chap06

Microeconomics, 8e (Parkin) Testbank 2 Chapter 6 Markets in Action

1)

The short run effect of a decrease in the supply of housing is a ________ in the rent and ________ in the quantity of housing units.

A)

rise; a decrease B)

rise; an increase C)

fall; a decrease D)

fall; an increase Answer:

A Topic:

The Market Response to a Decrease in Supply Skill:

Recognition

2)

In the absence of a rent ceiling, the long run adjustment to an initial decrease in the supply of housing is

A)

a decrease in demand for housing due to higher rent. B)

a decrease in demand for housing due to the initial shortage. C)

an increase in the supply of housing due to profits. D)

an increase in the supply of housing due to the initial surplus. Answer:

1

C Topic:


Recognition

Rent(dollars per

month)

Quantity of apartmentssuppli

ed(per

month)

Quantity of apartmentsdeman

ded(per

month)

200 20 100300 40 80400 60 60500 80 40600 100 203)

The above table gives the demand schedule and the supply schedule for housing in Anytown, U.S.A. If a price ceiling of $300 is imposed in the housing market, then

A)

there would be a surplus of apartments. B)

there would be a shortage of apartments. C)

the market would reach equilibrium at the quantity of 60 housing units. D)

the supply of housing would increase. Answer:

B Topic:

A Regulated Housing Market Skill:

Analytical

2

4)

The above table gives the demand schedule and the supply schedule for housing in Anytown, U.S.A. If a price ceiling of $600 was imposed in the housing market, then

A)

there would be a surplus of apartments. B)

there would be a shortage of apartments. C)

the market would reach equilibrium at the quantity of 60 housing units. D)

the supply of housing would increase. Answer:

C Topic:


Analytical

5)

In the above figure, which of the following shifts shows the effect of severe flooding that destroys many of the apartment buildings in Bigtown?

A)

3

from S1 to S2 B)

from S2 to S1 C)

from D1 to D2 D)

from D2 to D1 Answer:

B Topic:


Recognition

6)

A rent ceiling results in a shortage. As a result, which of the following do you expect? A)

The shortage will persist as long as the ceiling is in effect. B)

Discrimination as landlords choose their tenants, possibly based on race, age, or gender. C)

A black market for apartments whereby higher rents are obtained through various other charges.

D)

All of the above would be expected. Answer:

D Topic:


Analytical

4

7)

When a rent ceiling is imposed in a housing market, the opportunity cost of housing equals the

A)

rent. B)

market equilibrium rent that would prevail in the absence of a rent ceiling. C)

value of the time and resources spent searching plus the rent. D)

consumer surplus. Answer:

C Topic:


Conceptual

8)

A rent ceiling results in a shortage. As a result, which of the following do you expect? A)

A shortage of applicants for the apartments available. B)

Discrimination as tenants choose their landlords, possibly based on race, age, or gender. C)

A black market for apartments whereby higher rents are obtained through various other charges.

D)

In the long-run, more and more people will want to become landlords. Answer:

C Topic:

Black Markets

5

Analytical

9)

The above figure shows the apartment rental market in Bigtown. At what rent will there be neither a shortage nor a surplus of apartments?

A)

$1250 per month B)

$1000 per month C)

$750 per month D)

$500 per month Answer:

C Topic:

A Housing Market Skill:

Recognition

6

10)

The above figure shows the apartment rental market in Bigtown. If severe flooding resulted in the destruction of many of the city's apartment buildings, then the

A)

supply curve of apartments would shift leftward and rent would rise above $750.00. B)

demand curve for apartments would shift rightward and rent would rise above $750.00. C)

equilibrium quantity of apartments rented would increase beyond 3,000. D)

equilibrium market price of apartments rented would fall below $750.00. Answer:

A Topic:


Analytical

11)

The above figure shows the apartment rental market in Bigtown. If the Bigtown Housing Authority imposes a rent ceiling below $750 per month, the rent ceiling will help

A)

all renters. B)

some renters and hurt other renters. C)

all landlords. D)

some landlords and hurt other landlords. Answer:

B Topic:

A Regulated Housing Market

7

Analytical

12)

The above figure shows the apartment rental market in Bigtown. If the Bigtown Housing Authority imposes a rent ceiling above $750 per month, the ceiling will

A)

help all renters. B)

help some renters and hurt other renters. C)

help all landlords. D)

have no effect at all on the Bigtown rental market. Answer:

D Topic:


Analytical

13)

The above figure shows the apartment rental market in Bigtown. If there is a shortage of 200,000 apartments in the Bigtown rental market, it may be because the Bigtown Housing Authority has imposed a rent

A)

ceiling of $750.00 monthly. B)

ceiling of $500.00 monthly. C)

floor of $750.00 monthly. D)

floor of $500.00 monthly. Answer:

B Topic :

8


Analytical

14)

The above figure shows the apartment rental market in Bigtown. If the market is in equilibrium and then the Bigtown Housing Authority imposes a rent ceiling of $500 per apartment, which of the following would occur?

A)

a decrease in the search time and expense of finding an apartment B)

an increase in the search time and expense of finding an apartment C)

an increase in producer surplus but a decrease in consumer surplus D)

an increase in efficiency Answer:

B Topic:

Search Activity Skill:

Analytical

15)

The above figure shows the apartment rental market in Bigtown. If the Bigtown Housing Authority imposes a rent ceiling of $500 per apartment, the deadweight loss will be

A)

$1,000,000. B)

$500,000. C)

$250,000. D)

$125,000.

9

C Topic:

Inefficiency of Rent Ceilings Skill:

Analytical

16)

The figure above shows the demand for and supply of rental housing in Smallton. If a rent ceiling is set at $800, how many apartment units are rented?

A)

2,000 B)

3,000 C)

4,000 D)

None of the above answers is correct. Answer:

B Topic:


10

Analytical*

17)

The figure above shows the demand for and supply of rental housing in Smallton. If a rent ceiling is set at $800, what is the rent?

A)

$800 B)

$600 C)

$400 D)


B Topic:


Analytical

11

18)

The figure above shows the demand for and supply of rental housing in Smallton. If a rent ceiling is set at $800, there is

A)

a shortage of 3,000 units of rental housing. B)

a shortage of 6,000 units of rental housing. C)

a surplus of 3,000 units of rental housing. D)

neither a shortage nor a surplus of rental housing. Answer:

D Topic:


Analytical*

19)

The figure above shows the demand for and supply of rental housing in Smallton. If a rent ceiling is set at $400, how many apartment units are rented?

A)

2,000 B)

3,000 C)

4,000 D)


A Topic:

A Regulated Housing Market

12

Analytical*

20)

The figure above shows the demand for and supply of rental housing in Smallton. If a rent ceiling is set at $400, what is the rent?

A)

$800 B)

$600 C)

$400 D)


C Topic:


Analytical

21)

The figure above shows the demand for and supply of rental housing in Smallton. If a rent ceiling is set at $400, there is

A)

a shortage of 4,000 units of rental housing. B)

a shortage of 2,000 units of rental housing. C)

a surplus of 3,000 units of rental housing. D)

neither a shortage nor a surplus of rental housing. Answer:

B Topic:

13


Analytical*

22)

Which of the following is a result of an effective rent ceiling?I. equity in the housing marketII. efficient allocation of resourcesIII. a shortage of housing units.

A)

I and II B)

I and III C)

II only D)

III only Answer:

D Topic:


Conceptual

14

23)

A rent ceiling creates a shortage. As a result, which of the following occurs? A)

only a loss of consumer surplus for tenants B)

only a loss of producer surplus for landlords C)

a loss of both consumer and producer surplus D)

a gain of both consumer and producer surplus Answer:

C Topic:


Analytical

24)

A rent ceiling creates a shortage. As a result, there is A)

an efficient allocation of housing. B)

a surplus of housing. C)

an increase in the producer surplus in the housing market. D)

a decrease in the producer surplus in the housing market. Answer:

D Topic:


15

Analytical

25)

A rent ceiling creates a shortage. As a result, there is a deadweight loss A)

from only lost consumer surplus. B)

from only lost producer surplus. C)

from both lost consumer and producer surplus. D)

that exactly offsets the gains in consumer and producer surplus. Answer:

C Topic:


Analytical

26)

Which of the following is an economic policy that promotes the efficient quantity of apartments?

A)

a rent floor above the equilibrium rent B)

a rent ceiling below the equilibrium rent C)

a sales tax imposed on renting an apartment D)

none of the above Answer:

D Topic:

16


Conceptual

27)

A rent ceiling results in a shortage of apartments. As a result, there is A)

only a loss of consumer surplus for tenants. B)

only a loss of producer surplus for landlords. C)

a loss of both consumer and producer surplus. D)

a gain of both consumer and producer surplus. Answer:

C Topic:


Conceptual

28)

The figure above shows the housing market in the city of Appleville. A rent ceiling of $650

17

per month is imposed. With the rent ceiling, the quantity of housing rented in Appleville is A)

200 units below the efficient level. B)

100 units above the efficient level. C)

300 units below the efficient level. D)

efficient. Answer:

A Topic:


Analytical*

29)

The figure above shows the housing market in the city of Appleville. A rent ceiling of $650 per month is imposed. With the rent ceiling, the deadweight loss in the Appleville housing market is

A)

zero. B)

at least $15,000 per month. C)

at most $7,500 per month. D)

300 units per month. Answer:

B Topic:


18

Analytical*

30)

The figure above shows the housing market in the city of Appleville. A rent ceiling of $650 per month is imposed. With the rent ceiling, what is the maximum black market rent in Appleville?

A)

$650 per month B)

$700 per month C)

$750 per month D)

$800 per month Answer:

D Topic:

Black Markets Skill:

Analytical*

31)

The above figure shows the demand and supply curves for housing. What would be the

19

effects of a rent ceiling equal to $500 per month? A)

a surplus equal to 3,000 apartments B)

a shortage equal to 3,000 apartments C)

a shortage equal to 250 apartments D)

nothing because the rent ceiling has no effect on the equilibrium price and quantity Answer:

B Topic:


Conceptual

32)

The above figure shows the demand and supply curves for housing As a result of a rent ceiling at $500, the deadweight loss is represented by the area

A)

rectangle feag. B)

triangle gfe. C)

triangle eca. D)

triangle acb. Answer:

C Topic:


20

Conceptual

33)

A hurricane sweeps through New Orleans and destroys a substantial portion of available housing. The pre-hurricane housing market for New Orleans is illustrated in the above figure. In the absence of rent controls, the short-run market response will be to move to a new equilibrium in the above figure at a price-quantity combination such as

A)

$600 and 100,000 units. B)

$800 and 200,000 units. C)

$800 and 400,000 units. D)

$600 and 500,000 units. Answer:

B Topic:

An Unregulated Housing Market Skill:

Analytical

34)

A hurricane sweeps through New Orleans and destroys a substantial portion of available housing. The pre-hurricane housing market for New Orleans is illustrated in the above figure. In the absence of rent controls, a perfectly elastic long-run supply curve of housing

21

would lead to a post-hurricane price-quantity combination in the long run of A)

$600 and 300,000 units. B)

$600 and 100,000 units. C)

$800 and 400,000 units. D)

$800 and 200,000 units. Answer:

A Topic:

An Unregulated Housing Market Skill:

Analytical

35)

A hurricane sweeps through New Orleans and destroys a substantial portion of available housing. The pre-hurricane housing market for New Orleans is illustrated in the above figure. Assume that the housing market in New Orleans has a rent ceiling in place at $600 per unit. In the short-run, the post-hurricane quantity of housing may be

A)

200,00 units. B)

300,000 units. C)

400,000 units. D)

500,000 units. Answer:

A Topic:


22

Analytical

23

36)

A hurricane sweeps through New Orleans and destroys a substantial portion of available housing. The pre-hurricane housing market for New Orleans is illustrated in the above figure. Assume that the housing market in New Orleans has a rent ceiling in place at $600 per unit. A maximum black market rent of $800 could be charged for which of the following quantities?

A)

200,00 units B)

300,000 units C)

400,000 units D)

500,000 units Answer:

A Topic:


Analytical

37)

A price ceiling is a price A)

below which a seller cannot legally sell. B)

above which a seller cannot legally sell. C)

that creates a surplus of the good. D)

Both answers A and C are correct. Answer:

B Topic:

24

Price Ceiling Skill:

Recognition

38)

A price ceiling can result in which of the following? A)

inefficiency B)

black markets C)

increased search activities D)

All of the above answers are correct. Answer:

D Topic:


Analytical

39)

Price ceilings, such as rent ceilings, A)

increase producer surplus. B)

decrease producer surplus. C)

do not affect producer surplus. D)

might increase or decrease producer surplus. Answer:

B

25

Topic:


Recognition

40)

A price ceiling, such as a rent ceiling, A)

always results in a surplus. B)

always results in a shortage. C)

results in a surplus if the ceiling price is less than the equilibrium price. D)

results in a shortage if the ceiling price is less than the equilibrium price. Answer:

D Topic:


Recognition

26

41)

Which of the following is a typical effect of a price ceiling set below the equilibrium price? A)

Less of the good is produced with the ceiling than would be produced without the ceiling. B)

The price ceiling has no effect on the market equilibrium. C)

Consumers can buy more than they can at the equilibrium price because the ceiling price is lower.

D)


A Topic:


Recognition

42)

Which of the following is NOT a potential impact of an effective price ceiling, such as a rent ceiling?

A)

a surplus B)

an increase in search C)

a deadweight loss D)

None of the above because they are all potential impacts of an effective price ceiling. Answer:

A Topic:

Price Ceiling

27

Conceptual

43)

Which of the following is a potential impact of an effective price ceiling? A)

a shortage B)

use of non-price factors such as discrimination to allocate the price-controlled good to consumers

C)

deterioration in the quality of the price-controlled good D)

All of the above are potential impacts of an effective price ceiling. Answer:

D Topic:


Conceptual

44)

In order to have an effect, a price ceiling must be set ________. A)

above the equilibrium price B)

equal to the equilibrium price C)

below the equilibrium price D)

by suppliers Answer:

C Topic:

28


Recognition

45)

A price ________ is a regulated ________ that must be set below the equilibrium price to have an effect.

A)

floor; price B)

floor; quantity C)

ceiling; price D)

ceiling; quantity Answer:

C Topic:


Recognition

29

46)

________ is an illegal activity between buyers and sellers sometimes used to evade a price ceiling.

A)

Increased search activity B)

A price floor C)

Creating a shortage D)

A black market Answer:

D Topic:


Conceptual

47)

In the U.S. economy, wage rates for various types of labor are determined primarily by A)

the federal government. B)

labor unions. C)

the supply and demand for the various types of labor. D)

the state of technology. Answer:

C Topic:

The Labor Market Skill

30

Conceptual

48)

In the absence of a minimum wage, the short-run effect of a decrease in the demand for labor is a ________ in the equilibrium wage rate and ________ in the equilibrium employment.

A)

rise; a decrease B)

rise; an increase C)

fall; a decrease D)

fall; an increase Answer:

C Topic:

The Labor Market Skill:

Conceptual

49)

In the market for unskilled labor, the long-run A)

minimum wage is lower than the short-run minimum wage. B)

demand for labor is less elastic than the short-run demand. C)

supply of labor is less elastic than the short-run supply. D)

supply of labor is more elastic than the short-run supply. Answer:

D Topic:

31


Conceptual

50)

The initial effect of a labor saving invention, such as automatic teller machines in the banking industry, is a

A)

rightward shift of the demand curve for labor. B)

leftward shift of the demand curve for labor. C)

rightward shift of the supply curve of labor D)

leftward shift of the supply curve of labor. Answer:

B Topic:


Conceptual

32

51)

Suppose that the long-run supply of labor is perfectly elastic. Then in the long run, compared to the initial equilibrium, a labor saving invention, such as automatic teller machines in the banking industry, results in

A)

a decrease in employment and no change in the wage rate. B)

a decrease in the wage rate and no change in employment. C)

a decrease in both the wage rate and employment. D)

an increase in both the wage rate and employment. Answer:

A Topic:


Conceptual

52)

In the absence of a minimum wage, the long-run adjustment to a decrease in the demand for labor is

A)

a decrease in the supply of labor due to the lower wage rate. B)

a decrease in the supply of labor due to the shortage of labor. C)

an increase in the demand for labor due to the lower wage rate. D)

an increase in the demand for labor due to the surplus of labor. Answer:

A Topic:

33


Conceptual

53)

In the U.S. economy, wage rates for various types of labor are determined primarily by A)

the federal government. B)

businesses. C)

the supply and demand for the various types of labor. D)

the Labor Relations Board. Answer:

C Topic:


Recognition

54)

The initial effect of a labor-saving invention, such as automatic teller machines in the banking industry, is a ________ shift of the ________ curve for labor.

A)

rightward; demand B)

leftward; demand C)

rightward; supply D)

leftward; supply Answer:

34

B Topic:


Conceptual

55)

In the short-run, with no minimum wage, the introduction of labor-saving inventions in a market for low-skilled labor will ________ the equilibrium wage rate and ________ the equilibrium quantity of employment.

A)

raise; increase B)

raise; decrease C)

lower; increase D)

lower; decrease Answer:

D Topic:


Analytical

35

56)

In the long-run, with no minimum wage, the introduction of labor-saving inventions in a market for low-skilled labor will result in

A)

some people acquiring new skills and leaving the market. B)

some people stopping working and staying at home. C)

some people retiring. D)


D Topic:


Recognition

57)

A price floor is a price A)

below which a seller cannot legally sell. B)

above which a seller cannot legally sell. C)

that creates a surplus of the good if it is set above the equilibrium price. D)


D Topic:

Price Floor Skill

36

Recognition

58)

An example of a price floor is a A)

rent control. B)

minimum wage. C)

subsidy. D)

quota. Answer:

B Topic:

Price Floor Skill:

Recognition

59)

A minimum wage A)

is an example of a price ceiling. B)

can reduce labor turnover because wages are higher. C)

result in more employment than the equilibrium level of employment. D)

leads to shortages of low-skilled labor. Answer:

B Topic:

Minimum Wage

37

Recognition

60)

A minimum wage is a government-imposed price ________ that is designed to be ________ the equilibrium wage rate.

A)

ceiling; above B)

ceiling; below C)

floor; above D)

floor; below Answer:

C Topic:

The Minimum Wage Skill:

Recognition

38

61)

A minimum wage set above the equilibrium wage will A)

create a shortage of labor. B)

create a surplus of labor. C)

have no effect because the equilibrium level of employment is not affected by a minimum wage above the equilibrium wage.

D)

create a lower wage rate for skilled workers than for unskilled workers. Answer:

B Topic:


Conceptual

62)

Suppose that the equilibrium wage in the low-skilled labor market is $6.25. Further, suppose the federal government raises the minimum wage to $6.00 an hour from its present level of $5.15. The government's action of increasing the minimum wage will result in

A)

a decrease in unemployment. B)

an increase in unemployment. C)

a shortage of low-skilled labor. D)

neither a shortage nor a surplus of labor in the low-skilled labor market. Answer:

D Topic:

39


Conceptual

63)

The minimum wage A)

is type of of price ceiling. B)

is a type of price floor. C)

usually creates a surplus of labor. D)


D Topic:


Conceptual

64)

The minimum wage is an example of a A)

price ceiling. B)

tax. C)

quota. D)

price floor. Answer:

D

40

Topic:


Recognition

65)

Suppose the equilibrium wage is $10 per hour. A minimum wage is a ________ and affects employment if it is set at ________.

A)

price floor; $12 per hour B)

price floor; $8 per hour C)

price ceiling; $10 per hour D)

price ceiling; $12 per hour Answer:

A Topic:


Analytical

41

66)

If policy makers believe that the equilibrium wage rate is too low, policy makers can raise wages by legislating a "minimum wage," that is, a wage

A)

ceiling above the equilibrium wage. B)

ceiling below the equilibrium wage. C)

floor above the equilibrium wage. D)

floor below the equilibrium wage. Answer:

C Topic:


Analytical

67)

The primary goal of policy makers who support minimum wage legislation is to A)

increase employment levels among low income workers. B)

increase the earnings of low income workers. C)

reduce the profit levels of giant corporations. D)

give small businesses an equal chance in the marketplace with larger businesses. Answer:

B Topic:

The Minimum Wage Skill

42

Analytical

68)

In the above figure, if the minimum wage is equal to ________, there would be ________ hours of labor employed.

A)

$8 per hour; 4,000 B)

$8 per hour; 2,000 C)

$6 per hour; 3,000 D)

$4 per hour; 2,000 Answer:

B Topic:

Minimum Wage and Unemployment Skill:

Recognition

43

69)

In the above figure suppose a minimum wage of $8 per hour is imposed. As a result, the quantity of labor supplied is ________ hours and the quantity of labor demanded is ________ hours.

A)

3,000; 4,000 B)

4,000; 4,000 C)

2,000; 4,000 D)

4,000; 2,000 Answer:

D Topic:


Analytical

70)

In the above figure, if there is no minimum wage, the equilibrium employment is ________; if the government imposed a minimum wage of $8 per hour, employment is ________.

A)

4,000 hours; 2,000 hours B)

3,000 hours; 4,000 hours C)

3,000 hours; 2,000 hours D)

4,000 hours; 3,000 hours Answer:

C Topic:

44


Analytical

71)

In the above figure, if the government imposed a minimum wage of $8 per hour in this labor market, the increase in the hourly wage for those who are able to keep their jobs is

A)

$2 per hour. B)

$4 per hour. C)

$6 per hour. D)

$8 per hour. Answer:

A Topic:


Recognition

45

72)

In the above figure, a minimum wage has an effect on the market for low-skilled labor if it is set at

A)

$2.00. B)

$3.00. C)

$4.00. D)

all of the above Answer:

C Topic:


Analytical

73)

In the above figure, if the minimum wage is set at $5.00 per hour, what effect will it have on the market for low-skilled labor?

A)

46

The minimum wage will have no effect when set above the equilibrium wage rate. B)

The minimum wage will create a surplus of low-skilled labor. C)

The minimum wage will create a shortage of low-skilled labor. D)

The minimum wage will attract more labor to the low-skilled labor market and cause the wage rate to fall.

Answer:

B Topic:


Analytical

74)

The figure above shows the demand for and supply of labor of students in Smallville. If the minimum wage is set at $4 per hour, how many hours do students work?

A)

12,000 hours B)

9,000 hours C)

47

6,000 hours D)


B Topic:


Analytical

75) The figure above shows the demand for and supply of labor of students in Smallville. If the minimum wage is set at $4 per hour, how many hours of students' labor are unemployed?

A)

12,000 hours B)

9,000 hours C)

6,000 hours D)

0 hours Answer:

D Topic:


Analytical

76)


A)

12,000 hours B)

48

9,000 hours C)

6,000 hours D)


B Topic:


Analytical

49

77)

The figure above shows the demand for and supply of labor of students in Smallville. If the minimum wage is set at $6 per hour, how many hours of students' labor are unemployed?

A)

12,000 hours B)

9,000 hours C)

6,000 hours D)

0 hours Answer:

D Topic:


Analytical

78)


A)

12,000 hours B)

9,000 hours C)

6,000 hours D)


C Topic:

The Minimum Wage

50

Analytical

79)

The figure above shows the demand for and supply of labor of students in Smallville. If the minimum wage is set at $8 per hour, how many hours of students' labor are unemployed?

A)

12,000 hours B)

9,000 hours C)

6,000 hours D)

0 hours Answer:

C Topic:


Analytical

51

80)

In the above figure, which wage rate could be an effective minimum wage that changes the wage rate and what would be the resulting level of employment?

A)

A wage of W2 and L1 of labor would be employed. B)

A wage of W2 and L2 of labor would be employed. C)

A wage of W1 and L1 of labor would be employed. D)

A wage of W1 and L2 of labor would be employed. Answer:

D Topic:


Recognition

52

81)

The figure above shows the market for low-skilled labor in Midland city. The government sets a minimum wage at $6 per hour. The minimum wage ________ the employers' surplus by ________ million per year.

A)

decreases; $60 B)

decreases; $120 C)

increases; $40 D)

increases; $100 Answer:

A Topic:


Analytical*

82)

The figure above shows the market for low-skilled labor in Midland city. The government sets a minimum wage at $6 per hour. With the minimum wage law enacted, at the quantity of labor employed, the value to the firm of last worker hired is ________ the wage rate for

53

which that person is willing to work. A)

the same as B)

$3 per hour less than C)

$3 per hour greater than D)

$1 per hour greater Answer:

C Topic:


Analytical*

83)

The figure above shows the market for low-skilled labor in Midland city. The government sets a minimum wage at $6 per hour. With the minimum wage law enacted, the potential loss from job search in Midland city is

A)

$60 million. B)

$120 million. C)

$40 million. D)

zero. Answer:

B Topic:


54

Analytical*

84)

If a minimum wage is set above the equilibrium wage rate, employment A)

will increase. B)

will not change. C)

will decrease. D)

may increase, decrease or not change depending on how the supply of labor is affected by the minimum wage.

Answer:

C Topic:

The Minimum Wage in Practice Skill:

Conceptual

85)

Imposing a minimum wage that is above the equilibrium wage rate results in A)

higher job search costs. B)

lower unemployment. C)

the labor market becoming more efficient. D)

equilibrium in the labor market. Answer:

A Topic:

55

The Minimum Wage in Practice Skill:

Conceptual

86)

The government raises the sales tax on shirts. The tax is imposed on sellers. As a result, the ________.

A)

supply curve of shirts shifts leftward B)

supply curve of shirts shifts rightward C)

demand curve for shirts becomes vertical D)

demand curve for shirts becomes horizontal Answer:

A Topic:

Who Pays the Sales Tax? Skill:

Analytical

87)

As long as the supply curve for a good is upward sloping and the demand curve is downward sloping, a sales tax imposed on sellers shifts the supply curve

A)

leftward and definitely raises the equilibrium price. B)

leftward and possibly raises the equilibrium price. C)

rightward and possibly increases the equilibrium quantity. D)

rightward and definitely decreases the equilibrium quantity. Answer:

56

A Topic:


Analytical

88)

The elasticity of demand for chocolate chip cookies is 0.6 and the elasticity of supply for these cookies is 1.9. If a tax is imposed on purchases of chocolate chip cookies, then the

A)

consumers would pay more of the tax. B)

producers would pay more of the tax. C)

tax would be equally shared by the consumers and the producers. D)

consumers would pay the entire tax because their demand is less elastic than the producers' supply.

Answer:

A Topic:

Tax Incidence and the Elasticity of Demand Skill:

Conceptual

57

89)

A sales tax imposed on sellers shifts the supply curve leftward for the taxed good because the

A)

tax is paid by the seller to the government and is, therefore, like a cost of production. B)

tax is actually shifted entirely onto the buyer who can afford only a smaller supply. C)

higher price causes entry into the market. D)

tax shifts the demand curve leftward. Answer:

A Topic:


Conceptual

90)

When a sales tax is imposed on sellers, the supply curve shifts so that the vertical distance between the old and the new supply curve equals the

A)

sales tax multiplied by the price elasticity of demand. B)

sales tax multiplied by the price elasticity of supply. C)

amount of the sales tax. D)

sales tax divided by the price elasticity of demand. Answer:

C Topic:

Who Pays the Sales Tax?

58

Conceptual

91)

In the above figure, the government has imposed a tax on sellers of pizza. The amount of the tax

A)

is $10. B)

is $30. C)

is $40. D)

cannot be determined without more information. Answer:

D Topic:


Analytical

59

92)

In the above figure, the government has imposed a tax on sellers of pizza. The tax increases the

A)

price paid by buyers by $10. B)

amount received by sellers by $30. C)

after-tax price by $40. D)

quantity of pizza sold from 40 million per year to 60 million per year. Answer:

A Topic:


Analytical

93)

In the above figure, the government has imposed a tax on sellers of pizza. After the tax has been imposed, the after-tax price of a pizza is ________ and the equilibrium quantity is ________ per year.

A)

$10; 60 million B)

$20; 40 million C)

$20; 20 million D)

$30; 20 million Answer:

D Topic:

60


Analytical

94)

In the above figure, the government has imposed a tax on sellers of pizza. Before the tax, consumers paid ________ for a pizza and after the tax is imposed, consumers pay ________ for a pizza.

A)

$20; $20 B)

$20; $30 C)

$10; $40 D)

$20; $40 Answer:

B Topic:


Analytical

95)

In the above figure, the government has imposed a tax on sellers of pizza. From this tax, the government will receive total tax revenues equal to

A)

$2,400 million. B)

$800 million. C)

$600 million. D)

$200 million. Answer

61

B Topic:


Analytical

96)

The figure above shows the market for coffee in Roastboro. If a tax on coffee of 75 cents per pound is imposed on sellers, what is the price that buyers pay?

A)

$3.50 a pound B)

$3.75 a pound C)

$4.50 a pound D)

$4.75 a pound Answer:

C Topic:


62

Analytical

97)

The figure above shows the market for coffee in Roastboro. If a tax on coffee of 75 cents per pound is imposed on sellers, what is the price that sellers receive and keep?

A)

$3.50 a pound B)

$3.75 a pound C)

$4.50 a pound D)

$4.75 a pound Answer:

B Topic:


Analytical

98)

The figure above shows the market for coffee in Roastboro. If a tax on coffee of 75 cents per pound is imposed on sellers, how many pounds of coffee are sold per day?

A)

60 pounds B)

90 pounds C)

120 pounds D)

150 pounds Answer:

B Topic:

63


Analytical

64

99)

The figure above shows the market for coffee in Roastboro. If a tax on coffee of 75 cents per pound is imposed on sellers, what is the government's tax revenue per day?

A)

$67.50 B)

$90 C)

$405 D)

$337.50 Answer:

A Topic:


Analytical

100)

The figure above shows the market for coffee in Roastboro. If a tax on coffee of 75 cents per pound is imposed on sellers, how much of the tax is paid by buyers?

A)

75¢ B)

50¢ C)

25¢ D)

0¢ Answer:

B Topic:

65


Analytical

101)

The figure above shows the market for coffee in Roastboro. If a tax on coffee of 75 cents per pound is imposed on sellers, how much of the tax is paid by sellers?

A)

75¢ B)

50¢ C)

25¢ D)

0¢ Answer:

C Topic:


Analytical

66

102)

In the above figure, a sales tax of $1 per unit imposed on sellers ________ the price buyers pay and ________ the price that suppliers keep for themselves.

A)

affects; does not affect B)

does not affect; affects C)

does not affect; does not affect D)

affects; affects Answer:

D Topic:


Analytical

103)

In the above figure, a sales tax of $1 per unit imposed on sellers shifts the A)

67

demand curve rightward. B)

supply curve leftward. C)

demand curve leftward. D)

supply curve rightward. Answer:

B Topic:


Analytical

104)

A tax is imposed on the sale of a product. As long as neither the supply nor the demand is perfectly elastic or inelastic,

A)

there is no change in the price paid by the consumers. B)

the price paid by the consumers increases by the full amount of the tax. C)

the price paid by the consumers increases by less than the amount of the tax. D)

the price paid by the consumers increases by more than the amount of the tax. Answer:

C Topic:

Tax Incidence and Elasticity Skill:

Recognition

105)

68

The buyers pay the entire sales tax levied on a good when demand is perfectly ________ or supply is perfectly ________.

A)

elastic; inelastic B)

elastic; elastic C)

inelastic; inelastic D)

inelastic; elastic Answer:

D Topic:


Recognition

106)

The sellers pay the entire sales tax levied on a good when demand is perfectly ________ or supply is perfectly ________.

A)


elastic; elastic C)


inelastic; elastic Answer:

A Topic:

Tax Incidence and Elasticity

69

Recognition

107)

Suppose the local government places a sales tax on hotel rooms and that the demand for these rooms is elastic while the supply is perfectly inelastic. The tax incidence is such that the tax will be paid by

A)

only the consumers. B)

equally by the consumers and the producers. C)

only the producers. D)

the taxpayers. Answer:

C Topic:


Conceptual

108)

Under which of the following situations would a sales tax on local telephone service be paid for by both producers and consumers?

A)

Demand for local telephone service is perfectly elastic. B)

Supply of local telephone service is perfectly elastic. C)

Demand for local telephone service is perfectly inelastic. D)

In none of the above cases will both the producers and consumers pay part of the tax. Answer:

70

D Topic:


Conceptual

109)

The supply of oil is more elastic than the demand for oil. If oil is taxed $10 per barrel, how will the tax be divided between the buyers and sellers?

A)

The sellers will pay more of the tax than the buyers. B)

The buyers will pay more of the tax than the sellers. C)

The sellers and buyers will split the tax evenly. D)

The sellers will pay the entire tax. Answer:

B Topic:


Conceptual

71

110)

The incidence of sales tax is determined by the A)

level of government (for example, local, state, or federal) which imposes the tax. B)

federal government in all cases. C)

greed of the sellers. D)

price elasticities of supply and demand. Answer:

D Topic:


Conceptual

111)

When a tax is imposed on the suppliers of a good or service, then A)

in general the producers pay all the tax. B)

in general the consumers pay all the tax. C)

the demanders pay a larger part of the tax as the demand for the product becomes less elastic.

D)

the demanders pay a larger part of the tax as the demand for the product becomes more elastic.

Answer:

C Topic:

72


Analytical

112)

Which of the following leads to the demanders paying all of a tax? A)

The supply is unit elastic. B)

The supply is perfectly inelastic. C)

The demand is perfectly elastic. D)

The demand is perfectly inelastic. Answer:

D Topic:


Analytical

113)

Which of the following leads to the suppliers paying all of a tax? A)

The supply is perfectly elastic. B)

The supply is perfectly inelastic. C)

The demand is unit elastic. D)

The demand is perfectly inelastic. Answer:

73

B Topic:

Tax Incidence and the Elasticity of Supply Skill:

Analytical

114)

The amount of a tax paid by the buyers will be larger the A)

more elastic the demand and the more inelastic the supply. B)

more inelastic the demand and the more elastic the supply. C)

more inelastic are both the supply and demand. D)

more elastic are both the supply and demand. Answer:

B Topic:

Tax Incidence Skill:

Conceptual

74

115)

The amount of a tax paid by the buyers will be smaller the A)

more elastic the demand and the more inelastic the supply. B)

more inelastic the demand and the more elastic the supply. C)

more inelastic are both the supply and demand. D)

more elastic are both the supply and demand. Answer:

A Topic:


Conceptual

116)

Suppose a $1 tax is placed on a good. The more elastic the supply of the good, the A)

larger the increase in the after-tax price. B)

smaller the decrease in the quantity sold. C)

less of the tax will be paid by the buyers. D)

more of the tax will be paid by the sellers. Answer:

A Topic:

Tax Incidence

75

Conceptual

117)

The amount of a tax paid by the sellers will be larger the more ________ the demand and the more ________ the supply.

A)


inelastic; elastic C)


elastic; elastic Answer:

A Topic:


Conceptual

118)

The amount of a tax paid by the sellers will be smaller the more ________ the demand and the more ________ the supply.

A)


inelastic; elastic C)


elastic; elastic Answer:

B 76

Topic:


Conceptual

119)

The government imposes a sales tax on hot dogs. The tax would be paid entirely by hot dog sellers if the

A)

supply is perfectly elastic. B)

supply is perfectly inelastic. C)

demand is perfectly inelastic. D)

none of the above Answer:

B Topic:


Conceptual

77

120)

The government imposes a sales tax on hot dogs. The tax would be paid entirely by the hot dog buyers if the

A)

supply is perfectly elastic. B)

supply is perfectly inelastic. C)

demand is perfectly elastic. D)


A Topic:


Analytical

121)

The government of Healthyland imposes a tax on sellers of salt. The tax is $0.10 per pound. With no tax, the price of salt is $0.40 per pound. The demand for salt is perfectly inelastic and the elasticity of supply is 1.5. With the tax, the price of salt paid by buyers in Healthyland is

A)

$0.40 per pound. B)

$0.45 per pound. C)

$0.35 per pound. D)

$0.50 per pound. Answer:

78

D Topic:


Analytical*

122)

The government of Healthyland imposes a tax on sellers of salt. The tax is $0.10 per pound. With no tax, the market price of salt is $0.40 per pound. The demand for salt is perfectly inelastic, and the elasticity of supply is 1.5. With the tax, the price that sellers of salt in Healthyland receive and keep is

A)

$0.40 per pound. B)

$0.35 per pound. C)

$0.45 per pound. D)

$0.50 per pound. Answer:

A Topic:


Analytical*

123)

The government of Healthyland imposes a tax on sellers of salt. The tax is $0.10 per pound. With no tax, the price of salt is $0.40 per pound. The demand for salt is perfectly inelastic and the elasticity of supply is 1.5. How is the salt tax burden shared between buyers and sellers in Healthyland?

A)

Sellers pay the whole tax. B)

Buyers pay the whole tax.

79

C)

Most of the tax is paid by buyers. D)

Most of the tax is paid by sellers. Answer:

B Topic:


Analytical*

80

Price elasticity of

supply

Price elasticity of

demand

Hamburgers 1.2 1.8French fries 1.7 1.4

Pizza 2.0 1.2Ice cream 1.5 1.6

124)

You are in the business of producing and selling hamburgers, french fries, pizza, and ice cream. The mayor plans to impose a tax on one of these products. Based on the elasticities in the above table, as a profit-minded business person who seeks to avoid taxes whenever possible, which good would you most prefer to have taxed?

A)

hamburgers B)

pizza C)

French fries D)

ice cream Answer:

B Topic:


Analytical

125)

You are in the business of producing and selling hamburgers, french fries, pizza, and ice cream. The mayor plans to impose a tax on one of these products. Based on the elasticities in the above table, as a profit-minded business person who seeks to avoid taxes whenever possible, which good would you least like to have taxed?

A)

hamburgers B)

81

pizza C)

French fries D)

ice cream Answer:

A Topic:


Analytical

126)

You are in the business of producing and selling hamburgers, french fries, pizza, and ice cream. The mayor plans to impose a tax on one of these products. Based on the elasticities in the above table, on which of these goods would your customers least like to be taxed?

A)

hamburgers B)

pizza C)

French fries D)

ice cream Answer:

B Topic:


Analytical

82

127)

You are in the business of producing and selling hamburgers, french fries, pizza, and ice cream. The mayor plans to impose a tax on one of these products. Based on the elasticities in the above table, on which of these goods would your customers most prefer to be taxed?

A)

hamburgers B)

pizza C)

French fries D)

ice cream Answer:

A Topic:


Analytical

128)

The government is deciding whether to tax either Good A or Good B. The equilibrium quantity of both is currently the same, but the elasticity of demand for Good A is 0.8 while the elasticity of demand for Good B is 1.5. In order to generate the most tax revenues, the government should impose the tax on ________ because its demand is ________.

A)

Good A; less elastic B)

Good A; more elastic C)

Good B; less elastic D)

Good B; more elastic Answer:

83

A Topic:

The Sales Tax in Practice Skill:

Conceptual

129)

If a tax is imposed on buyers in a market in which supply is perfectly inelastic, the A)

buyers pay the entire tax. B)

sellers pay the entire tax. C)

buyers and the sellers both pay a portion of the tax. D)

neither the buyers nor the sellers pay the tax. Answer:

B Topic:


Conceptual

130)

If supply is perfectly elastic, a sales tax imposed on sellers is paid by A)

only the buyers. B)

only the sellers. C)

both the buyers and sellers. D)

84


A Topic:


Analytical

131)

If supply is perfectly inelastic, a sales tax imposed on sellers is paid by A)

only the buyers. B)

only the sellers. C)

both the buyers and sellers. D)


A Topic:


Analytical

85

132)

Which of the following statements is true about taxes? A)

Taxes always create more deadweight loss than do price ceilings and price floors. B)

Taxes decrease both consumer surplus and producer surplus while creating a deadweight loss.

C)

Government revenue from a tax is always greater than the loss of producer surplus and consumer surplus.

D)


B Topic:

Taxes, Deadweight Loss Skill:

Analytical

133)

Suppose a tax is imposed on sellers. The more inelastic the demand for a taxed item, the A)

greater the share of the tax paid by sellers. B)

smaller the deadweight loss from the tax. C)

larger the decrease in consumption because of the tax. D)


B Topic:

86


Recognition

134)

If a sales tax is placed on sellers of tires, then A)

the production of tires will decrease. B)

a deadweight loss will be created. C)

producer surplus will decrease. D)

All of the above will occur in the tire market Answer:

D Topic:


Conceptual

135)

Suppose initially that the equilibrium price is $10 and the equilibrium quantity is 200. A $0.50 per unit tax is imposed on the sellers of the product which increases the price consumers pay to $10.40 and reduces the quantity sold to 180. The total tax revenue collected by the government is

A)

$180. B)

$100. C)

$90. D)

87

$72. Answer:

C Topic:

Taxes, Government Revenue Skill:

Analytical

136)

The above figure shows the market for blouses. The government decides to impose the sales tax shown in the figure on sellers. Using the figure, what is the tax per blouse?

A)

$10 per blouse B)

$20 per blouse C)

$30 per blouse D)

$40 per blouse Answer:

B

88

Topic:


Recognition

137)

The above figure shows the market for blouses. The government decides to impose the sales tax shown in the figure on sellers. Using the figure, how much tax revenue does the government raise?

A)

$20,000 B)

$40,000 C)

$60,000 D)

$80,000 Answer:

B Topic:


Recognition

138)

The above figure shows the market for blouses. The government decides to impose the sales tax shown in the figure on sellers. The tax decreases consumption by

A)

1,000 blouses. B)

2,000 blouses. C)

3,000 blouses.

89

D)

4,000 blouses. Answer:

A Topic:


Recognition

90

139)

The above figure shows the market for blouses. The government decides to impose the sales tax shown in the figure on sellers. The amount of the tax paid by buyers would be greater than shown in the figure

A)

only if the demand was more elastic. B)

only if the demand was more inelastic. C)

only if the supply was more elastic. D)

if either the demand was more inelastic or the supply more elastic. Answer:

D Topic:


Analytical

140)

The above figure shows the market for blouses. The government decides to impose the sales tax shown in the figure on sellers. The amount of the tax paid by blouse producers would be greater than shown in the figure if

A)

the demand was more elastic. B)

the demand was more inelastic. C)

the supply was more elastic. D)


91

A Topic:


Analytical

141)

The above figure shows the market for blouses. The government decides to impose the sales tax shown in the figure on sellers. The government would raise more tax revenue from this excise tax if

A)

the demand was more inelastic. B)

it places a price ceiling on blouses in addition to the tax. C)

it places a price floor on blouses in addition to the tax. D)


A Topic:

Sales Tax in Practice Skill:

Analytical

142)

The above figure shows the market for blouses. The government decides to impose the sales tax shown in the figure on sellers. How much deadweight loss results?

A)

$10,000 B)

$20,000 C)

92

$30,000 D)

$40,000 Answer:

A Topic:

Taxes and Efficiency Skill:

Analytical

143)

The above figure shows the market for blouses. The government decides to impose the sales tax shown in the figure on sellers. How much consumer surplus is lost?

A)

$10,000 B)

$20,000 C)

$25,000 D)

$40,000 Answer:

C Topic:


Analytical

144)

The above figure shows the market for blouses. The government decides to impose the sales tax shown in the figure on sellers. How much producer surplus is lost?

A)

$10,000

93

B)

$20,000 C)

$25,000 D)

$40,000 Answer:

C Topic:

Taxes Skill:

Analytical

145)

The above figure shows the market for anti-freeze. The government imposes the sales tax shown in the figure on sellers. What is the amount of the tax?

A)

$1 per gallon B)

$2 per gallon C)

94

$3 per gallon D)

$4 per gallon Answer:

C Topic:


Recognition

146)

The above figure shows the market for anti-freeze. The government imposes the sales tax shown in the figure on sellers. How much tax revenue does the government raise from this tax?

A)

$2,000 B)

$3,000 C)

$4,000 D)

$6,000 Answer:

B Topic:


Recognition

95

147)

The above figure shows the market for anti-freeze. The government imposes the sales tax shown in the figure on sellers. The sales tax on anti-freeze decreases the quantity of anti-freeze that automobile owners purchase by

A)

0 gallons. B)

1000 gallons. C)

2000 gallons. D)

3000 gallons. Answer:

B Topic:


Recognition

148)

The above figure shows the market for anti-freeze. The government imposes the sales tax shown in the figure on sellers. Automobile owners would pay a larger part of this tax than what is shown in the figure if the

A)

demand were more elastic. B)

demand were more inelastic. C)

supply were more inelastic. D)

None of the above because the buyers always pay the entire amount of the tax. Answer:

96

B Topic:


Analytical

149)

The above figure shows the market for anti-freeze. The government imposes the sales tax shown in the figure on sellers. Anti-freeze sellers would pay a larger part of this tax than what is shown in the figure if the

A)

demand were more inelastic. B)

demand curve was steeper. C)

supply were more inelastic. D)

supply were more elastic. Answer:

C Topic:


Analytical

150)

The above figure shows the market for anti-freeze. The government imposes the sales tax shown in the figure on sellers. What is the deadweight loss from this tax?

A)

$1,500 B)

$3,000 C)

97

$4,500 D)

$6,000 Answer:

A Topic:


Analytical

151)

In agricultural markets, once the crop has been harvested, the supply is A)

perfectly inelastic. B)

perfectly elastic. C)

elastic but not perfectly elastic. D)

unit elastic. Answer:

A Topic:

An Agricultural Market Skill:

Conceptual

98

152)

Suppose there is a bumper harvest of soybeans, demand is inelastic for soybeans, and momentary supply is perfectly inelastic. Then, the bountiful harvest will result in

A)

an increase in soybean farmers' revenue. B)

an increase in the momentary supply of soybeans. C)

a rise in the price of soybeans. D)

a decrease in the production of soybeans. Answer:

B Topic:


Conceptual

153)

Assume that the demand for wheat is inelastic and that the momentary supply of wheat is perfectly inelastic. Then, a poor harvest will result in which of the following?

A)

an increase in wheat farmers' revenue B)

an increase in the momentary supply of wheat C)

a fall in the price of wheat D)

an increase in the demand for wheat because it is in short supply Answer:

A Topic:

99


Conceptual

154)

Suppose weather conditions are ideal so that farmers experience a bumper crop. A bumper crop ________ total farm revenue because the demand for farm products is ________.

A)

raises; elastic B)

raises; inelastic C)

lowers; elastic D)

lowers; inelastic Answer:

D Topic:


Analytical

155)

Which of the following accurately describes which curve shifts in the corn market following a drought?

A)

The perfectly elastic long-run supply decreases. B)

The perfectly inelastic long-run supply decreases. C)

The perfectly elastic momentary supply decreases. D)

The perfectly inelastic momentary supply decreases.

100

D Topic:


Conceptual

156)

When the supply curve of corn shifts leftward, farmers' revenue ________ because ________. A)

decreases; demand is elastic B)

increases; demand is inelastic C)

decreases; supply is elastic D)

increases; supply is inelastic Answer:

B Topic:


Conceptual

101

157)

When the supply curve of corn shifts rightward, farmers' revenue ________ because ________. A)

decreases; demand is inelastic B)

increases; demand is elastic C)

decreases; supply is inelastic D)

increases; supply is elastic Answer:

A Topic:


Conceptual

158)

A bumper crop decreases farmers' revenue if A)

supply is elastic. B)

supply is inelastic. C)

demand is elastic. D)

demand is inelastic. Answer:

D Topic:

An Agricultural Market

102

Conceptual

159)

In the market for corn, with normal weather conditions the price is $3.00 per bushel and the quantity is 10 million bushels each year. Using the above figure, if a drought occurs so the momentary supply curve shifts to MSDrought, what happens to total farm revenue?

A)

It decreases. B)

It increases. C)

It does not change. D)

It may change but there is not enough information in the above figure to determine what occurs.

Answer:

B Topic:


Analytical

103

160)

In the market for corn, with normal weather conditions the price is $3.00 per bushel and the quantity is 10 million bushels each year. Using the above figure, if the growing conditions are excellent so that the momentary supply curve shifts to MSBumper, what happens to total farm revenue?

A)

It decreases. B)

It increases. C)

It does not change. D)

It may change but there is not enough information in the above figure to determine what occurs.

Answer:

A Topic:


Analytical

161)

Governments often intervene in agricultural markets by A)

granting subsidies. B)

setting quotas that will increase production. C)

setting price floors that reduce prices for buyers. D)

imposing heavy taxes on farm products. Answer:

104

A Topic:

Subsidies Skill:

Conceptual

162)

The figure above shows the market for milk in Cowland. If a subsidy paid to producers of $1 per gallon of milk is introduced, what is the price that consumers pay?

A)

$3.00 a gallon B)

$3.50 a gallon C)

$4.00 a gallon D)

$4.50 a gallon Answer:

B Topic:

Subsidies Skill

105

Analytical

106

163)

The figure above shows the market for milk in Cowland. If a subsidy paid to producers of $1 per gallon of milk is introduced, what is the amount, including the subsidy, that suppliers keep per gallon?

A)

$3.00 a gallon B)

$3.50 a gallon C)

$4.00 a gallon D)

$4.50 a gallon Answer:

D Topic:

Subsidies Skill:

Analytical*

164)

The figure above shows the market for milk in Cowland. If a subsidy paid to producers of $1 per gallon of milk is introduced, how many gallons are sold per year?

A)

200 million B)

250 million C)

300 million D)

350 million Answer:

D Topic :

107

Subsidies Skill:

Analytical

165)

The figure above shows the market for milk in Cowland. A subsidy paid to producers of $1 per gallon of milk is introduced. If there are no external costs and no external benefits, the quantity of milk sold is

A)

50 million gallons greater than the efficient level of output. B)

50 million gallons less than the efficient level of output. C)

100 million gallons greater than the efficient level of output. D)

the efficient level of output. Answer:

A Topic:

Subsidies and Efficiency Skill:

Analytical*

166)

The figure above shows the market for milk in Cowland. A subsidy paid to producers of $1 per gallon of milk is introduced. If there are no external costs and no external benefits, the marginal cost of the last gallon of milk produced is

A)

$3.00 a gallon. B)

$3.50 a gallon. C)

$4.00 a gallon. D)

108

$4.50 a gallon. Answer:

D Topic:


Analytical

167)

The figure above shows the market for milk in Cowland. A subsidy paid to producers of $1 per gallon of milk is introduced. If there are no external costs and no external benefits, the marginal benefit of the last gallon of milk consumed is

A)

$3.50 a gallon. B)

$4.00 a gallon. C)

$4.50 a gallon. D)

$5.00 a gallon. Answer:

A Topic:


Analytical

168)

To try to help farmers, governmentsI. set production quotasII. set price ceilings

A)

I B)

109

II C)

I and II D)

neither I nor II Answer:

A Topic:

Production Quotas Skill:

Recognition

169)

If a production quota is set below the equilibrium quantity, at the quota quantity, marginal benefit is ________ marginal cost and the level of production is ________.

A)

greater than; inefficient B)

greater than; efficient C)

less than; inefficient D)

equal to; efficient Answer:

A Topic:

Production Quota and Efficiency Skill:

Conceptual

110

170)

The figure above shows the market for cotton in Georgestan. The government regulates the market with a production quota set at 8 million pounds per year. The price of cotton in Georgestan is

A)

30 cents per pound. B)

40 cents per pound. C)

60 cents per pound. D)

50 cents per pound. Answer:

C Topic:


Analytical*

111

171)

The figure above shows the market for cotton in Georgestan. The government regulates the market with a production quota set at 8 million pounds per year. The introduction of the quota has

A)

not affected the level of cotton production in Georgestan. B)

increased the production of cotton in Georgestan by 8 million pounds. C)

decreased the production of cotton in Georgestan by 4 million pounds. D)

decreased the production of cotton in Georgestan by 8 million pounds. Answer:

D Topic:


Analytical*

172)

The figure above shows the market for cotton in Georgestan. The government regulates the market with a production quota set at 8 million pounds per year. With the quota in place, the amount of cotton produced in Georgestan is ________ because the marginal social cost of a pound of cotton is ________ the marginal social benefit of a pound of cotton.

A)

inefficient; less than B)

inefficient; greater than C)

efficient; less than D)

efficient; equal to Answer:

112

A Topic:

Production Quota and Efficiency Skill:

Analytical*

173)

In general, a fine on selling a product leads to the A)

supply curve shifting rightward. B)

supply curve shifting leftward. C)

demand curve shifting rightward. D)

demand curve shifting leftward. Answer:

B Topic:

A Market for Illegal Goods, Penalties on Sellers Skill:

Conceptual

174)

If penalties are imposed on the sellers of illegal goods or services, then the equilibrium price ________ and the equilibrium quantity ________.

A)

rises; increases B)

rises; decreases C)

falls; increases D)

113

falls; decreases Answer:

B Topic:


Analytical

175)

When a government fines and/or imprisons convicted drug dealers, it is attempting to reduce the illegal drug trade by shifting the ________ curve for illegal drugs ________.

A)

demand; rightward B)

demand; leftward C)

supply; rightward D)

supply; leftward Answer:

D Topic:

Markets For Illegal Goods, Penalties on Sellers Skill:

Conceptual

114

176)

If selling a good is made illegal, the A)

demand curve shifts rightward. B)

supply curve shifts rightward. C)

demand curve shifts leftward. D)

supply curve shifts leftward. Answer:

D Topic:

Markets For Illegal Goods, Penalties on Sellers Skill:

Conceptual

177)

When a government fines and/or imprisons persons convicted of using illegal drugs, the government is attempting to decrease the illegal drug trade by shifting the ________ curve for illegal drugs ________.

A)

demand; rightward B)

demand; leftward C)

supply; rightward D)

supply; leftward Answer:

B Topic:

115

Markets For Illegal Goods, Penalties on Buyers Skill:

Conceptual

178)

In general, a fine on smoking cigarettes shifts the ________ curve of cigarettes ________. A)

supply; rightward B)

supply; leftward C)

demand; rightward D)

demand; leftward Answer:

D Topic:


Conceptual

179)

If penalties are imposed only on the buyers of illegal drugs, the equilibrium price of illegal drugs will ________ and the equilibrium quantity will ________.

A)

rise; increase B)

rise; decrease C)

fall; increase D)

fall; decrease Answer

116

D Topic:


Recognition

180)

In general, a fine on buying a product leads to the A)

supply curve shifting rightward. B)

supply curve shifting leftward. C)

demand curve shifting rightward. D)

demand curve shifting leftward. Answer:

D Topic:

A Market for Illegal Goods, Penalties on Buyers Skill:

Conceptual

117

181)

If penalties are imposed on the buyers of illegal goods or services, then the equilibrium price ________ and the equilibrium quantity ________.

A)

rises; increases B)

rises; decreases C)

falls; increases D)

falls; decreases Answer:

D Topic:


Analytical

182)

When a government imposes penalties on both sellers and buyers of an illegal good, the price of the good ________ and the quantity ________.

A)

falls; decreases B)

falls; might increase, decrease, or not change C)

rises; might increase, decrease, or not change D)

might rise, fall, or not change; decreases Answer:

D Topic:

118

Markets For Illegal Goods, Penalties on Buyers and Sellers Skill:

Analytical

183)

If penalties for trading illegal drugs are instituted on both buyers and sellers, the A)

quantity might increase or decrease but the price will rise. B)

price might rise or fall, but the quantity will decrease. C)

price and the quantity will both decrease. D)

price and the quantity will both increase. Answer:

B Topic:

Markets For Illegal Goods, Penalties on Buyers and Sellers Skill:

Conceptual

184)

When a good is made illegal, which of the following definitely results in the price rising? A)

a much higher fine on sellers than on buyers B)

a much higher fine on buyers than on sellers C)

any fine imposed on both buyers or sellers D)

any fine imposed on buyers Answer:

119

A Topic:

A Market for Illegal Goods, Penalties on Both Sellers and Buyers Skill:

Analytical

185)

When a good is made illegal, which of the following definitely results in the price falling? A)



any fine imposed on buyers while sellers are not penalized D)

Both answers B and C are correct. Answer:

D Topic:


Analytical

120

186)

Compared to the situation in which a good is legal, making the good illegal and imposing ________ results in less being sold.

A)



any fine on either the buyer or the seller D)


D Topic:


Analytical

187)

If the same fine is imposed on buyers and sellers of an illegal good so that the cost of breaking the law is the same for both, then

A)

there is more government revenue collected than with an excise tax on the good. B)

there is no deadweight loss in this market because the extra producer surplus will exactly offset the lost consumer surplus.

C)

the supply and demand curves both shift leftward by equal amounts. D)

the equilibrium price of the good definitely increases. Answer:

C Topic :

121


Analytical

188)

If penalties are imposed on both the buyers and the sellers of illegal goods or services, then an effect in the market for the illegal good or service would definitely be

A)

an increase in the equilibrium price. B)

a decrease in the equilibrium price. C)

a decrease in the equilibrium quantity. D)

an increase in the equilibrium quantity. Answer:

C Topic:


Analytical

189)

If enforcement is aimed at buyers of an illegal good, the result will be A)

an increase in the short-run supply of the good. B)

a decrease in the short-run supply of the good. C)

a decrease in demand for the good. D)

an increase in the price of the good.

122

C Topic:


Analytical

190)

If the government makes a good illegal and then imposes stiffer penalties on illegal drug buyers than on sellers, the price of the good ________ and the quantity ________.

A)

falls; increases B)

rises; decreases C)

falls; decreases D)

does not change; decreases Answer:

C Topic:


Analytical

123

191)

If penalties are imposed only on sellers (but not on buyers) of marijuana, the equilibrium price of marijuana will ________, and the equilibrium quantity of marijuana sold will ________.

A)

rise; increase B)

rise; decrease C)

fall; increase D)

fall; decrease Answer:

B Topic:


Analytical*

192)

If penalties are imposed only on buyers (but not on sellers) of marijuana, the equilibrium price of marijuana ________, and the equilibrium quantity of marijuana sold ________.

A)

rise; increase B)

rise; decrease C)

fall; increase D)

fall; decrease Answer:

D Topic :

124


Analytical*

193)

Suppose penalties are imposed on both buyers and sellers of marijuana, but the cost of breaking the law to sellers is greater than that to buyers. This measure will ________ the equilibrium price of marijuana and ________ the equilibrium quantity of marijuana sold.

A)

lower; increase B)

raise; increase C)

raise; decrease D)

not change; will decrease Answer:

C Topic:


Analytical*

125

194)

Using the above figure, CBL is the cost of breaking the law. What is the equilibrium price and quantity if beer is legal?

A)

$5 per quart and 300 quarts of beer B)

$3 per quart and 500 quarts of beer C)

$3 per quart and 100 quarts of beer D)

$1 per quart and 300 quarts of beer Answer:

B Topic:

A Market for Illegal Goods Skill:

Recognition

195)

Suppose the government has declared beer to be an illegal substance and imposes a fine on any person caught selling a beer. Buying beer, however, remains legal. Using the above

126

figure, in which CBL is the cost of breaking the law, what is the equilibrium price and quantity with this new law in effect?

A)





A Topic:


Analytical

196)

Suppose the government has declared beer to be an illegal substance and has imposed penalties on any person caught selling a beer. Buying a beer, however, remains legal. Using the above figure, in which CBL is the cost of breaking the law, beer consumption is decreased by

A)

200 quarts. B)

300 quarts. C)

400 quarts. D)

500 quarts. Answer:

A Topic:

A Market for Illegal Goods, Penalties on Sellers

127

Analytical

197)

Suppose the government has declared beer to be an illegal substance and imposes a fine on anyone caught buying a beer. Selling beer, however, remains legal. Using the above figure, in which CBL is the cost of breaking the law, what is the equilibrium price and quantity with this new law in effect?

A)





D Topic:


Analytical

198)

Suppose the government has declared beer to be an illegal substance and has imposed penalties on any person caught buying a beer. Selling a beer, however, remains legal. Using the above figure, in which CBL is the cost of breaking the law, beer consumption is decreased by

A)

200 quarts. B)

300 quarts. C)

400 quarts. D)

500 quarts. 128

A Topic:


Analytical

199)

Suppose the government has declared beer to be an illegal substance and has imposed equal penalties on any person caught buying a beer and on any person caught selling a beer. Using the above figure, in which CBL is the cost of breaking the law, what is the equilibrium price and quantity with this new law in effect?

A)





C Topic:


Analytical

200)

Suppose the government has declared beer to be an illegal substance and has imposed equal penalties on any person caught buying a beer and on any person caught selling a beer. Using the above figure, in which CBL is the cost of breaking the law, beer consumption is decreased by

A)

200 quarts. B)

300 quarts.

129

C)

400 quarts. D)

500 quarts. Answer:

C Topic:


Analytical

130

201)

Which of the following is a correct statement about markets for prohibited goods? A)

Penalizing sellers of an illegal good decreases supply and penalizing buyers decreases demand.

B)

Penalizing either buyers or sellers of an illegal good decreases the quantity bought. C)

Taxing a good at a sufficiently high rate can achieve the same consumption level as prohibition.

D)

All of the above are correct statements. Answer:

D Topic:

Markets For Illegal Goods Skill:

Conceptual

202)

Rather than prohibiting a good or service, the government might tax it. Imposing such a tax on a good or service ________ the equilibrium price and ________ the equilibrium quantity.

A)

raises; increases B)

raises; decreases C)

lowers; increases D)

lowers; decreases Answer:

B Topic :

131

Markets For Illegal Goods Skill:

Analytical

132