Chapter 6 Supply, Demand, and Government Policies

Test A
1

Price controls are a. established by firms with monopoly power. b. used to make markets more efficient. c. nearly always effective in eliminating inequities. d. usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers. ANSW !" d. usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers. #$P " % & $1" ' ()* +#,- " 1 !AN'(%" $
.

A legal minimum price at which a good can be sold is a price a. cut. b. floor. c. ceiling. d. stabili/ation. ANSW !" b. floor. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " 1 !AN'(%" $
0

,f a price ceiling is a binding constraint on the market1 a. the forces of supply and demand must be in equilibrium. b. the equilibrium price must be below the price ceiling. c. the equilibrium price must be above the price ceiling. d. it will have no effect on supply or demand. ANSW !" c. the equilibrium price must be above the price ceiling. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " 1 !AN'(%" $
2

A binding price ceiling is imposed on the market for peaches. At the ceiling price1 the quantity demanded of peaches will be a. greater than the quantity supplied. b. smaller than the quantity supplied. c. equal to the quantity supplied. d. artificially restricted by the price ceiling. ANSW !" a. greater than the quantity supplied. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " 1 !AN'(%" $
3

A binding price ceiling will make it necessary to a. supply more of the product. b. increase demand for the product1 because there will be a surplus. c. develop a better marketing plan1 because there will be a surplus. d. develop a way of rationing the product1 because there will be a shortage. ANSW !" d. develop a way of rationing the product1 because there will be a shortage. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " 1 !AN'(%" $

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37 +hapter 89Supply1 'emand1 and :overnment Policies

According to the graph shown1 if the government imposes a binding price ceiling in this market at a price of ;3.<<1 the result would be a a. surplus of .< units. b. surplus of 2< units. c. shortage of .< units. d. shortage of 0< units. ANSW !" c. shortage of .< units. #$P " % & $1" : S +#,(N" 1 ()* +#,- " 1 :!AP5 =(!%A#" % ,NS#!>+#,(N" 1 !AN'(%"

According to the graph shown1 a binding price floor would e?ist at a price of a. ;..<<. b. ;3.<<. c. ;8.<<. d. none of the above. ANSW !" c. ;8.<<. #$P " % & $1" : S +#,(N" 1 ()* +#,- " . :!AP5 =(!%A#" % ,NS#!>+#,(N" 1 !AN'(%"

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7

A price floor is binding if it is a. set by the government. b. higher than the equilibrium market price. c. lower than the equilibrium market price. d. equal to the equilibrium market price. ANSW !" b. higher than the equilibrium market price. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " . !AN'(%" $
@

#he minimum wage is an e?ample of a. a price floor. b. a price ceiling. c. a freeAmarket process. d. an efficient labor allocation mechanism. ANSW !" a. a price floor. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " . !AN'(%" $
1<

,f the minimum wage is above the equilibrium wage1 a. anyone who wants a Bob at the minimum wage can find one. b. the quantity demanded of labor will be greater than the quantity supplied. c. the quantity demanded of labor will equal the quantity supplied. d. the quantity demanded of labor will be less than the quantity supplied. ANSW !" d. the quantity demanded of labor will be less than the quantity supplied. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " . !AN'(%" $
11

#he term ta? incidence refers to the a. )oston #ea Party. b. Cflat ta?D movement. c. division of the ta? burden between sales ta?es and income ta?es. d. division of the ta? burden between buyers and sellers. ANSW !" d. division of the ta? burden between buyers and sellers. #$P " % & $1" ' S +#,(N" . ()* +#,- " 0 !AN'(%" $

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8< +hapter 89Supply1 'emand1 and :overnment Policies

1.

According to the graph1 the price buyers will pay after the ta? is imposed is a. ;0.<<. b. ;3.<<. c. ;8.<<. d. ;7.<<. ANSW !" d. ;7.<<. #$P " % & $1" : S +#,(N" . ()* +#,- " 0 :!AP5 =(!%A#" % ,NS#!>+#,(N" 2 !AN'(%" N
10

According to the graph1 the price sellers receive after the ta? is imposed is a. ;0.<<. b. ;3.<<. c. ;8.<<. d. ;7.<<. ANSW !" b. ;3.<<. #$P " % & $1" : S +#,(N" . ()* +#,- " 0 :!AP5 =(!%A#" % ,NS#!>+#,(N" 2 !AN'(%" N
12

According to the graph1 the amount of the ta? imposed in this market is a. ;1.<<. b. ;1.3<. c. ;0.<<. d. ;3.<<. ANSW !" c. ;0.<<. #$P " % & $1" : S +#,(N" . ()* +#,- " 0 :!AP5 =(!%A#" % ,NS#!>+#,(N" 2 !AN'(%" N
13

According to the graph1 the amount of the ta? that buyers would pay would be a. ;1.<<. b. ;..<<. c. ;0.<<. d. ;2.<<. ANSW !" b. ;..<<. #$P " % & $1" : S +#,(N" . ()* +#,- " 0 :!AP5 =(!%A#" % ,NS#!>+#,(N" 2 !AN'(%" N
18

According to the graph1 the amount of the ta? that sellers would pay would be a. ;1.<<. b. ;..<<. c. ;0.<<. d. ;2.<<. ANSW !" a. ;1.<<. #$P " % & $1" : S +#,(N" . ()* +#,- " 0 :!AP5 =(!%A#" % ,NS#!>+#,(N" 2 !AN'(%" N
16

A ta? on the buyers of popcorn a. reduces the si/e of the popcorn market. b. increases the si/e of the popcorn market. c. has no effect on the si/e of the popcorn market. d. may increase1 decrease1 or have no effect on the si/e of the popcorn market. ANSW !" a. reduces the si/e of the popcorn market. #$P " % & $1" + S +#,(N" . ()* +#,- " 0 !AN'(%" $
17

A ta? on the sellers of popcorn a. causes the supply curve to shift to the right. b. leads sellers to supply a smaller quantity at every price. c. leads buyers to demand a smaller quantity at every price. d. leads sellers to supply a larger quantity at every price. ANSW !" b. leads sellers to supply a smaller quantity at every price. #$P " % & $1" + S +#,(N" . ()* +#,- " 0 !AN'(%" $

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+hapter 89Supply1 'emand1 and :overnment Policies 81

1@

A ta? of ;.1< per bag on the sellers of popcorn will cause the a. supply curve of popcorn to shift up by ;.1< per bag. b. supply curve of popcorn to shift down by ;.<3 per bag. c. demand curve of popcorn to shift up by ;.1< per bag. d. supply curve of popcorn to shift down by ;.1< per bag. ANSW !" a. supply curve of popcorn to shift up by ;.1< per bag. #$P " % & $1" + S +#,(N" . ()* +#,- " 0 !AN'(%" $
.<

A ta? on the sellers of popcorn will a. reduce the equilibrium price of popcorn1 and increase the equilibrium quantity. b. reduce the equilibrium price of popcorn1 and reduce the equilibrium quantity. c. increase the equilibrium price of popcorn1 and reduce the equilibrium quantity. d. increase the equilibrium price of popcorn1 and increase the equilibrium quantity. ANSW !" c. increase the equilibrium price of popcorn1 and reduce the equilibrium quantity. #$P " % & $1" + S +#,(N" . ()* +#,- " 0 !AN'(%" $
.1

A ta? on the sellers of popcorn will cause the price the buyers pay a. and the effective price the sellers receive to rise. b. and the effective price the sellers receive to fall. c. to fall1 and the price the sellers receive to rise. d. to rise1 and the effective price the sellers receive to fall. ANSW !" d. to rise1 and the effective price the sellers receive to fall. #$P " % & $1" + S +#,(N" . ()* +#,- " 0 !AN'(%" $
..

What is true about the burden of a ta? imposed on popcornE a. Sellers bear the entire burden of the ta?. b. )uyers bear the entire burden of the ta?. c. )uyers and sellers share the burden of the ta?. d. #he government bears the entire burden of the ta?. ANSW !" c. )uyers and sellers share the burden of the ta?. #$P " % & $1" ' S +#,(N" . ()* +#,- " 0 !AN'(%" $
.0

#he key feature of a payroll ta? is that it a. is a ta? on corporations. b. is a ta? on poor people. c. does not affect equilibrium in labor markets. d. places a wedge between the wage that firms pay and the wage that workers receive. ANSW !" d. places a wedge between the wage that firms pay and the wage that workers receive. #$P " % & $1" ' S +#,(N" . ()* +#,- " 2 !AN'(%" $
.2

,f a ta? is imposed on a market with inelastic demand and elastic supply1 a. sellers will bear most of the burden of the ta?. b. buyers will bear most of the burden of the ta?. c. the burden of the ta? will be shared equally between buyers and sellers. d. it is impossible to determine how the burden of the ta? will be shared. ANSW !" b. buyers will bear most of the burden of the ta?. #$P " % & $1" + S +#,(N" . ()* +#,- " 3 !AN'(%" $
.3

Which of the following is the most correct statement about ta? burdensE a. A ta? burden falls most heavily on the side of the market that is closer to unit elastic. b. A ta? burden is distributed independently of relative elasticities of supply and demand. c. A ta? burden falls most heavily on the side of the market that is elastic. d. A ta? burden falls most heavily on the side of the market that is inelastic. ANSW !" d. A ta? burden falls most heavily on the side of the market that is inelastic. #$P " % & $1" ' S +#,(N" . ()* +#,- " 3 !AN'(%" $

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8. +hapter 89Supply1 'emand1 and :overnment Policies

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ANSW !" d. usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers. #$P " % & $1" ' ()* +#,- " 1 !AN'(%" $
.

ANSW !" b. floor. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " 1 !AN'(%" $
0

ANSW !" c. the equilibrium price must be above the price ceiling. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " 1 !AN'(%" $
2

ANSW !" a. greater than the quantity supplied. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " 1 !AN'(%" $
3

ANSW !" d. develop a way of rationing the product1 because there will be a shortage. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " 1 !AN'(%" $
8

ANSW !" c. shortage of .< units. #$P " % & $1" : S +#,(N" 1 ()* +#,- " 1 :!AP5 =(!%A#" % ,NS#!>+#,(N" 1 !AN'(%"
6

ANSW !" c. ;8.<<. #$P " % & $1" : S +#,(N" 1 ()* +#,- " . :!AP5 =(!%A#" % ,NS#!>+#,(N" 1 !AN'(%"
7

ANSW !" b. higher than the equilibrium market price. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " . !AN'(%" $
@

ANSW !" a. a price floor. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " . !AN'(%" $
1<

ANSW !" d. the quantity demanded of labor will be less than the quantity supplied. #$P " % & $1" ' S +#,(N" 1 ()* +#,- " . !AN'(%" $
11

ANSW !" d. division of the ta? burden between buyers and sellers. #$P " % & $1" ' S +#,(N" . ()* +#,- " 0 !AN'(%" $
1.

ANSW !" d. ;7.<<. #$P " % & $1" : S +#,(N" . ()* +#,- " 0 :!AP5 =(!%A#" % ,NS#!>+#,(N" 2 !AN'(%" N
10

ANSW !" b. ;3.<<. #$P " % & $1" : S +#,(N" . ()* +#,- " 0 :!AP5 =(!%A#" % ,NS#!>+#,(N" 2 !AN'(%" N
12

ANSW !" c. ;0.<<. #$P " % & $1" : S +#,(N" . ()* +#,- " 0 :!AP5 =(!%A#" % ,NS#!>+#,(N" 2 !AN'(%" N

13

ANSW !" b. ;..<<. #$P " % & $1" : S +#,(N" . ()* +#,- " 0 :!AP5 =(!%A#" % ,NS#!>+#,(N" 2 !AN'(%" N
18

ANSW !" a. ;1.<<. #$P " % & $1" : S +#,(N" . ()* +#,- " 0 :!AP5 =(!%A#" % ,NS#!>+#,(N" 2 !AN'(%" N
16

ANSW !" a. reduces the si/e of the popcorn market. #$P " % & $1" + S +#,(N" . ()* +#,- " 0 !AN'(%" $
17

ANSW !" b. leads sellers to supply a smaller quantity at every price. #$P " % & $1" + S +#,(N" . ()* +#,- " 0 !AN'(%" $
1@

ANSW !" a. supply curve of popcorn to shift up by ;.1< per bag. #$P " % & $1" + S +#,(N" . ()* +#,- " 0 !AN'(%" $
.<

ANSW !" c. increase the equilibrium price of popcorn1 and reduce the equilibrium quantity. #$P " % & $1" + S +#,(N" . ()* +#,- " 0 !AN'(%" $
.1

ANSW !" d. to rise1 and the effective price the sellers receive to fall. #$P " % & $1" + S +#,(N" . ()* +#,- " 0 !AN'(%" $
..

ANSW !" c. )uyers and sellers share the burden of the ta?. #$P " % & $1" ' S +#,(N" . ()* +#,- " 0 !AN'(%" $
.0

ANSW !" d. places a wedge between the wage that firms pay and the wage that workers receive. #$P " % & $1" ' S +#,(N" . ()* +#,- " 2 !AN'(%" $
.2

ANSW !" b. buyers will bear most of the burden of the ta?. #$P " % & $1" + S +#,(N" . ()* +#,- " 3 !AN'(%" $
.3

ANSW !" d. A ta? burden falls most heavily on the side of the market that is inelastic. #$P " % & $1" ' S +#,(N" . ()* +#,- " 3 !AN'(%" $