is a. <,. '. <.. c. </. d. <2. ANS: ; NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
1 6. Re"er to Fi#ure 6$%0' For ever! %nit of the +ood that is sold3 a. sellers are re0%ired to send one dollar to the +overnment and '%!ers are re0%ired to send t*o dollars to the +overnment. '. sellers are re0%ired to send t*o dollars to the +overnment and '%!ers are re0%ired to send one dollar to the +overnment. c. sellers are re0%ired to send three dollars to the +overnment and '%!ers are re0%ired to send nothin+ to the +overnment. d. sellers are re0%ired to send nothin+ to the +overnment and '%!ers are re0%ired to send t*o dollars to the +overnment. ANS: $ NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
1 2. Re"er to Fi#ure 6$%0' :hich of the follo*in+ is correctB a. #ne-fo%rth of the '%rden of the ta1 falls on '%!ers and three-fo%rths of the '%rden of the ta1 falls on sellers. '. #ne-third of the '%rden of the ta1 falls on '%!ers and t*o-thirds of the '%rden of the ta1 falls on sellers. c. #ne-half of the '%rden of the ta1 falls on '%!ers and one-half of the '%rden of the ta1 falls on sellers. d. T*o-thirds of the '%rden of the ta1 falls on '%!ers and one-third of the '%rden of the ta1 falls on sellers.

ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
15/
1 5. Re"er to Fi#ure 6$%0. Do* m%ch ta1 reven%e does this ta1 prod%ce for the +overnmentB a. <). '. <, c. <,) d. </6 ANS: A NAT: Anal!tic (S$: Applicative Figure 6-13 The vertical distance 'et*een points A and ; represents the ta1 in the mar-et.
price
6-) T#&: Ta1 reven%e
S ). A
16 1
quantity
1 6. Re"er to Fi#ure 6$%1. The price that '%!ers pa! after the ta1 is imposed is a. <5. '. <1 . c. <16. d. <).. ANS: D NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
11 . Re"er to Fi#ure 6$%1. The effective price that sellers receive after the ta1 is imposed is a. <6. '. <1 . c. <16. d. <).. ANS: ; NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
111. Re"er to Fi#ure 6$%1. The amo%nt of the ta1 per %nit is a. <6. '. <5. c. <1.. d. <15.
156

ANS: $ NAT: Anal!tic (S$: Applicative
11). Re"er to Fi#ure 6$%1. The per-%nit '%rden of the ta1 on '%!ers is a. <6. '. <5. c. <1.. d. <).. ANS: ; NAT: Anal!tic (S$: Applicative DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
11,. Re"er to Fi#ure 6$%1. The per-%nit '%rden of the ta1 on sellers is a. <6. '. <5. c. <1 . d. <1.. ANS: A NAT: Anal!tic (S$: Applicative Figure 6-14
price S
6-) T#&: Ta1 incidence
D / 1 quantity
11.. Re"er to Fi#ure 6$%2' S%ppose a ta1 of <) per %nit is imposed on this mar-et. :hat *ill 'e the ne* e0%ili'ri%m 0%antit! in this mar-etB a. less than / %nits '. / %nits c. 'et*een / %nits and 1 %nits d. +reater than 1 %nits ANS: $ NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
11/. Re"er to Fi#ure 6$%2' S%ppose a ta1 of <) per %nit is imposed on this mar-et. Do* m%ch *ill sellers receive per %nit after the ta1 is imposedB a. <, '. 'et*een <, and </ c. 'et*een </ and <2 d. <2 ANS: ; NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
152
116. Re"er to Fi#ure 6$%2' S%ppose a ta1 of <) per %nit is imposed on this mar-et. Do* m%ch *ill '%!ers pa! per %nit after the ta1 is imposedB a. <, '. 'et*een <, and </ c. 'et*een </ and <2 d. <2 ANS: $ NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
112. Re"er to Fi#ure 6$%2' S%ppose a ta1 of <) per %nit is imposed on this mar-et. :hich of the follo*in+ is correctB a. #ne-fo%rth of the '%rden of the ta1 *ill fall on '%!ers and three-fo%rths of the '%rden of the ta1 *ill fall on sellers. '. #ne-third of the '%rden of the ta1 *ill fall on '%!ers and t*o-thirds of the '%rden of the ta1 *ill fall on sellers. c. #ne-half of the '%rden of the ta1 *ill fall on '%!ers and one-half of the '%rden of the ta1 *ill fall on sellers. d. T*o-thirds of the '%rden of the ta1 *ill fall on '%!ers and one-third of the '%rden of the ta1 *ill fall on sellers. ANS: $ NAT: Anal!tic (S$: Anal!tical Figure 6-15
price S
DIF: , REF: "#$: S%ppl! and demand
6-) T#&: Ta1 incidence
1.
D )/ / quantity
115. Re"er to Fi#ure 6$%5' S%ppose a ta1 of </ per %nit is imposed on this mar-et. :hat *ill 'e the ne* e0%ili'ri%m 0%antit! in this mar-etB a. less than )/ %nits '. )/ %nits c. 'et*een )/ %nits and / %nits d. +reater than / %nits ANS: $ NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
116. Re"er to Fi#ure 6$%5' S%ppose a ta1 of </ per %nit is imposed on this mar-et. Do* m%ch *ill sellers receive per %nit after the ta1 is imposedB a. </ '. 'et*een </ and <1 c. 'et*een <1 and <1. d. <1.
155

DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
1) . Re"er to Fi#ure 6$%5' S%ppose a ta1 of </ per %nit is imposed on this mar-et. Do* m%ch *ill '%!ers pa! per %nit after the ta1 is imposedB a. </ '. 'et*een </ and <1 c. 'et*een <1 and <1. d. <1. ANS: $ NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1es
1)1. Re"er to Fi#ure 6$%5' S%ppose a ta1 of </ per %nit is imposed on this mar-et. :hich of the follo*in+ is correctB a. ;%!ers and sellers *ill share the '%rden of the ta1 e0%all!. '. ;%!ers *ill 'ear more of the '%rden of the ta1 than sellers *ill. c. Sellers *ill 'ear more of the '%rden of the ta1 than '%!ers *ill. d. An! of the a'ove is possi'le. ANS: $ NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence
1)). The federal +overnment %ses the reven%e from the FI$A @Federal Ins%rance $ontri'%tion ActA ta1 to pa! for a. %nemplo!ment compensation. '. the salaries of mem'ers of $on+ress. c. Social Sec%rit! and (edicare. d. ho%sin+ s%'sidies for lo*-income people. ANS: $ NAT: Anal!tic (S$: Definitional DIF: 1 REF: "#$: "a'or mar-ets 6-) T#&: FI$A ta1es
1),. The Federal Ins%rance $ontri'%tion Act @FI$AA ta1 is an e1ample of a. a pa!roll ta1. '. a sales ta1. c. a farm s%'sid!. d. an income s%'sid!. ANS: A NAT: Anal!tic (S$: Definitional DIF: 1 REF: "#$: "a'or mar-ets 6-) T#&: FI$A ta1es
1).. A pa!roll ta1 is a a. fi1ed n%m'er of dollars that ever! firm m%st pa! to the +overnment for each *or-er that the firm hires. '. ta1 that each firm m%st pa! to the +overnment 'efore the firm can hire *or-ers and operate its '%siness. c. ta1 on the *a+es that firms pa! their *or-ers. d. ta1 on all *a+es a'ove the minim%m *a+e. ANS: $ NAT: Anal!tic (S$: Definitional DIF: 1 REF: "#$: "a'or mar-ets 6-) T#&: &a!roll ta1es
1)/. $on+ress intended that a. the entire FI$A ta1 'e paid '! *or-ers. '. the entire FI$A ta1 'e paid '! firms. c. one-0%arter of the FI$A ta1 'e paid '! *or-ers3 and three-0%arters 'e paid '! firms. d. half the FI$A ta1 'e paid '! *or-ers3 and half 'e paid '! firms.

ANS: D NAT: Anal!tic (S$: Definitional DIF: 1 REF: "#$: "a'or mar-ets 6-) T#&: FI$A ta1es 9 Ta1 incidence
156
1)6. Altho%+h la*ma-ers le+islated a fift!-fift! division of the pa!ment of the FI$A ta13 a. the act%al ta1 incidence is %naffected '! the le+islated ta1 incidence. '. the emplo!er no* is re0%ired '! la* to pa! more than / percent of the ta1. c. the emplo!ee no* is re0%ired '! la* to pa! more than / percent of the ta1. d. emplo!ers are no lon+er re0%ired '! la* to pa! an! portion of the ta1. ANS: A NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: "a'or mar-ets 6-) T#&: FI$A ta1es 9 Ta1 incidence
1)2. :hen a pa!roll ta1 is enacted3 a. the *a+e received '! *or-ers falls and the *a+e paid '! firms rises. '. the *a+e received '! *or-ers falls and the *a+e paid '! firms falls. c. the *a+e received '! *or-ers rises and the *a+e paid '! firms falls. d. the *a+e received '! *or-ers rises and the *a+e paid '! firms rises. ANS: A NAT: Anal!tic (S$: Definitional DIF: 1 REF: "#$: "a'or mar-ets 6-) T#&: &a!roll ta1es 9 :a+es
1)5. A -e! lesson from the pa!roll ta1 is that the a. ta1 is a ta1 solel! on *or-ers. '. ta1 is a ta1 solel! on firms that hire *or-ers. c. ta1 eliminates an! *ed+e that mi+ht e1ist 'et*een the *a+e that firms pa! and the *a+e that *or-ers receive. d. tr%e '%rden of a ta1 cannot 'e le+islated. ANS: D NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: "a'or mar-ets 6-) T#&: &a!roll ta1es 9 Ta1 incidence
1)6. S%ppose that in a partic%lar mar-et3 the s%ppl! c%rve is hi+hl! elastic and the demand c%rve is hi+hl! inelastic. If a ta1 is imposed in this mar-et3 then a. the '%!ers *ill 'ear a +reater '%rden of the ta1 than the sellers. '. the sellers *ill 'ear a +reater '%rden of the ta1 than the '%!ers. c. the '%!ers and sellers are li-el! to share the '%rden of the ta1 e0%all!. d. the '%!ers and sellers *ill not share the '%rden e0%all!3 '%t it is impossi'le to determine *ho *ill 'ear the +reater '%rden of the ta1 *itho%t more information. ANS: A NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1, . If a ta1 is imposed on a mar-et *ith inelastic demand and elastic s%ppl!3 then a. '%!ers *ill 'ear most of the '%rden of the ta1. '. sellers *ill 'ear most of the '%rden of the ta1. c. the '%rden of the ta1 *ill 'e shared e0%all! 'et*een '%!ers and sellers. d. it is impossi'le to determine ho* the '%rden of the ta1 *ill 'e shared. ANS: A NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1,1. S%ppose that the demand for pict%re frames is inelastic and the s%ppl! of pict%re frames is elastic. A ta1 of <1 per frame levied on pict%re frames *ill increase the price paid '! '%!ers of pict%re frames '! a. less than < ./ . '. < ./ . c. 'et*een < ./ and <1. d. <1.
16

DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
ANS: $ NAT: Anal!tic (S$: Anal!tical
1,). S%ppose that the demand for pict%re frames is inelastic and the s%ppl! of pict%re frames is elastic. A ta1 of <1 per frame levied on pict%re frames *ill decrease the effective price received '! sellers of pict%re frames '! a. less than < ./ . '. < ./ . c. 'et*een < ./ and <1. d. <1. ANS: A NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1,,. In *hich of these cases *ill the ta1 '%rden fall most heavil! on '%!ers of the +oodB a. The demand c%rve is relativel! steep and the s%ppl! c%rve is relativel! flat. '. The demand c%rve is relativel! flat and the s%ppl! c%rve is relativel! steep. c. The demand c%rve and the s%ppl! c%rve are 'oth relativel! flat. d. The demand c%rve and the s%ppl! c%rve are 'oth relativel! steep. ANS: A NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1,.. ;%!ers of a +ood 'ear the lar+er share of the ta1 '%rden *hen a ta1 is placed on a prod%ct for *hich a. the s%ppl! is more elastic than the demand. '. the demand in more elastic than the s%ppl!. c. the ta1 is placed on the sellers of the prod%ct. d. the ta1 is placed on the '%!ers of the prod%ct. ANS: A NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1,/. S%ppose that a ta1 is placed on 'oo-s. If the '%!ers pa! the ma4orit! of the ta13 then *e -no* that the a. demand is more inelastic than the s%ppl!. '. s%ppl! is more inelastic than the demand. c. +overnment has re0%ired that '%!ers remit the ta1 pa!ments. d. +overnment has re0%ired that sellers remit the ta1 pa!ments. ANS: A NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1,6. S%ppose that in a partic%lar mar-et3 the demand c%rve is hi+hl! elastic and the s%ppl! c%rve is hi+hl! inelastic. If a ta1 is imposed in this mar-et3 then a. the '%!ers *ill 'ear a +reater '%rden of the ta1 than the sellers. '. the sellers *ill 'ear a +reater '%rden of the ta1 than the '%!ers. c. the '%!ers and sellers are li-el! to share the '%rden of the ta1 e0%all!. d. the '%!ers and sellers *ill not share the '%rden e0%all!3 '%t it is impossi'le to determine *ho *ill 'ear the +reater '%rden of the ta1 *itho%t more information. ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1,2. If a ta1 is imposed on a mar-et *ith inelastic s%ppl! and elastic demand3 then a. '%!ers *ill 'ear most of the '%rden of the ta1. '. sellers *ill 'ear most of the '%rden of the ta1. c. the '%rden of the ta1 *ill 'e shared e0%all! 'et*een '%!ers and sellers. d. it is impossi'le to determine ho* the '%rden of the ta1 *ill 'e shared.

ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
161
1,5. S%ppose that the demand for pict%re frames is elastic and the s%ppl! of pict%re frames is inelastic. A ta1 of <1 per frame levied on pict%re frames *ill increase the price paid '! '%!ers of pict%re frames '! a. less than < ./ . '. < ./ . c. 'et*een < ./ and <1. d. <1. ANS: A NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1,6. S%ppose that the demand for pict%re frames is elastic and the s%ppl! of pict%re frames is inelastic. A ta1 of <1 per frame levied on pict%re frames *ill decrease the effective price received '! sellers of pict%re frames '! a. less than < ./ . '. < ./ . c. 'et*een < ./ and <1. d. <1. ANS: $ NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1. . In *hich of these cases *ill the ta1 '%rden fall most heavil! on sellers of the +oodB a. The demand c%rve is relativel! steep and the s%ppl! c%rve is relativel! flat. '. The demand c%rve is relativel! flat and the s%ppl! c%rve is relativel! steep. c. The demand c%rve and the s%ppl! c%rve are 'oth relativel! flat. d. The demand c%rve and the s%ppl! c%rve are 'oth relativel! steep. ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1.1. Sellers of a +ood 'ear the lar+er share of the ta1 '%rden *hen a ta1 is placed on a prod%ct for *hich a. the s%ppl! is more elastic than the demand. '. the demand in more elastic than the s%ppl!. c. the ta1 is placed on the sellers of the prod%ct. d. the ta1 is placed on the '%!ers of the prod%ct. ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1.). S%ppose that a ta1 is placed on 'oo-s. If the sellers pa! the ma4orit! of the ta13 then *e -no* that the a. demand is more inelastic than the s%ppl!. '. s%ppl! is more inelastic than the demand. c. +overnment has re0%ired that '%!ers remit the ta1 pa!ments. d. +overnment has re0%ired that sellers remit the ta1 pa!ments. ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1.,. The demand for salt is inelastic and the s%ppl! of salt is elastic. The demand for caviar is elastic and the s%ppl! of caviar is inelastic. S%ppose that a ta1 of <1 per po%nd is levied on the sellers of salt and a ta1 of <1 per po%nd is levied on the '%!ers of caviar. :e *o%ld e1pect that most of the '%rden of these ta1es *ill fall on a. sellers of salt and the '%!ers of caviar. '. sellers of salt and the sellers of caviar. c. '%!ers of salt and the sellers of caviar. d. '%!ers of salt and the '%!ers of caviar.
16)

DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
ANS: $ NAT: Anal!tic (S$: Anal!tical
1... S%ppose the demand for macaroni is inelastic and the s%ppl! of macaroni is elastic3 and the demand for ci+arettes is inelastic and the s%ppl! of ci+arettes is elastic. If a ta1 *ere levied on the sellers of 'oth of these commodities3 *e *o%ld e1pect that the a. '%rden of 'oth ta1es *o%ld fall more heavil! on the '%!ers than on the sellers. '. '%rden of the macaroni ta1 *o%ld fall more heavil! on the sellers than on the '%!ers3 and the '%rden of the ci+arette ta1 *o%ld fall more heavil! on the '%!ers than on the sellers. c. '%rden of the macaroni ta1 *o%ld fall more heavil! on the '%!ers than on the sellers3 and the '%rden of the ci+arette ta1 *o%ld fall more heavil! on the sellers than on the '%!ers. d. '%rden of 'oth ta1es *o%ld fall more heavil! on the sellers than on the '%!ers. ANS: A NAT: Anal!tic (S$: Anal!tical DIF: , REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1./. :hich of the follo*in+ is correctB a. A ta1 '%rden falls more heavil! on the side of the mar-et that is more elastic. '. A ta1 '%rden falls more heavil! on the side of the mar-et that is less elastic. c. A ta1 '%rden falls more heavil! on the side of the mar-et that is closer to %nit elastic. d. A ta1 '%rden is distri'%ted independentl! of the relative elasticities of s%ppl! and demand. ANS: ; NAT: Anal!tic (S$: Definitional DIF: 1 REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1.6. A ta1 '%rden falls more heavil! on the side of the mar-et that a. has a fe*er n%m'er of participants. '. is more inelastic. c. is closer to %nit elastic. d. is less inelastic. ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1.2. :hich of the follo*in+ statements is tr%eB a. A ta1 levied on '%!ers *ill never 'e partiall! paid '! sellers. '. :ho act%all! pa!s a ta1 depends on the price elasticities of s%ppl! and demand. c. 8overnment can decide *ho act%all! pa!s a ta1. d. A ta1 levied on sellers al*a!s *ill 'e passed on completel! to '%!ers. ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1.5. If the +overnment *ants to red%ce smo-in+3 it sho%ld impose a ta1 on a. '%!ers of ci+arettes. '. sellers of ci+arettes. c. either '%!ers or sellers of ci+arettes. d. *hichever side of the mar-et is less elastic. ANS: $ NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1es

Figure 6-16 Panel 3a4
price S price S
16,
Panel 3/4
quantity
quantity
Panel 3c4
price S
quantity
1.6. Re"er to Fi#ure 6$%6. In *hich mar-et *ill the ma4orit! of the ta1 '%rden fall on '%!ersB a. mar-et @aA '. mar-et @'A c. mar-et @cA d. All of the a'ove are correct. ANS: ; NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1/ . Re"er to Fi#ure 6$%6. In *hich mar-et *ill the ma4orit! of the ta1 '%rden fall on sellersB a. mar-et @aA '. mar-et @'A c. mar-et @cA d. All of the a'ove are correct. ANS: A NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 reven%e 9 Elasticit!
16.
1/1. Re"er to Fi#ure 6$%6. In *hich mar-et *ill the ta1 '%rden 'e most e0%all! divided 'et*een '%!ers and sellersB a. mar-et @aA '. mar-et @'A c. mar-et @cA d. All of the a'ove are correct. ANS: $ NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: Ta1 incidence 9 Elasticit!
1/). (ost la'or economists 'elieve that the s%ppl! of la'or is a. less elastic than the demand and3 therefore3 firms 'ear most of the '%rden of the pa!roll ta1. '. less elastic than the demand and3 therefore3 *or-ers 'ear most of the '%rden of the pa!roll ta1. c. more elastic than the demand and3 therefore3 *or-ers 'ear most of the '%rden of the pa!roll ta1. d. more elastic than the demand and3 therefore3 firms 'ear most of the '%rden of the pa!roll ta1. ANS: ; DIF: ) REF: NAT: Anal!tic "#$: "a'or mar-ets T#&: &a!roll ta1es 9 Ta1 incidence 9 Elasticit! 6-) (S$: Interpretive
1/,. "a*ma-ers desi+ned the '%rden of the FI$A pa!roll ta1 to 'e split evenl! 'et*een *or-ers and firms. "a'or economists 'elieve that a. la*ma-ers ma! have act%all! achieved their +oal3 since statistics sho* that the ta1 '%rden is c%rrentl! e0%all! divided. '. the ta1 raises too little reven%e for the +overnment and so it sho%ld 'e eliminated. c. firms 'ear most of the '%rden of the ta1. d. *or-ers 'ear most of the '%rden of the ta1. ANS: D NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: "a'or mar-ets 6-) T#&: FI$A ta1es 9 Ta1 incidence
1/.. In 166 3 $on+ress passed a ne* l%1%r! ta1 on items s%ch as !achts3 private airplanes3 f%rs3 4e*elr!3 and e1pensive cars. The +oal of the ta1 *as to a. raise reven%e from the *ealth!. '. prevent *ealth! people from '%!in+ l%1%ries. c. force prod%cers of l%1%r! +oods to red%ce emplo!ment. d. limit e1ports of l%1%r! +oods to other co%ntries. ANS: A NAT: Anal!tic (S$: Definitional DIF: 1 REF: "#$: S%ppl! and demand 6-) T#&: "%1%r! ta1
1//. :hich of the follo*in+ *as not a res%lt of the l%1%r! ta1 imposed '! $on+ress in 166 B a. The lar+er part of the ta1 '%rden fell on sellers. '. A lar+er part of the ta1 '%rden fell on the middle class than on the rich. c. Even the *ealth! demanded fe*er l%1%r! +oods. d. The ta1 *as never repealed or even modified. ANS: D NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: "%1%r! ta1 9 Ta1 incidence
1/6. The '%rden of a l%1%r! ta1 falls a. more on the rich than on the middle class. '. more on the poor than on the rich. c. more on the middle class than on the rich. d. e0%all! on the rich3 the middle class3 and the poor. ANS: $ NAT: Anal!tic (S$: Interpretive DIF: ) REF: "#$: S%ppl! and demand 6-) T#&: "%1%r! ta1 9 Ta1 incidence

Chapter 6

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Chapter 6

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Chapter 6 Supply, Demand, and Government Policies

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

&rice ceilin+s 9 Shorta+es

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

&rice floors 9 S%rpl%ses

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

Economists 9 (inim%m *a+e

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

&a!roll ta1 incidence

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

DIF: ) REF: "#$: S%ppl! and demand (S$: Applicative ,.

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

DIF: ) REF: "#$: S%ppl! and demand (S$: Applicative ..

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

DIF: ) REF: "#$: S%ppl! and demand (S$: Applicative /.

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

DIF: ) REF: "#$: S%ppl! and demand (S$: Applicative

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

Sec,, $ Supply, Demand, and Government Policies

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

ANS: $ NAT: Anal!tic (S$: Definitional ..

ANS: ; NAT: Anal!tic (S$: Interpretive /.

ANS: $ NAT: Anal!tic (S$: Interpretive 6.

ANS: $ NAT: Anal!tic (S$: Interpretive 2.

ANS: ; NAT: Anal!tic (S$: Definitional

$hapter 67S%ppl!3 Demand3 and 8overnment &olicies

Sec,% $ Supply, Demand, and Government Policies $ Controls on Prices

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