Question 1

The graph shown demonstrates a tax on sellers. What is the amount of tax revenue being generated from the tax?

Accepted Answer

A)   $150
B)   $80
C)   $310
D)   $135E) None of the above
F) A) and B)

Question 2

A prominent argument against the use of price ceilings is:

Accepted Answer

A)   they are unfair.
B)   they lead to a surplus and a waste of society's resources.
C)   they lead to rent seeking.
D)   they raise corporate profits.E) All of the above
F) None of the above

Question 3

If a price ceiling of $8 were placed in the market in the graph shown:

Accepted Answer

A)   a shortage of 7 would occur.
B)   a shortage of 15 would occur.
C)   a shortage of 23 would occur.
D)   a shortage of 8 would occur.E) A) and B)
F) A) and C)

Question 4

Who benefits from a subsidy to buyers?

Accepted Answer

A)   Only sellers benefit from any kind of subsidy.
B)   Only consumers benefit, since it is their subsidy.
C)   The benefit is shared depending on the elasticity of the supply and demand curves.
D)   None of these statements is true.E) A) and B)
F) None of the above

Question 5

If the producers bear a smaller tax incidence than the buyers in a market, which of the following must be true?

Accepted Answer

A)   It must be a market for inferior goods.
B)   It must be a market for luxury items.
C)   Their supply curve must be more elastic than the buyers demand curve in this market.
D)   Their supply curve must be less elastic than the buyers demand curve in this market.E) B) and C)
F) None of the above

Question 6

Governments may attempt to protect dairy farmers from low milk prices by:

Accepted Answer

A)   banning the hoarding of milk by households.
B)   setting a minimum price on milk.
C)   increasing taxes on dairy farmers.
D)   reducing subsidies on the price of milk.E) A) and B)
F) C) and D)

Question 7

Assume a subsidy to buyers has been enacted in the market in the graph shown. With the subsidy, the buyers buy _____ units and pay _____ for each of them.

Accepted Answer

A)   100; $46
B)   100; $30
C)   150; $40
D)   150; $24E) A) and B)
F) C) and D)

Question 8

The graph shown demonstrates a tax on sellers. Who bears the greater tax incidence?

Accepted Answer

A)   The sellers
B)   The buyers
C)   The government
D)   The incidence is equally shared between buyer and seller.E) A) and D)
F) None of the above

Question 9

Does a subsidy to buyers affect the supply curve?

Accepted Answer

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

Question 10

Who actually benefits from a subsidy to sellers?

Accepted Answer

A)   Only consumers benefit from any kind of subsidy.
B)   Only sellers benefit, since it is their subsidy.
C)   The benefit is shared depending on elasticity of the supply and demand curves.
D)   None of these statements is true.E) All of the above
F) A) and B)

Question 11

The graph shown best represents which of the following?

Accepted Answer

A)   A tax on sellers
B)   A subsidy to sellers
C)   A price floor.
D)   A subsidy to buyersE) A) and B)
F) B) and D)

Question 12

Suppose a tax on buyers has been imposed in the graph shown. The amount of deadweight loss generated by this tax is:

Accepted Answer

A)   $0.
B)   $18.
C)   $36.
D)   $72.E) B) and C)
F) None of the above

Question 13

Which of the following changes to the market in the graph shown could cause the price floor to become non-binding?

Accepted Answer

A)   Demand could decrease, and shift to the left.
B)   Supply could increase, and shift to the left.
C)   Supply could increase, and shift to the right.
D)   Supply could decrease, and shift to the left.E) B) and D)
F) A) and B)

Question 14

The graph shown demonstrates a tax on sellers. Which of the following can be said about the effect of this tax?

Accepted Answer

A)   The price paid by buyers is greater than that received by sellers, and the difference is the tax wedge.
B)   The price paid by buyers is less than that received by sellers, and the difference is the total tax revenue.
C)   The price paid by buyers is greater than that received by sellers, and the difference is the total tax revenue.
D)   The price paid by buyers and received by sellers is higher than it was before the tax was imposed.E) B) and C)
F) A) and D)

Question 15

A tax on sellers:

Accepted Answer

A)   causes equilibrium price and quantity to decrease.
B)   shifts the demand curve vertically downwards by the amount of the tax, but does not affect the supply curve
C)   shifts the supply curve vertically upwards by the amount of the tax, but does not affect the demand curve.
D)   causes a shortage in the market.E) B) and C)
F) A) and B)

Question 16

Suppose a tax on buyers has been imposed in the graph shown. How much are buyers being taxed on each unit sold?

Accepted Answer

A)   $4
B)   $8
C)   $12
D)   $16E) A) and B)
F) All of the above

Question 17

An argument against price floors is:

Accepted Answer

A)   non-price rationing must occur, and can lead to consumers waiting in line.
B)   the cost to taxpayers if the government buys all surplus.
C)   producers will reduce the quality of the goods they sell.
D)   they transfer surplus from producers to consumers.E) A) and C)
F) A) and B)

Question 18

A tax wedge:

Accepted Answer

A)   refers to the difference in the price the buyer pays and the price the seller keeps.
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) All of the above
F) A) and B)

Question 19

In general, price controls have a:

Accepted Answer

A)   larger effect in the long run because demand and supply become more elastic over time.
B)   larger effect in the short run since demand and supply become more elastic over time.
C)   smaller effect in the long run since demand and supply become less elastic over time.
D)   smaller effect in the short run because demand and supply become less elastic over time.E) A) and C)
F) All of the above

Question 20

The graph shown portrays a subsidy to buyers. The subsidy causes:

Accepted Answer

A)   50 more units to be sold in this market.
B)   150 more units to be sold in this market.
C)   100 fewer units to be sold in this market.
D)   50 fewer units to be sold in this market.E) B) and C)
F) A) and B)

Exam 6: Government Intervention

Who actually benefits from a subsidy to sellers?

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Suppose a tax on buyers has been imposed in the graph shown. The amount of deadweight loss generated by this tax is:

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A prominent argument against the use of price ceilings is:

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In general, price controls have a:

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An argument against price floors is:

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The graph shown demonstrates a tax on sellers. Who bears the greater tax incidence?

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Assume a subsidy to buyers has been enacted in the market in the graph shown. With the subsidy, the buyers buy _____ units and pay _____ for each of them.

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A tax wedge:

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A tax on sellers:

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The graph shown best represents which of the following?

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The graph shown demonstrates a tax on sellers. What is the amount of tax revenue being generated from the tax?

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Suppose a tax on buyers has been imposed in the graph shown. How much are buyers being taxed on each unit sold?

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If the producers bear a smaller tax incidence than the buyers in a market, which of the following must be true?

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Governments may attempt to protect dairy farmers from low milk prices by:

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Which of the following changes to the market in the graph shown could cause the price floor to become non-binding?

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If a price ceiling of $8 were placed in the market in the graph shown:

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The graph shown portrays a subsidy to buyers. The subsidy causes:

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The graph shown demonstrates a tax on sellers. Which of the following can be said about the effect of this tax?

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Does a subsidy to buyers affect the supply curve?

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Who benefits from a subsidy to buyers?

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Assume a subsidy to buyers has been enacted in the market in the graph shown. With the subsidy, the buyers buy _ units and pay _ for each of them.

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