Question 1

A tax wedge:

Accepted Answer

A)  refers to the difference in the price the buyer pays and the price the sellers keep.
B)  only occurs in markets when the tax is placed on sellers.
C)  only occurs in markets when the tax is placed on buyers.
D)  only occurs in markets when taxes are placed on large corporations.E) C) and D)
F) All of the above

Question 2

Governments tend to set price ceilings:

Accepted Answer

A)  to ensure everyone can afford certain goods.
B)  to ensure producers make enough for everyone.
C)  to ensure producers make enough profit to stay in the industry.
D)  to prevent consumers from choosing the wrong goods.E) All of the above
F) A) and C)

Question 3

An effective price floor:

Accepted Answer

A)  must be set above the equilibrium price,and will likely cause a shortage.
B)  must be set below the equilibrium price,and will likely cause a shortage.
C)  must be set above the equilibrium price,and will likely cause a surplus.
D)  must be set below the equilibrium price,and will likely cause a surplus.E) None of the above
F) All of the above

Question 4

A tax on sellers has what effect on a market?

Accepted Answer

A)  Supply shifts vertically upward by the amount of the tax.
B)  Demand does not change.
C)  Equilibrium price increases and equilibrium quantity decreases.
D)  All of these are effects of a sellers' tax.E) A) and B)
F) B) and C)

Question 5

When a tax is placed on sellers:

Accepted Answer

A)  sellers always bear a higher incidence than buyers.
B)  buyers always bear a higher incidence than sellers.
C)  the effect on buyers and sellers is the same as a tax on buyers would be.
D)  None of these is true.E) A) and D)
F) B) and C)

Question 6

Does a subsidy to buyers affect the demand curve?

Accepted Answer

A)  Yes,it shifts demand up by the amount of the subsidy.
B)  Yes,it shifts demand to the right by the amount of the subsidy.
C)  No,the quantity demanded will increase,but the demand curve does not move.
D)  No,the quantity demanded will decrease,but the demand curve does not move.E) All of the above
F) C) and D)

Question 7

Does a tax on sellers affect the demand curve?

Accepted Answer

A)  Yes,it shifts to the left by the amount of the tax.
B)  Yes,it shifts to the right by the amount of the tax.
C)  Yes,it shifts up by the amount of the tax.
D)  No,there is change in the quantity demanded,but the demand curve does not move.E) A) and C)
F) A) and B)

Question 8

Consumers may benefit more than sellers from a subsidy to sellers if:

Accepted Answer

A)  they deserve the subsidy more.
B)  the demand curve is relatively less elastic than the supply curve.
C)  the demand curve is relatively more elastic than the supply curve.
D)  Consumers can never benefit more than sellers from a subsidy to sellers.E) A) and B)
F) B) and C)

Question 9

The government imposing a minimum wage is an example of an attempt to:

Accepted Answer

A)  correct a market failure.
B)  redistribute surplus in a market.
C)  encourage the consumption of inferior goods.
D)  discourage the consumption of inferior goods.E) A) and D)
F) C) and D)

Question 10

Because a price ceiling causes:

Accepted Answer

A)  a shortage,rationing must occur.
B)  a surplus,rationing must occur.
C)  a shortage,a central planner must distribute the goods fairly.
D)  a surplus,a central planner must distribute the goods fairly.E) B) and C)
F) A) and D)

Question 11

Policymakers who wish to punish businesses that pollute by taxing them:

Accepted Answer

A)  forget that the buyers of their product will likely share the burden of that tax.
B)  forget that they have no control over who actually bears the tax incidence.
C)  forget that the buyers of their product may actually bear the greatest burden of the tax.
D)  All of these statements are true.E) B) and D)
F) A) and C)

Question 12

A type of public policy that might be set in response to the rising prices of a basic necessity,such as food,might be:

Accepted Answer

A)  to make it illegal to charge high prices for the good.
B)  to subsidize the price of basic necessities.
C)  to pay producers to make more of the good.
D)  All of these are ways government can address the shortage of a basic necessity.E) B) and D)
F) C) and D)

Question 13

Does a tax on buyers affect the demand curve?

Accepted Answer

A)  Yes,it shifts down by the amount of the tax.
B)  Yes,it shifts to the left by the amount of the tax.
C)  Yes,it shifts up by the amount of the tax.
D)  No,there is change in the quantity demanded,but the demand curve does not move.E) All of the above
F) A) and D)

Question 14

The relative tax burden borne by buyers and sellers is called the:

Accepted Answer

A)  tax wedge.
B)  tax incidence.
C)  tax revenue.
D)  real tax.E) C) and D)
F) B) and D)

Question 15

If the government wants to encourage the consumption of a particular good,they should enact:

Accepted Answer

A)  a subsidy to buyers,since they want to affect consumption of the good.
B)  a subsidy to sellers,since they want more to be produced and offered for sale.
C)  a subsidy to buyers,since they deserve the benefit more than the producers.
D)  a subsidy on either buyers or sellers,since they will both have the same effect on the market.E) B) and D)
F) All of the above

Question 16

Normative analysis:

Accepted Answer

A)  involves the formulation and testing of hypotheses.
B)  leads to the best solutions.
C)  examines whether the policy is a good idea.
D)  examines if the policy actually accomplished its goal.E) B) and C)
F) A) and D)

Question 17

One way to allocate the scarce good created from an effective price ceiling is to:

Accepted Answer

A)  offer it on a first-come,first-served basis.
B)  ration a certain quantity per household.
C)  give them to the friends and family of the producers.
D)  All of these are examples of allocating using non-price methods.E) A) and B)
F) B) and C)

Question 18

A tax on sellers:

Accepted Answer

A)  shifts the supply curve left by the amount of the tax.
B)  shifts the demand curve left by the amount of the tax.
C)  shifts the supply curve up by the amount of the tax.
D)  shifts the demand curve down by the amount of the tax.E) A) and C)
F) All of the above

Question 19

Government attempts to lower,raise,or simply stabilize prices can:

Accepted Answer

A)  backfire.
B)  create unintended side effects.
C)  decrease total surplus.
D)  All of these are true.E) A) and C)
F) B) and C)

Question 20

Does a subsidy to sellers affect the demand curve?

Accepted Answer

A)  Yes,it shifts demand up by the amount of the subsidy.
B)  Yes,it shifts demand to the right by the amount of the subsidy.
C)  No,the quantity demanded will increase,but the demand curve does not move.
D)  No,the quantity demanded will decrease,but the demand curve does not move.E) A) and D)
F) B) and C)

Exam 6: Government Intervention

The government imposing a minimum wage is an example of an attempt to:

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Consumers may benefit more than sellers from a subsidy to sellers if:

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Does a subsidy to sellers affect the demand curve?

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A tax on sellers:

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If the government wants to encourage the consumption of a particular good,they should enact:

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Governments tend to set price ceilings:

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A type of public policy that might be set in response to the rising prices of a basic necessity,such as food,might be:

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Because a price ceiling causes:

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A tax on sellers has what effect on a market?

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Policymakers who wish to punish businesses that pollute by taxing them:

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A tax wedge:

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Normative analysis:

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When a tax is placed on sellers:

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An effective price floor:

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Government attempts to lower,raise,or simply stabilize prices can:

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Does a tax on sellers affect the demand curve?

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One way to allocate the scarce good created from an effective price ceiling is to:

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Does a subsidy to buyers affect the demand curve?

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Does a tax on buyers affect the demand curve?

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The relative tax burden borne by buyers and sellers is called the:

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