Question 1

After a price floor of $23 is placed on the market in the graph shown, the total number of units traded:

Accepted Answer

A)   falls by 20 relative to equilibrium.
B)   falls by 27 relative to equilibrium.
C)   falls by 37 relative to equilibrium.
D)   increases by 10 relative to equilibrium.E) B) and C)
F) A) and B)

Question 2

A binding price floor that could be set in the market in the graph shown would be:

Accepted Answer

A)   $23.
B)   $16.
C)   $8.
D)   $12.E) None of the above
F) A) and C)

Question 3

Governments may intervene in markets to:

Accepted Answer

A)   increase the efficiency of the market.
B)   reduce consumption certain products deemed "bad".
C)   correct a market failure.
D)   all of the above are reasons why governments intervene in market.E) None of the above
F) A) and B)

Question 4

Tax incidence:

Accepted Answer

A)   depends on the relative elasticity of the supply and demand curves in a market.
B)   depends on whether it is a buyers tax or sellers tax that is being imposed.
C)   depends on the amount of tax revenue generated once administrative burdens are taken into account.
D)   depends on whether the tax revenue is greater than the deadweight loss caused by the tax.E) A) and B)
F) A) and C)

Question 5

If there is a sole producer of a good, and he faces no threat of competition, it is likely that:

Accepted Answer

A)   the consumer surplus is greater than in a competitive equilibrium.
B)   the price is set inefficiently high.
C)   the price is set below the competitive equilibrium price.
D)   the market is efficient.E) None of the above
F) All of the above

Question 6

The graph shown portrays a subsidy to buyers. The deadweight loss arising from the subsidy is:

Accepted Answer

A)   $400.
B)   $3,600.
C)   $750.
D)   $800.E) C) and D)
F) A) and C)

Question 7

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

Accepted Answer

A)   an excess supply of 7 would occur.
B)   an excess supply of 15 would occur.
C)   an excess supply of 23 would occur.
D)   None of these is true.E) A) and B)
F) A) and C)

Question 8

In evaluating policy effectiveness, economists rely on:

Accepted Answer

A)   positive analysis.
B)   normative analysis.
C)   both normative and positive analysis.
D)   Economists can never fully analyze any real-world policy effectiveness.E) A) and D)
F) All of the above

Question 9

A binding price ceiling:

Accepted Answer

A)   will cause quantity supplied to exceed quantity demanded.
B)   will increase total well-being.
C)   will set a legal minimum price in a market.
D)   will cause quantity demanded to exceed quantity supplied.E) B) and C)
F) A) and B)

Question 10

A price ceiling of $8 placed on the market in the graph shown:

Accepted Answer

A)   is non-binding, and does not affect the market.
B)   is binding, and causes a shortage.
C)   is binding, and causes a surplus.
D)   is non-binding, and does not prevent the market from reaching equilibrium.E) None of the above
F) A) and B)

Question 11

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

Accepted Answer

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

Question 12

Situations in which the assumption of efficient, competitive markets fails to hold are called:

Accepted Answer

A)   market failures.
B)   inelastic-response markets.
C)   missing markets.
D)   market interventions.E) A) and B)
F) A) and C)

Question 13

A price floor is:

Accepted Answer

A)   a legal maximum price.
B)   a legal minimum price.
C)   a legal maximum quantity that can be sold at a particular price.
D)   a legal minimum quantity that can be sold at a particular price.E) B) and D)
F) All of the above

Question 14

Consider the graph shown. What would most likely be the cause of a shift from S1 to S2?

Accepted Answer

A)   A tax on sellers
B)   A tax on buyers
C)   A subsidy for sellers
D)   A subsidy for buyersE) None of the above
F) B) and C)

Question 15

If the demand curve is less elastic than the supply curve, then:

Accepted Answer

A)   the buyers will bear a greater tax incidence.
B)   the sellers will bear a greater tax incidence.
C)   the buyers will bear a smaller tax burden than sellers.
D)   the sellers will bear a greater tax burden than buyers.E) B) and D)
F) All of the above

Question 16

Suppose the market supply is initially at S1 and a price ceiling is set at 8. If supply shifts from S1 to S2, then

Accepted Answer

A)   The price ceiling will no longer bind.
B)   The price ceiling will prevent output from changing.
C)   The size of the shortage will increase.
D)   The market will not reach equilibrium.E) C) and D)
F) None of the above

Question 17

A price floor of $23 placed on the market in the graph shown:

Accepted Answer

A)   is binding, and causes a shortage.
B)   is non-binding, and does not affect the market.
C)   is binding, and causes a surplus.
D)   is non-binding, and does not prevent the market from reaching equilibrium.E) A) and B)
F) None of the above

Question 18

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 D)

Question 19

If a binding price ceiling were placed in the market in the graph shown:

Accepted Answer

A)   quantity demanded would exceed quantity supplied.
B)   quantity supplied would exceed quantity demanded.
C)   the demand curve would have to shift.
D)   the supply curve would have to shift.E) None of the above
F) A) and D)

Question 20

Suppose a tax has been imposed in the graph. Which kind of tax is most likely demonstrated by this graph?

Accepted Answer

A)   A tax on sellers
B)   A tax on buyers
C)   A tax on big corporations
D)   None of these is true.E) A) and D)
F) A) and C)

Exam 6: Government Intervention

A binding price ceiling:

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A price floor of $23 placed on the market in the graph shown:

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Suppose a tax has been imposed in the graph. Which kind of tax is most likely demonstrated by this graph?

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Consider the graph shown. What would most likely be the cause of a shift from S1 to S2?

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

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A binding price floor that could be set in the market in the graph shown would be:

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Suppose the market supply is initially at S1 and a price ceiling is set at 8. If supply shifts from S1 to S2, then

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Does a tax on sellers affect the demand curve?

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Governments may intervene in markets to:

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Situations in which the assumption of efficient, competitive markets fails to hold are called:

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A price ceiling of $8 placed on the market in the graph shown:

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If a binding price ceiling were placed in the market in the graph shown:

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If there is a sole producer of a good, and he faces no threat of competition, it is likely that:

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Tax incidence:

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In evaluating policy effectiveness, economists rely on:

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A price floor is:

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After a price floor of $23 is placed on the market in the graph shown, the total number of units traded:

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If the demand curve is less elastic than the supply curve, then:

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The graph shown portrays a subsidy to buyers. The deadweight loss arising from the subsidy is:

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

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