Question 1

Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of picture frames by

Accepted Answer

A)  less than $0.50.
B)  $0.50.
C)  between $0.50 and $1.
D)  $1.E) A) and D)
F) A) and C)

Question 2

If a tax is imposed on a market with inelastic demand and elastic supply, then

Accepted Answer

A)  buyers will bear most of the burden of the tax.
B)  sellers will bear most of the burden of the tax.
C)  the burden of the tax will be shared equally between buyers and sellers.
D)  it is impossible to determine how the burden of the tax will be shared.E) B) and D)
F) C) and D)

Question 3

A price ceiling caused the gasoline shortage of 1973 in the United States.

Accepted Answer

A) True 
 B)False

Question 4

Figure 6-23 
-Refer to Figure 6-23. How much tax revenue does this tax produce for the government?

Accepted Answer

A)  $480
B)  $600
C)  $800
D)  $1120E) A) and B)
F) A) and C)

Question 5

The tax burden falls more heavily on the side of the market that is more inelastic.

Accepted Answer

A) True 
 B)False

Question 6

A price ceiling is a legal minimum on the price at which a good or service can be sold.

Accepted Answer

A) True 
 B)False

Question 7

When free markets ration goods with prices, it is both efficient and impersonal.

Accepted Answer

A) True 
 B)False

Question 8

Price controls often hurt those they are trying to help.

Accepted Answer

A) True 
 B)False

Question 9

Figure 6-17 
-Refer to Figure 6-17. Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and then pays the tax on that unit to the government. Acme is left with how much money?

Accepted Answer

A)  $8.00
B)  $9.00
C)  $10.50
D)  $12.00E) C) and D)
F) A) and C)

Question 10

Price ceilings and price floors that are binding

Accepted Answer

A)  are desirable because they make markets more efficient and more fair.
B)  cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price.
C)  can have the effect of restoring a market to equilibrium.
D)  are imposed because they can make the poor in the economy better off without causing adverse effects.E) A) and C)
F) A) and D)

Question 11

A nonbinding price floor (i) 
Causes a surplus.(ii) 
Causes a shortage.(iii) 
Is set at a price above the equilibrium price.(iv) 
Is set at a price below the equilibrium price.

Accepted Answer

A)  (iii)  only
B)  (iv)  only
C)  (i)  and (iii)  only
D)  (ii)  and (iv)  onlyE) A) and B)
F) B) and D)

Question 12

A binding price ceiling may not help all consumers, but it does not hurt any consumers.

Accepted Answer

A) True 
 B)False

Question 13

Figure 6-21 
-Refer to Figure 6-21. As the figure is drawn, who sends the tax payment to the government?

Accepted Answer

A)  The buyers send the tax payment.
B)  The sellers send the tax payment.
C)  A portion of the tax payment is sent by the buyers, and the remaining portion is sent by the sellers.
D)  The question of who sends the tax payment cannot be determined from the figure.E) B) and C)
F) A) and D)

Question 14

The minimum wage is more often binding for teenagers than for other members of the labor force.

Accepted Answer

A) True 
 B)False

Question 15

A price floor set above the equilibrium price causes a surplus in the market.

Accepted Answer

A) True 
 B)False

Question 16

Figure 6-18 
-Refer to Figure 6-18. The amount of the tax per unit is

Accepted Answer

A)  $1.
B)  $1.50.
C)  $2.50.
D)  $3.50.E) A) and B)
F) A) and C)

Question 17

If the government removes a binding price floor from a market, then the price paid by buyers will

Accepted Answer

A)  increase, and the quantity sold in the market will increase.
B)  increase, and the quantity sold in the market will decrease.
C)  decrease, and the quantity sold in the market will increase.
D)  decrease, and the quantity sold in the market will decrease.E) B) and D)
F) B) and C)

Question 18

A payroll tax is a

Accepted Answer

A)  fixed number of dollars that every firm must pay to the government for each worker that the firm hires.
B)  tax that each firm must pay to the government before the firm can hire workers and operate its business.
C)  tax on the wages that firms pay their workers.
D)  tax on all wages above the minimum wage.E) A) and D)
F) None of the above

Question 19

Figure 6-21 
-Refer to Figure 6-21. The burden of the tax on buyers is

Accepted Answer

A)  $1 per unit.
B)  $1.50 per unit.
C)  $2 per unit.
D)  $3 per unit.E) A) and D)
F) None of the above

Question 20

Advocates of the minimum wage admit that it has some adverse effects, but they believe that these effects are small and that a higher minimum wage makes the poor better off.

Accepted Answer

A) True 
 B)False

Exam 6: Supply, Demand, and Government Policies

Price controls often hurt those they are trying to help.

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Price ceilings and price floors that are binding

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The tax burden falls more heavily on the side of the market that is more inelastic.

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Figure 6-18 -Refer to Figure 6-18. The amount of the tax per unit is

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Advocates of the minimum wage admit that it has some adverse effects, but they believe that these effects are small and that a higher minimum wage makes the poor better off.

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A binding price ceiling may not help all consumers, but it does not hurt any consumers.

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Figure 6-23 -Refer to Figure 6-23. How much tax revenue does this tax produce for the government?

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A price ceiling is a legal minimum on the price at which a good or service can be sold.

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When free markets ration goods with prices, it is both efficient and impersonal.

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Figure 6-21 -Refer to Figure 6-21. The burden of the tax on buyers is

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A nonbinding price floor (i) Causes a surplus.(ii) Causes a shortage.(iii) Is set at a price above the equilibrium price.(iv) Is set at a price below the equilibrium price.

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Figure 6-17 -Refer to Figure 6-17. Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and then pays the tax on that unit to the government. Acme is left with how much money?

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Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of picture frames by

Correct AnswerverifiedShow Answer

The minimum wage is more often binding for teenagers than for other members of the labor force.

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A payroll tax is a

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Figure 6-21 -Refer to Figure 6-21. As the figure is drawn, who sends the tax payment to the government?

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If the government removes a binding price floor from a market, then the price paid by buyers will

Correct AnswerverifiedShow Answer

A price ceiling caused the gasoline shortage of 1973 in the United States.

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If a tax is imposed on a market with inelastic demand and elastic supply, then

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A price floor set above the equilibrium price causes a surplus in the market.

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