Principles of Economics 6th Edition By N. Gregory Mankiw - Test Bank

Principles of Economics 6th Edition By N. Gregory Mankiw – Test Bank

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Chapter 6 Supply, Demand, and Government Policies

Multiple Choice

Which of the following is not correct?

a.	Economists have two roles: scientist and policy adviser.
b.	As scientists, economists develop and test theories to explain the world around them.
c.	Economic policies rarely have effects that their architects did not intend or anticipate.
d.	As policy advisers, economists use their theories to help change the world for the better.

ANS: C PTS: 1 DIF: 1 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Public policy

MSC: Definitional

Which of the following is not an example of a public policy?

a.	rent-control laws
b.	minimum-wage laws
c.	taxes
d.	equilibrium laws

ANS: D PTS: 1 DIF: 1 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Public policy

MSC: Applicative

Rent-control laws dictate

a.	the exact rent that landlords must charge tenants.
b.	a maximum rent that landlords may charge tenants.
c.	a minimum rent that landlords may charge tenants.
d.	both a minimum rent and a maximum rent that landlords may charge tenants.

ANS: B PTS: 1 DIF: 1 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Definitional

Minimum-wage laws dictate

a.	the exact wage that firms must pay workers.
b.	a maximum wage that firms may pay workers.
c.	a minimum wage that firms may pay workers.
d.	both a minimum wage and a maximum wage that firms may pay workers.

ANS: C PTS: 1 DIF: 1 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

Price controls are usually enacted

a.	as a means of raising revenue for public purposes.
b.	when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
c.	when policymakers detect inefficiencies in a market.
d.	All of the above are correct.

ANS: B PTS: 1 DIF: 2 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Interpretive

The presence of a price control in a market for a good or service usually is an indication that

a.	an insufficient quantity of the good or service was being produced in that market to meet the public’s need.
b.	the usual forces of supply and demand were not able to establish an equilibrium price in that market.
c.	policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.
d.	policymakers correctly believed that price controls would generate no inequities of their own once imposed.

ANS: C PTS: 1 DIF: 2 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Interpretive

Price controls

a.	always produce a fair outcome.
b.	always produce an efficient outcome.
c.	can generate inequities of their own.
d.	All of the above are correct.

ANS: C PTS: 1 DIF: 2 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Interpretive

Policymakers use taxes

a.	to raise revenue for public purposes but not to influence market outcomes.
b.	both to raise revenue for public purposes and to influence market outcomes.
c.	when they realize that price controls alone are insufficient to correct market inequities.
d.	only in those markets in which the burden of the tax falls clearly on the sellers.

ANS: B PTS: 1 DIF: 1 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Definitional

Controls on Prices

In a competitive market free of government regulation,

a.	price adjusts until quantity demanded is greater than quantity supplied.
b.	price adjusts until quantity demanded is less than quantity supplied.
c.	price adjusts until quantity demanded equals quantity supplied.
d.	supply adjusts to meet demand at every price.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Interpretive

In a free, competitive market, what is the rationing mechanism?

a.	seller bias
b.	buyer bias
c.	government law
d.	price

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Interpretive

Which of the following is not a function of prices in a market system?

a.	Prices have the crucial job of balancing supply and demand.
b.	Prices send signals to buyers and sellers to help them make rational economic decisions.
c.	Prices coordinate economic activity.
d.	Prices ensure an equal distribution of goods and services among consumers.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Interpretive

A legal maximum on the price at which a good can be sold is called a price

a.	floor.
b.	subsidy.
c.	support.
d.	ceiling.

ANS: D PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Definitional

A price ceiling is

a.	often imposed on markets in which “cutthroat competition” would prevail without a price ceiling.
b.	a legal maximum on the price at which a good can be sold.
c.	often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling.
d.	All of the above are correct.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?

a.	Policymakers have studied the effects of the price ceiling carefully, and they recognize that the price ceiling is advantageous for society as a whole.
b.	Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.
c.	Sellers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.
d.	Buyers and sellers of milk have agreed that the price ceiling is good for both of them and have therefore pressured policymakers into imposing the price ceiling.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

If a price ceiling is not binding, then

a.	the equilibrium price is above the price ceiling.
b.	the equilibrium price is below the price ceiling.
c.	it has no legal enforcement mechanism.
d.	None of the above is correct because all price ceilings must be binding.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

If a price ceiling is not binding, then

a.	there will be a surplus in the market.
b.	there will be a shortage in the market.
c.	the market will be less efficient than it would be without the price ceiling.
d.	there will be no effect on the market price or quantity sold.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

If a nonbinding price ceiling is imposed on a market, then the

a.	quantity sold in the market will decrease.
b.	quantity sold in the market will stay the same.
c.	price in the market will increase.
d.	price in the market will decrease.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

A price ceiling will be binding only if it is set

a.	equal to the equilibrium price.
b.	above the equilibrium price.
c.	below the equilibrium price.
d.	either above or below the equilibrium price.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,

a.	a smaller quantity of the good is bought and sold.
b.	a smaller quantity of the good is demanded.
c.	a larger quantity of the good is supplied.
d.	the price rises above the previous equilibrium.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

a.	Improvements in production technology reduce the costs of producing laptop computers.
b.	The number of firms selling laptop computers decreases.
c.	Consumers’ income decreases, and laptop computers are a normal good.
d.	The number of consumers buying laptop computers decreases.

ANS: B PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Analytical

Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?

a.	Cellular phones become more popular.
b.	Traditional land line phones become more expensive.
c.	The components used to produce cellular phones become more expensive.
d.	A technological advance makes cellular phone production less expensive.

ANS: D PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Analytical

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

a.	increase, and the quantity sold in the market will increase.
b.	increase, and the quantity sold in the market will decrease.
c.	decrease, and the quantity sold in the market will increase.
d.	decrease, and the quantity sold in the market will decrease.

ANS: A PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Analytical

If the government removes a binding price ceiling from a market, then the price received by sellers will

a.	decrease, and the quantity sold in the market will decrease.
b.	decrease, and the quantity sold in the market will increase.
c.	increase, and the quantity sold in the market will decrease.
d.	increase, and the quantity sold in the market will increase.

ANS: D PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Analytical

When a binding price ceiling is imposed on a market,

a.	price no longer serves as a rationing device.
b.	the quantity supplied at the price ceiling exceeds the quantity that would have been supplied without the price ceiling.
c.	all buyers benefit.
d.	All of the above are correct.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

When a binding price ceiling is imposed on a market to benefit buyers,

a.	no buyers actually benefit.
b.	some buyers benefit, but no buyers are harmed.
c.	some buyers benefit, and some buyers are harmed.
d.	all buyers benefit.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Which of the following would be the least likely result of a binding price ceiling imposed on the market for rental cars?

a.	an accumulation of dirt in the interior of rental cars
b.	poor engine maintenance in rental cars
c.	free gasoline given to people as an incentive to a rent a car
d.	slow replacement of old rental cars with newer ones

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars?

a.	frequent rental programs such as “Rent nine times and the tenth rental is free!”
b.	enhanced maintenance programs to promote the high quality of the cars
c.	free gasoline given to people as an incentive to a rent a car
d.	slow replacement of old rental cars with newer ones

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

A price ceiling is binding when it is set

a.	above the equilibrium price, causing a shortage.
b.	above the equilibrium price, causing a surplus.
c.	below the equilibrium price, causing a shortage.
d.	below the equilibrium price, causing a surplus.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

A binding price ceiling

(i)			causes a surplus.
(ii)			causes a shortage.
(iii)			is set at a price above the equilibrium price.
(iv)			is set at a price below the equilibrium price.
	a.	(ii) only
	b.	(iv) only
	c.	(i) and (iii) only
	d.	(ii) and (iv) only

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

A nonbinding price ceiling

(i)			causes a surplus.
(ii)			causes a shortage.
(iii)			is set at a price above the equilibrium price.
(iv)			is set at a price below the equilibrium price.
	a.	(i) only
	b.	(iii) only
	c.	(i) and (iii) only
	d.	(ii) and (iv) only

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

To say that a price ceiling is binding is to say that the price ceiling

a.	results in a surplus.
b.	is set above the equilibrium price.
c.	causes quantity demanded to exceed quantity supplied.
d.	All of the above are correct.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

To say that a price ceiling is nonbinding is to say that the price ceiling

a.	results in a surplus.
b.	is set above the equilibrium price.
c.	causes quantity demanded to exceed quantity supplied.
d.	All of the above are correct.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

A shortage results when a

a.	nonbinding price ceiling is imposed on a market.
b.	nonbinding price ceiling is removed from a market.
c.	binding price ceiling is imposed on a market.
d.	binding price ceiling is removed from a market.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

The imposition of a binding price ceiling on a market causes quantity demanded to be

a.	greater than quantity supplied.
b.	less than quantity supplied.
c.	equal to quantity supplied.
d.	Both a) and b) are possible.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

If a price ceiling is a binding constraint on a market, then

a.	the equilibrium price must be below the price ceiling.
b.	the quantity supplied must exceed the quantity demanded.
c.	sellers cannot sell all they want to sell at the price ceiling.
d.	buyers cannot buy all they want to buy at the price ceiling.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,

a.	the demand for treadmills will increase.
b.	the supply of treadmills will decrease.
c.	a shortage of treadmills will develop.
d.	All of the above are correct.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

If a binding price ceiling is imposed on the baby formula market, then

a.	the quantity of baby formula demanded will increase.
b.	the quantity of baby formula supplied will decrease.
c.	a shortage of baby formula will develop.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Suppose the equilibrium price of a physical examination (“physical”) by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the

a.	demand curve for physicals shifts to the right.
b.	supply curve for physicals shifts to the left.
c.	quantity demanded of physicals increases, and the quantity supplied of physicals decreases.
d.	number of physicals performed stays the same.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

When a binding price ceiling is imposed on a market to benefit buyers,

a.	every buyer in the market benefits.
b.	every buyer and seller in the market benefits.
c.	every buyer who wants to buy the good will be able to do so, but only if he waits in long lines.
d.	some buyers will not be able to buy any amount of the good.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

In response to a shortage caused by the imposition of a binding price ceiling on a market,

a.	price will no longer be the mechanism that rations scarce resources.
b.	long lines of buyers may develop.
c.	sellers could ration the good or service according to their own personal biases.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Figure 6-1

Panel (a)	Panel (b)

Refer to Figure 6-1. A binding price ceiling is shown in

a.	panel (a) only.
b.	panel (b) only.
c.	both panel (a) and panel (b).
d.	neither panel (a) nor panel (b).

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Refer to Figure 6-1. In which panel(s) of the figure would there be a shortage of the good at the price ceiling?

a.	panel (a) only
b.	panel (b) only
c.	both panel (a) and panel (b)
d.	neither panel (a) nor panel (b)

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Refer to Figure 6-1. The price ceiling shown in panel (a)

a.	is not binding.
b.	creates a surplus.
c.	creates a shortage.
d.	Both a) and b) are correct.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Refer to Figure 6-1. The price ceiling shown in panel (b)

a.	is not binding.
b.	creates a surplus.
c.	creates a shortage.
d.	Both a) and b) are correct.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Figure 6-2

Refer to Figure 6-2. The price ceiling

a.	is binding.
b.	causes a shortage.
c.	causes the quantity demanded to exceed the quantity supplied.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Refer to Figure 6-2. The price ceiling

a.	causes a shortage of 45 units of the good.
b.	makes it necessary for sellers to ration the good.
c.	is not binding because it is set below the equilibrium price.
d.	Both a) and b) are correct.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Refer to Figure 6-2. The price ceiling causes a

a.	surplus of 40 units.
b.	surplus of 85 units.
c.	shortage of 45 units.
d.	shortage of 85 units.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-2. The price ceiling causes quantity

a.	supplied to exceed quantity demanded by 45 units.
b.	supplied to exceed quantity demanded by 85 units.
c.	demanded to exceed quantity supplied by 45 units.
d.	demanded to exceed quantity supplied by 85 units.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

A legal minimum on the price at which a good can be sold is called a price

a.	subsidy.
b.	floor.
c.	support.
d.	ceiling.

ANS: B PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Definitional

A price floor is

a.	a legal minimum on the price at which a good can be sold.
b.	often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor.
c.	a source of inefficiency in a market.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

Which of the following is the most likely explanation for the imposition of a price floor on the market for corn?

a.	Policymakers have studied the effects of the price floor carefully, and they recognize that the price floor is advantageous for society as a whole.
b.	Buyers and sellers of corn have agreed that the price floor is good for both of them and have therefore pressured policy makers into imposing the price floor.
c.	Buyers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor.
d.	Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

If a price floor is not binding, then

a.	the equilibrium price is above the price floor.
b.	the equilibrium price is below the price floor.
c.	there will be a surplus in the market.
d.	Both a) and c) are correct.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

If a price floor is not binding, then

a.	there will be a surplus in the market.
b.	there will be a shortage in the market.
c.	there will be no effect on the market price or quantity sold.
d.	the market will be less efficient than it would be without the price floor.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

If a nonbinding price floor is imposed on a market, then the

a.	quantity sold in the market will decrease.
b.	quantity sold in the market will stay the same.
c.	price in the market will increase.
d.	price in the market will decrease.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

A binding price floor

(i)			causes a surplus.
(ii)			causes a shortage.
(iii)			is set at a price above the equilibrium price.
(iv)			is set at a price below the equilibrium price.
	a.	(i) only
	b.	(iii) only
	c.	(i) and (iii) only
	d.	(ii) and (iv) only

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

A nonbinding price floor

(i)			causes a surplus.
(ii)			causes a shortage.
(iii)			is set at a price above the equilibrium price.
(iv)			is set at a price below the equilibrium price.
	a.	(iii) only
	b.	(iv) only
	c.	(i) and (iii) only
	d.	(ii) and (iv) only

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

A price floor will be binding only if it is set

a.	equal to the equilibrium price.
b.	above the equilibrium price.
c.	below the equilibrium price.
d.	either above or below the equilibrium price.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

After a binding price floor becomes effective, a

a.	smaller quantity of the good is bought and sold.
b.	a larger quantity of the good is demanded.
c.	a smaller quantity of the good is supplied.
d.	All of the above are correct.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?

a.	Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.
b.	The number of farmers selling soybeans decreases.
c.	Consumers’ income increases, and soybeans are a normal good.
d.	The number of consumers buying soybeans increases.

ANS: A PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Analytical

Suppose the government has imposed a price floor on cellular phones. Which of the following events could transform the price floor from one that is binding to one that is not binding?

a.	Cellular phones become less popular.
b.	Traditional land line phones become more expensive.
c.	The components used to produce cellular phones become less expensive.
d.	Firms expect the price of cellular phones to fall in the future.

ANS: B PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Analytical

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

a.	increase, and the quantity sold in the market will increase.
b.	increase, and the quantity sold in the market will decrease.
c.	decrease, and the quantity sold in the market will increase.
d.	decrease, and the quantity sold in the market will decrease.

ANS: C PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Analytical

If the government removes a binding price floor from a market, then the price received by sellers will

a.	decrease, and the quantity sold in the market will decrease.
b.	decrease, and the quantity sold in the market will increase.
c.	increase, and the quantity sold in the market will decrease.
d.	increase, and the quantity sold in the market will increase.

ANS: B PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Analytical

When a binding price floor is imposed on a market,

a.	price no longer serves as a rationing device.
b.	the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor.
c.	only some sellers benefit.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

When a binding price floor is imposed on a market,

a.	price no longer serves as a rationing device.
b.	the quantity demanded at the price floor exceeds the quantity that would have been demanded without the price floor.
c.	all sellers benefit.
d.	All of the above are correct.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

When a binding price floor is imposed on a market to benefit sellers,

a.	no sellers actually benefit.
b.	some sellers benefit, but no sellers are harmed.
c.	some sellers benefit, and some sellers are harmed.
d.	all sellers benefit.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

A price floor is binding when it is set

a.	above the equilibrium price, causing a shortage.
b.	above the equilibrium price, causing a surplus.
c.	below the equilibrium price, causing a shortage.
d.	below the equilibrium price, causing a surplus.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

To say that a price floor is binding is to say that the price floor

a.	results in a shortage.
b.	is set below the equilibrium price.
c.	causes quantity supplied to exceed quantity demanded.
d.	All of the above are correct.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

A surplus results when a

a.	nonbinding price floor is imposed on a market.
b.	nonbinding price floor is removed from a market.
c.	binding price floor is imposed on a market.
d.	binding price floor is removed from a market.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

The imposition of a binding price floor on a market causes quantity demanded to be

a.	greater than quantity supplied.
b.	less than quantity supplied.
c.	equal to quantity supplied.
d.	Both a) and b) are possible.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

If a price floor is a binding constraint on a market, then

a.	the equilibrium price must be above the price floor.
b.	the quantity demanded must exceed the quantity supplied.
c.	sellers cannot sell all they want to sell at the price floor.
d.	buyers cannot buy all they want to buy at the price floor.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

If a binding price floor is imposed on the video game market, then

a.	the demand for video games will decrease.
b.	the supply of video games will increase.
c.	a surplus of video games will develop.
d.	All of the above are correct.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

If a binding price floor is imposed on the video game market, then

a.	the quantity of video games demanded will decrease.
b.	the quantity of video games supplied will increase.
c.	a surplus of video games will develop.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the

a.	demand curve for toothpaste shifts to the left.
b.	supply curve for toothpaste shifts to the right.
c.	quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.
d.	quantity supplied of toothpaste stays the same.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

When a binding price floor is imposed on a market to benefit sellers,

a.	every seller in the market benefits.
b.	all buyers and sellers benefit.
c.	every seller who wants to sell the good will be able to do so, but only if he appeals to the personal biases of the buyers.
d.	some sellers will not be able to sell any amount of the good.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

A binding price floor will reduce a firm’s total revenue

a.	always.
b.	when demand is elastic.
c.	when demand is inelastic.
d.	never.

ANS: B PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Analytical

Figure 6-3

Panel (a)	Panel (b)

Refer to Figure 6-3. A binding price floor is shown in

a.	both panel (a) and panel (b).
b.	panel (a) only.
c.	panel (b) only.
d.	neither panel (a) nor panel (b).

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

Refer to Figure 6-3. A nonbinding price floor is shown in

a.	both panel (a) and panel (b).
b.	panel (a) only.
c.	panel (b) only.
d.	neither panel (a) nor panel (b).

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

Refer to Figure 6-3. In panel (b), there will be

a.	a shortage of wheat.
b.	equilibrium in the market.
c.	a surplus of wheat.
d.	lines of people waiting to buy wheat.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

Refer to Figure 6-3. In panel (a), there will be

a.	a shortage of wheat.
b.	equilibrium in the market.
c.	a surplus of wheat.
d.	lines of people waiting to buy wheat.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

An outcome that can result from either a price ceiling or a price floor is

a.	a surplus in the market.
b.	a shortage in the market.
c.	a nonbinding price control.
d.	long lines of frustrated buyers.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Interpretive

An outcome that can result from either a price ceiling or a price floor is

a.	an enhancement of efficiency.
b.	undesirable rationing mechanisms.
c.	a surplus.
d.	a shortage.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Interpretive

Price ceilings and price floors that are binding

a.	are desirable because they make markets more efficient and more fair.
b.	cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price.
c.	can have the effect of restoring a market to equilibrium.
d.	are imposed because they can make the poor in the economy better off without causing adverse effects.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Interpretive

When government imposes a price ceiling or a price floor on a market,

a.	price no longer serves as a rationing device.
b.	efficiency in the market is enhanced.
c.	shortages and surpluses are eliminated.
d.	both buyers and sellers become better off.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Interpretive

You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. Harpo, who is one of your advisors, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Chico, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Zeppo, a third advisor, says that the best way to avoid a shortage of oranges is to take no action at all. Which of your three advisors is most likely to have studied economics?

a.	Harpo
b.	Chico
c.	Zeppo
d.	Apparently, all three advisors have studied economics, but their views on positive economics are different.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Applicative

When policymakers set prices by legal decree, they

a.	are usually following the advice of mainstream economists.
b.	improve the organization of economic activity.
c.	obscure the signals that normally guide the allocation of society’s resources.
d.	are demonstrating a willingness to sacrifice fairness for the sake of a gain in efficiency.

ANS: C PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Definitional

Consider the market for watermelons. Buyers

a.	and sellers would lobby for a price ceiling.
b.	and sellers would lobby for a price floor.
c.	would lobby for a price ceiling, whereas sellers would lobby for a price floor.
d.	would lobby for a price floor, whereas sellers would lobby for a price ceiling.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Price floors

MSC: Interpretive

Figure 6-4

Refer to Figure 6-4. Which of the following statements is not correct?

a.	When the price is $10, quantity supplied equals quantity demanded.
b.	When the price is $6, there is a surplus of 8 units.
c.	When the price is $12, there is a surplus of 4 units.
d.	When the price is $16, quantity supplied exceeds quantity demanded by 12 units.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors | Price ceilings

MSC: Applicative

Refer to Figure 6-4. A government-imposed price of $6 in this market could be an example of a

(i)			binding price ceiling.
(ii)			non-binding price ceiling.
(iii)			binding price floor.
(iv)			non-binding price floor.
	a.	(i) only
	b.	(ii) only
	c.	(i) and (iv) only
	d.	(ii) and (iii) only

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors | Price ceilings

MSC: Applicative

Refer to Figure 6-4. A government-imposed price of $16 in this market could be an example of a

(i)			binding price ceiling.
(ii)			non-binding price ceiling.
(iii)			binding price floor.
(iv)			non-binding price floor.
	a.	(i) only
	b.	(ii) only
	c.	(i) and (iv) only
	d.	(ii) and (iii) only

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors | Price ceilings

MSC: Applicative

Refer to Figure 6-4. A government-imposed price of $12 in this market is an example of a

a.	binding price ceiling that creates a shortage.
b.	non-binding price ceiling that creates a shortage.
c.	binding price floor that creates a surplus.
d.	non-binding price floor that creates a surplus.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors | Price ceilings

MSC: Applicative

Refer to Figure 6-4. A government-imposed price of $6 in this market is an example of a

a.	binding price ceiling that creates a shortage.
b.	non-binding price ceiling that creates a shortage.
c.	binding price floor that creates a surplus.
d.	non-binding price floor that creates a surplus.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors | Price ceilings

MSC: Applicative

Figure 6-5

Refer to Figure 6-5. If the horizontal line on the graph represents a price ceiling, then the price ceiling is

a.	binding and creates a surplus of 40 units of the good.
b.	binding and creates a surplus of 90 units of the good.
c.	not binding but creates a surplus of 40 units of the good.
d.	not binding, and there will be no surplus or shortage of the good.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-5. If the horizontal line on the graph represents a price floor, then the price floor is

a.	binding and creates a shortage of 40 units of the good.
b.	binding and creates a surplus of 50 units of the good.
c.	binding and creates a surplus of 90 units of the good.
d.	not binding but creates a surplus of 40 units of the good.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Figure 6-5. Suppose the market is initially in equilibrium. Then the government imposes a price control, as represented by the horizontal line on the graph. If the price control is a price floor, then the price control

a.	causes the quantity demanded to decrease by 50 units, relative to the initial equilibrium.
b.	causes the quantity supplied to increase by 40 units, relative to the initial equilibrium.
c.	results in some firms being more successful than others in selling their goods.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Figure 6-6

Refer to Figure 6-6. Which of the following price ceilings would be binding in this market?

a.	$8
b.	$10
c.	$12
d.	$14

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-6. Which of the following price floors would be binding in this market?

a.	$6
b.	$8
c.	$10
d.	$12

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Figure 6-6. Which of the following statements is correct?

a.	A price ceiling set at $12 would be binding, but a price ceiling set at $8 would not be binding.
b.	A price floor set at $8 would be binding, but a price ceiling set at $8 would not be binding.
c.	A price ceiling set at $9 would result in a surplus.
d.	A price floor set at $11 would result in a surplus.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors | Price ceilings

MSC: Applicative

Refer to Figure 6-6. Which of the following statements is not correct?

a.	A price ceiling set at $8 would be binding, but a price ceiling set at $12 would not be binding.
b.	A price floor set at $14 would be binding, but a price floor set at $8 would not be binding.
c.	A price ceiling set at $9 would result in a surplus.
d.	A price floor set at $11 would result in a surplus.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors | Price ceilings

MSC: Applicative

Refer to Figure 6-6. If the government imposes a price ceiling of $8 on this market, then there will be

a.	no shortage.
b.	a shortage of 10 units.
c.	a shortage of 20 units.
d.	a shortage of 40 units.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-6. If the government imposes a price ceiling of $12 on this market, then there will be

a.	no shortage.
b.	a shortage of 10 units.
c.	a shortage of 20 units.
d.	a shortage of 40 units.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-6. If the government imposes a price floor of $6 on this market, then there will be

a.	no surplus.
b.	a surplus of 20 units.
c.	a surplus of 30 units.
d.	a surplus of 40 units.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Figure 6-6. If the government imposes a price floor of $14 on this market, then there will be

a.	no surplus.
b.	a surplus of 20 units.
c.	a surplus of 30 units.
d.	a surplus of 40 units.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Figure 6-6. In which of the following cases would sellers have to develop a rationing mechanism?

a.	a price ceiling set at $8
b.	a price ceiling set at $12
c.	a price floor set at $8
d.	a price floor set at $12

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Figure 6-7

Refer to Figure 6-7. For a price ceiling to be binding in this market, it would have to be set at

a.	any price below $6.
b.	a price between $3 and $6.
c.	a price between $6 and $9.
d.	any price above $6.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-7. For a price floor to be binding in this market, it would have to be set at

a.	any price below $6.
b.	a price between $3 and $6.
c.	a price between $6 and $9.
d.	any price above $6.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Figure 6-7. Which of the following price controls would cause a shortage of 20 units of the good?

a.	a price ceiling set at $4
b.	a price ceiling set at $5
c.	a price floor set at $7
d.	a price floor set at $8

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-7. Which of the following price controls would cause a surplus of 20 units of the good?

a.	a price ceiling set at $4
b.	a price ceiling set at $5
c.	a price floor set at $7
d.	a price floor set at $8

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Figure 6-7. Suppose a price ceiling of $5 is imposed on this market. As a result,

a.	the quantity of the good supplied decreases by 20 units.
b.	the demand curve shifts to the left so as to now pass through the point (quantity = 40, price = $5).
c.	buyers’ total expenditure on the good decreases by $100.
d.	the price of the good continues to serve as the rationing mechanism.

ANS: C PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Analytical

Refer to Figure 6-7. Suppose a price floor of $7 is imposed on this market. As a result,

a.	buyers’ total expenditure on the good decreases by $20.
b.	the supply curve shifts to the left so as to now pass through the point (quantity = 40, price = $7).
c.	the quantity of the good demanded decreases by 20 units.
d.	the price of the good continues to serve as the rationing mechanism.

ANS: A PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Analytical

Figure 6-8

Refer to Figure 6-8. If the government imposes a price ceiling of $2 on this market, then there will be

a.	no shortage of the good.
b.	a shortage of 40 units of the good.
c.	a shortage of 60 units of the good.
d.	a shortage of 85 units of the good.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-8. If the government imposes a price floor of $5 on this market, then there will be

a.	no surplus of the good.
b.	a surplus of 20 units of the good.
c.	a surplus of 30 units of the good.
d.	a surplus of 55 units of the good.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Figure 6-8. The price of the good would continue to serve as the rationing mechanism if

a.	a price ceiling of $4 is imposed.
b.	a price ceiling of $5 is imposed.
c.	a price floor of $3 is imposed.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Price floors

MSC: Applicative

Refer to Figure 6-8. When a certain price control is imposed on this market, the resulting quantity of the good that is actually bought and sold is such that buyers are willing and able to pay a maximum of P₁ dollars per unit for that quantity and sellers are willing and able to accept a minimum of P₂ dollars per unit for that quantity. If P₁ – P₂ = $3, then the price control is

a.	a price ceiling of $2.00.
b.	a price ceiling of $5.00.
c.	a price floor of $5.00.
d.	either a price ceiling of $2.00 or a price floor of $5.00.

ANS: D PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Price floors

MSC: Analytical

Figure 6-9

Refer to Figure 6-9. A price ceiling set at

a.	$4 will be binding and will result in a shortage of 3 units.
b.	$4 will be binding and will result in a shortage of 6 units.
c.	$7 will be binding and will result in a surplus of 6 units.
d.	$7 will be binding and will result in a surplus of 12 units.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-9. At which price would a price ceiling be binding?

a.	$4
b.	$5
c.	$6
d.	$7

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-9. At which price would a price ceiling be nonbinding?

a.	$2
b.	$3
c.	$4
d.	$6

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-9. A price floor set at

a.	$4 will be binding and will result in a shortage of 3 units.
b.	$4 will be binding and will result in a shortage of 6 units.
c.	$7 will be binding and will result in a surplus of 6 units.
d.	$7 will be binding and will result in a surplus of 12 units.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Figure 6-9. At which price would a price floor be binding?

a.	$6
b.	$5
c.	$4
d.	$3

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Figure 6-9. At which price would a price floor be nonbinding?

a.	$8
b.	$7
c.	$6
d.	$5

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Figure 6-10

Refer to Figure 6-10. A price ceiling set at

a.	$6 will be binding and will result in a shortage of 8 units.
b.	$6 will be binding and will result in a shortage of 4 units.
c.	$16 will be binding and will result in a shortage of 12 units.
d.	$16 will be binding and will result in a shortage of 6 units.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-10. A price floor set at

a.	$6 will be binding and will result in a surplus of 8 units.
b.	$6 will be binding and will result in a surplus of 4 units.
c.	$16 will be binding and will result in a surplus of 12 units.
d.	$16 will be binding and will result in a surplus of 6 units.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Figure 6-11

Refer to Figure 6-11. If the government imposes a price ceiling at $3, it would be

a.	binding if market demand is Demand A or Demand B.
b.	non-binding if market demand is Demand A or Demand B.
c.	binding if market demand is Demand A and non-binding if market demand is Demand B.
d.	non-binding if market demand is Demand A and binding if market demand is Demand B.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-11. If the government imposes a price floor at $9, it would be

a.	binding if market demand is Demand A or Demand B.
b.	non-binding if market demand is Demand A or Demand B.
c.	binding if market demand is Demand A and non-binding if market demand is Demand B.
d.	non-binding if market demand is Demand A and binding if market demand is Demand B.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Figure 6-11. Which of the following statements is not correct?

a.	A government-imposed price of $9 would be a binding price floor if market demand is Demand A and a binding price ceiling if market demand is Demand B.
b.	A government-imposed price of $15 would be a binding price ceiling if market demand is either Demand A or Demand B.
c.	A government-imposed price of $3 would be a binding price ceiling if market demand is either Demand A or Demand B.
d.	A government-imposed price of $12 would be a binding price floor if market demand is Demand A and a non-binding price ceiling if market demand is Demand B.

ANS: B PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Analytical

Figure 6-12

Refer to Figure 6-12. When the price ceiling applies in this market, and the supply curve for gasoline shifts from S₁ to S₂,

a.	the market price will increase to P₃.
b.	a surplus will occur at the new market price of P₂.
c.	the market price will stay at P₁.
d.	a shortage will occur at the new market price of P₂.

ANS: D PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-12. When the price ceiling applies in this market, and the supply curve for gasoline shifts from S₁ to S₂, the resulting quantity of gasoline that is bought and sold is

a.	less than Q₃.
b.	Q_3.
c.	between Q₁ and Q_3.
d.	at least Q₁.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-12. Which of the following statements best relates the figure to the events that occurred in the United States in the 1970s?

a.	Buyers of gasoline paid a price of P₁ before 1973; they paid a price of P₂ after OPEC increased the price of crude oil in 1973, and there was a shortage of gasoline at that price.
b.	Buyers of gasoline paid a price of P₁ before 1973; they paid a price of P₃ after OPEC increased the price of crude oil in 1973, and there was a shortage of gasoline at that price.
c.	Buyers of gasoline paid a price of P₂ before 1973; they paid a price of P₃ after OPEC increased the price of crude oil in 1973, with no shortage of gasoline at that price.
d.	The price ceiling was binding before 1973; the price ceiling was no longer binding after OPEC increased the price of crude oil in 1973.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings | OPEC

MSC: Applicative

Table 6-1

Price	Quantity Demanded	Quantity Supplied
$0	12	0
$1	10	2
$2	8	4
$3	6	6
$4	4	8
$5	2	10
$6	0	12

Refer to Table 6-1. Which of the following price ceilings would be binding in this market?

a.	$2
b.	$3
c.	$4
d.	$5

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Table 6-1. Which of the following price floors would be binding in this market?

a.	$1
b.	$2
c.	$3
d.	$4

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Table 6-1. Suppose the government imposes a price ceiling of $1 on this market. What will be the size of the shortage in this market?

a.	0 units
b.	2 units
c.	8 units
d.	10 units

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Table 6-1. Suppose the government imposes a price ceiling of $5 on this market. What will be the size of the shortage in this market?

a.	0 units
b.	2 units
c.	8 units
d.	10 units

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Table 6-1. Suppose the government imposes a price floor of $1 on this market. What will be the size of the surplus in this market?

a.	0 units
b.	2 units
c.	8 units
d.	10 units

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Table 6-1. Suppose the government imposes a price floor of $5 on this market. What will be the size of the surplus in this market?

a.	0 units
b.	2 units
c.	8 units
d.	10 units

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Table 6-2

Price	Quantity Demanded	Quantity Supplied
$0	250	0
$5	200	75
$10	150	150
$15	100	225
$20	50	300
$25	0	375

Refer to Table 6-2. A price ceiling set at $5 will

a.	be binding and will result in a shortage of 50 units.
b.	be binding and will result in a shortage of 75 units.
c.	be binding and will result in a shortage of 125 units.
d.	not be binding.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Table 6-2. A price ceiling set at $15 will

a.	be binding and will result in a shortage of 50 units.
b.	be binding and will result in a shortage of 100 units.
c.	be binding and will result in a shortage of 125 units.
d.	not be binding.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Table 6-2. A price floor set at $20 will

a.	be binding and will result in a surplus of 50 units.
b.	be binding and will result in a surplus of 100 units.
c.	be binding and will result in a surplus of 250 units.
d.	not be binding.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Table 6-2. A price floor set at $5 will

a.	be binding and will result in a surplus of 50 units.
b.	be binding and will result in a surplus of 75 units.
c.	be binding and will result in a surplus of 125 units.
d.	not be binding.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Table 6-3

The following table contains the demand schedule and supply schedule for a market for a particular good. Suppose sellers of the good successfully lobby Congress to impose a price floor $2 above the equilibrium price in this market.

Price	Quantity Demanded	Quantity Supplied
$0	15	0
$1	13	3
$2	11	6
$3	9	9
$4	7	12
$5	5	15
$6	3	18

Refer to Table 6-3. How many units of the good are sold after the imposition of the price floor?

a.	5
b.	9
c.	10
d.	15

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Table 6-3. Following the imposition of a price floor $2 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting market price is

a.	$2.
b.	$3.
c.	$4.
d.	$5.

ANS: B PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Price floors

MSC: Analytical

Refer to Table 6-3. Following the imposition of a price floor $2 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting shortage is

a.	0 units.
b.	2 units.
c.	5 units.
d.	7 units.

ANS: A PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Price floors

MSC: Analytical

Table 6-4

Price	Quantity Demanded	Quantity Supplied
$0	15	0
$1	13	3
$2	11	6
$3	9	9
$4	7	12
$5	5	15
$6	3	18

Refer to Table 6-4. How many units of the good are sold after the imposition of the price floor?

a.	3
b.	9
c.	15
d.	18

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Table 6-4. Following the imposition of a price floor $3 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting market price is

a.	$2.
b.	$3.
c.	$4.
d.	$5.

ANS: B PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Price floors

MSC: Analytical

Refer to Table 6-4. Following the imposition of a price floor $3 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting shortage is

a.	0 units.
b.	4 units.
c.	5 units.
d.	10 units.

ANS: A PTS: 1 DIF: 3 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Price floors

MSC: Analytical

In the United States, before OPEC increased the price of crude oil in 1973, there was

a.	no price ceiling on gasoline.
b.	a nonbinding price ceiling on gasoline.
c.	a binding price ceiling on gasoline.
d.	a nonbinding price floor on gasoline.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings | OPEC

MSC: Interpretive

In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that

a.	OPEC raised the price of crude oil in world markets.
b.	U.S. gasoline producers raised the price of gasoline.
c.	the U.S. government maintained a price ceiling on gasoline.
d.	Americans typically commuted long distances.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings | OPEC

MSC: Interpretive

Economists blame the long lines at gasoline stations in the U.S. in the 1970s on

a.	U.S. government regulations pertaining to the price of gasoline.
b.	the Organization of Petroleum Exporting Countries (OPEC).
c.	major oil companies operating in the U.S.
d.	consumers who bought gasoline frequently, even when their cars’ gasoline tanks were nearly full.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings | OPEC

MSC: Interpretive

When OPEC raised the price of crude oil in the 1970s, it caused the

a.	demand for gasoline to increase.
b.	demand for gasoline to decrease.
c.	supply of gasoline to increase.
d.	supply of gasoline to decrease.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: OPEC

MSC: Interpretive

When OPEC raised the price of crude oil in the 1970s, it caused the

a.	supply of gasoline to decrease.
b.	quantity of gasoline demanded to decrease.
c.	equilibrium price of gasoline to increase.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: OPEC

MSC: Interpretive

When OPEC raised the price of crude oil in the 1970s, it caused the United States’

a.	nonbinding price floor on gasoline to become binding.
b.	binding price floor on gasoline to become nonbinding.
c.	nonbinding price ceiling on gasoline to become binding.
d.	binding price ceiling on gasoline to become nonbinding.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: OPEC | Price ceilings

MSC: Interpretive

Other than OPEC, the shortage of gasoline in the U.S. in the 1970s could also be blamed on

a.	a sharp increase in the demand for gasoline that was brought on by the Vietnam War.
b.	the government’s policy of maintaining a price ceiling on gasoline.
c.	an indifference among U.S. consumers toward conservation.
d.	the lack of substitutes for crude oil.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: OPEC | Price ceilings

MSC: Interpretive

Economists generally believe that rent control is

a.	an efficient and fair way to help the poor.
b.	inefficient but the best available means of solving a serious social problem.
c.	a highly inefficient way to help the poor raise their standard of living.
d.	an efficient way to allocate housing, but not a good way to help the poor.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

One economist has argued that rent control is “the best way to destroy a city, other than bombing.” Why would an economist say this?

a.	He fears that low rents will cause low-income people to move into the city, reducing the quality of life for other people.
b.	He fears that rent control will benefit landlords at the expense of tenants, increasing inequality in the city.
c.	He fears that rent controls will cause a construction boom, which will make the city crowded and more polluted.
d.	He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

Rent control

a.	serves as an example of how a social problem can be alleviated or even solved by government policies.
b.	serves as an example of a price ceiling.
c.	is regarded by most economists as an efficient way of helping the poor.
d.	is the most efficient way to allocate scarce housing resources.

ANS: B PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Definitional

The goal of rent control is to

a.	facilitate controlled economic experiments in urban areas.
b.	help landlords by assuring them a low vacancy rate for their apartments.
c.	help the poor by assuring them an adequate supply of apartments.
d.	help the poor by making housing more affordable.

ANS: D PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Definitional

Which of the following is not a rationing mechanism used by landlords in cities with rent control?

a.	waiting lists
b.	race
c.	price
d.	bribes

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

Under rent control, bribery is a mechanism to

a.	bring the total price of an apartment (including the bribe) closer to the equilibrium price.
b.	allocate housing to the poorest individuals in the market.
c.	force the total price of an apartment (including the bribe) to be less than the market price.
d.	allocate housing to the most deserving tenants.

ANS: A PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

Under rent control, landlords cease to be responsive to tenants’ concerns about the quality of the housing because

a.	with rent control, the government guarantees landlords a minimum level of profit.
b.	they become resigned to the fact that many of their apartments are going to be vacant at any given time.
c.	with shortages and waiting lists, they have no incentive to maintain and improve their property.
d.	with rent control, it becomes the government’s responsibility to maintain rental housing.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

Under rent control, tenants can expect

a.	lower rent and higher quality housing.
b.	lower rent and lower quality housing.
c.	higher rent and a shortage of rental housing.
d.	higher rent and a surplus of rental housing.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

Which of the following is not a result of rent control?

a.	fewer new apartments offered for rent
b.	less maintenance provided by landlords
c.	bribery
d.	higher quality housing

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

Rent control

a.	is an example of a price ceiling.
b.	leads to a larger shortage of apartments in the long run than in the short run.
c.	leads to lower rents and, in the long run, to lower-quality housing.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

In the housing market, supply and demand are

a.	more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the short run than in the long run.
b.	more elastic in the short run than in the long run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.
c.	more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the short run than in the long run.
d.	more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

Rent control policies tend to cause

a.	relatively smaller shortages in the short run than in the long run because supply and demand tend to be more elastic in the short run than in the long run.
b.	relatively larger shortages in the short run than in the long run because supply and demand tend to be more elastic in the short run than in the long run.
c.	relatively larger shortages in the short run than in the long run because supply and demand tend to be more inelastic in the short run than in the long run.
d.	relatively smaller shortages in the short run than in the long run because supply and demand tend to be more inelastic in the short run than in the long run.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Applicative

In the short run, rent control causes the quantity supplied

a.	and quantity demanded to fall.
b.	to fall and quantity demanded to rise.
c.	to rise and quantity demanded to fall.
d.	and quantity demanded to rise.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

Which of the following is not a short-run effect of rent control on the housing market?

a.	reduced rents
b.	a large shortage
c.	a small increase in quantity demanded
d.	a small decrease in quantity supplied

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control | Short run

MSC: Interpretive

Over time, housing shortages caused by rent control

a.	increase, because the demand for and supply of housing are less elastic in the long run.
b.	increase, because the demand for and supply of housing are more elastic in the long run.
c.	decrease, because the demand for and supply of housing are less elastic in the long run.
d.	decrease, because the demand for and supply of housing are more elastic in the long run.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control | Long run

MSC: Interpretive

Which of the following statements about the effects of rent control is correct?

a.	The short-run effect of rent control is a surplus of apartments, and the long-run effect of rent control is a shortage of apartments.
b.	The short-run effect of rent control is a relatively small shortage of apartments, and the long-run effect of rent control is a larger shortage of apartments.
c.	In the long run, rent control leads to a shortage of apartments and an improvement in the quality of available apartments.
d.	The effects of rent control are very noticeable to the public in the short run because the primary effects of rent control occur very quickly.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control | Long run

MSC: Interpretive

The long-run effects of rent controls are a good illustration of the principle that

a.	society faces a short-run tradeoff between unemployment and inflation.
b.	the cost of something is what you give up to get it.
c.	people respond to incentives.
d.	government can sometimes improve on market outcomes.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control | Long run

MSC: Interpretive

An alternative to rent-control laws that would not reduce the quantity of housing supplied is

a.	the payment by government of a fraction of a poor family’s rent.
b.	higher taxes on rental income earned by landlords.
c.	a policy that prevents landlords from evicting tenants.
d.	a policy that allows government to confiscate residential property for the purpose of commercial development.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control | Rent subsidies

MSC: Interpretive

Which of the following is correct?

a.	Rent control and the minimum wage are both examples of price ceilings.
b.	Rent control is an example of a price ceiling, and the minimum wage is an example of a price floor.
c.	Rent control is an example of a price floor, and the minimum wage is an example of a price ceiling.
d.	Rent control and the minimum wage are both examples of price floors.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand

TOP: Rent control | Minimum wage MSC: Interpretive

Which of the following is not correct? In a 2006 survey of Ph.D. economists,

a.	47 percent favored eliminating the minimum wage.
b.	14 percent would maintain the minimum wage at its current level.
c.	38 percent would increase the minimum wage.
d.	10 percent would decrease the minimum wage.

ANS: D PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

An example of a price floor is

a.	the regulation of gasoline prices in the U.S. in the 1970s.
b.	rent control.
c.	the minimum wage.
d.	any restriction on price that leads to a shortage.

ANS: C PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

The minimum wage is an example of a

a.	price ceiling.
b.	price floor.
c.	wage subsidy.
d.	tax.

ANS: B PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

Minimum-wage laws dictate the

a.	average price employers must pay for labor.
b.	highest price employers may pay for labor.
c.	lowest price employers may pay for labor.
d.	the highest and lowest prices employers may pay for labor.

ANS: C PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

The U.S. Congress first instituted a minimum wage in

a.	1776.
b.	1812.
c.	1938.
d.	1975.

ANS: C PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

The minimum wage was instituted to ensure workers

a.	a middle-class standard of living.
b.	employment.
c.	a minimally adequate standard of living.
d.	unemployment compensation.

ANS: C PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

In 2009, the U.S. minimum wage according to federal law was

a.	$4.25 per hour.
b.	$5.15 per hour.
c.	$5.75 per hour.
d.	$7.25 per hour.

ANS: D PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

Which of the following is not correct?

a.	Some states in the U.S. mandate minimum wages above the federal level.
b.	Most European nations have minimum-wage laws.
c.	The U.S. minimum wage is significantly higher than the minimum wages in France and the United Kingdom.
d.	The U.S. Congress first instituted a minimum wage with the Fair Labor Standards Act.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

If the minimum wage exceeds the equilibrium wage, then

a.	the quantity demanded of labor will exceed the quantity supplied.
b.	the quantity supplied of labor will exceed the quantity demanded.
c.	the minimum wage will not be binding.
d.	there will be no unemployment.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

A minimum wage that is set below a market’s equilibrium wage will result in an excess

a.	demand for labor, that is, unemployment.
b.	demand for labor, that is, a shortage of workers.
c.	supply of labor, that is, unemployment.
d.	None of the above is correct.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

A binding minimum wage

a.	alters both the quantity demanded and quantity supplied of labor.
b.	affects only the quantity of labor demanded; it does not affect the quantity of labor supplied.
c.	has no effect on the quantity of labor demanded or the quantity of labor supplied.
d.	causes only temporary unemployment because the market will adjust and eliminate any temporary surplus of workers.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

Which of the following is not correct?

a.	The economy contains many labor markets for different types of workers.
b.	The impact of the minimum wage depends on the skill and experience of the worker.
c.	The minimum wage is binding for workers with high skills and much experience.
d.	The minimum wage is not binding when the equilibrium wage is above the minimum wage.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

The minimum wage has its greatest impact on the market for

a.	female labor.
b.	older labor.
c.	black labor.
d.	teenage labor.

ANS: D PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

The minimum wage does not apply to

a.	jobs for teenagers.
b.	jobs for members of minority groups.
c.	unpaid internships.
d.	jobs that include on-the-job training.

ANS: C PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

Studies of the effects of the minimum wage typically find that a 10 percent increase in the minimum wage depresses teenage employment by about

a.	1 to 3 percent.
b.	5 to 7 percent.
c.	10 percent.
d.	None of the above is correct because studies show no decrease in teenage employment.

ANS: A PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

Which of the following is correct?

a.	Studies of the effects of the minimum wage typically find that a 10 percent increase in the minimum wage raises the average wage of teenagers by 10 percent.
b.	The drop in teenage employment caused by a 10 percent increase in the minimum wage is not significant.
c.	The minimum wage is more often binding for teenagers than for other members of the labor force.
d.	All firms consistently enforce minimum-wage laws.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

The minimum wage

a.	is an example of a price ceiling.
b.	has its greatest impact on middle-aged and immigrant workers.
c.	does not apply to unpaid internships.
d.	does not affect the quantity of labor demanded; it only affects the quantity of labor supplied.

ANS: C PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

A binding minimum wage tends to

a.	cause a labor surplus.
b.	cause unemployment.
c.	have the greatest impact in the market for teenage labor.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

Minimum wage laws

a.	may encourage some teenagers to drop out and take jobs.
b.	create labor shortages.
c.	have the greatest impact in the market for skilled labor.
d.	All of the above are correct.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

Advocates of the minimum wage

a.	deny that the minimum wage produces any adverse effects.
b.	emphasize the benefits to teenagers of increases in the minimum wage.
c.	emphasize the low annual incomes of those who work for the minimum wage.
d.	All of the above are correct.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

Opponents of the minimum wage point out that the minimum wage

a.	encourages teenagers to drop out of school.
b.	prevents some workers from getting needed on-the-job training.
c.	contributes to the problem of unemployment.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

The proportion of minimum-wage earners who are in families with incomes below the poverty line is

a.	less than one-third.
b.	between one-third and one-half.
c.	between one-half and two-thirds.
d.	greater than two-thirds.

ANS: A PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

There are several criticisms of the minimum wage. Which of the following is not one of those criticisms? The minimum wage

a.	often hurts those people who it is intended to help.
b.	results in an excess supply of low-skilled labor.
c.	prevents some unskilled workers from getting needed on-the-job training.
d.	fails to raise the wage of any employed person.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

The minimum wage, if it is binding, raises the incomes of

a.	no workers.
b.	only those workers who cannot find jobs.
c.	only those workers whose jobs would pay less than the minimum wage if it didn’t exist.
d.	all workers.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

The minimum wage, if it is binding, lowers the incomes of

a.	no workers.
b.	only those workers who become unemployed.
c.	only those workers who have jobs.
d.	all workers.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

A minimum wage that is set above a market’s equilibrium wage will result in an excess

a.	demand for labor, that is, unemployment.
b.	demand for labor, that is, a shortage of workers.
c.	supply of labor, that is, unemployment.
d.	supply of labor, that is, a shortage of workers.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

Figure 6-13

Refer to Figure 6-13. In this market, a minimum wage of $7.25 is

a.	binding and creates a labor shortage.
b.	binding and creates unemployment.
c.	nonbinding and creates a labor shortage.
d.	nonbinding and creates neither a labor shortage nor unemployment.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

Refer to Figure 6-13. In this market, a minimum wage of $2.75 is

a.	binding and creates a labor shortage.
b.	binding and creates unemployment.
c.	nonbinding and creates a labor shortage.
d.	nonbinding and creates neither a labor shortage nor unemployment.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

Refer to Figure 6-13. In this market, a minimum wage of $7.25 creates a labor

a.	shortage of 2,250 workers.
b.	shortage of 4,500 workers.
c.	surplus of 2,250 workers.
d.	surplus of 4,500 workers.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

Refer to Figure 6-13. In this market, a minimum wage of $2.75 creates a labor

a.	shortage of 2,250 workers.
b.	shortage of 4,500 workers.
c.	surplus of 2,250 workers.
d.	neither a labor shortage nor surplus.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

Unlike minimum wage laws, wage subsidies

a.	discourage firms from hiring the working poor.
b.	cause unemployment.
c.	help only wealthy workers.
d.	raise the living standards of the working poor without creating unemployment.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand

TOP: Minimum wage | Wage subsidies MSC: Interpretive

The Earned Income Tax Credit is an example of a

a.	minimum-wage law.
b.	price ceiling.
c.	wage subsidy.
d.	rent subsidy.

ANS: C PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Wage subsidies

MSC: Definitional

Which of the following is correct? Price controls

a.	always help those they are designed to help.
b.	never help those they are designed to help.
c.	often hurt those they are designed to help.
d.	always hurt those they are designed to help.

ANS: C PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Definitional

Which of the following would not interfere with market equilibria?

a.	a minimum wage
b.	a rent control
c.	a non-binding price floor
d.	a binding price ceiling

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Applicative

One disadvantage of government subsidies over price controls is that subsidies

a.	prevent the attainment of equilibrium in the markets in which they are imposed.
b.	make higher taxes necessary.
c.	are always unfair to those with low incomes.
d.	cause unemployment.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls | Subsidies

MSC: Interpretive

Which of the following is correct?

a.	Workers determine the supply of labor, and firms determine the demand for labor.
b.	Workers determine the demand for labor, and firms determine the supply of labor.
c.	The labor market is a single market for all different types of workers.
d.	The price of the product produced by labor adjusts to balance the supply of labor and the demand for labor.

ANS: A PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Interpretive

As rationing mechanisms, prices

a.	and long lines are efficient.
b.	are efficient, but long lines are inefficient.
c.	are inefficient, but long lines are efficient.
d.	and long lines are inefficient.

ANS: B PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Interpretive

As a rationing mechanism, discrimination according to seller bias is

a.	efficient and fair.
b.	efficient, but potentially unfair.
c.	inefficient, but fair.
d.	inefficient and potentially unfair.

ANS: D PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Interpretive

Long lines

a.	and discrimination according to seller bias are both inefficient rationing mechanisms because they both waste buyers’ time.
b.	and discrimination according to seller bias are both inefficient rationing mechanisms because the good does not necessarily go to the buyer who values it most highly.
c.	are an inefficient rationing mechanism because they waste buyers’ time, and discrimination according to seller bias is an inefficient rationing mechanism because the good does not necessarily go to the buyer who values it most highly.
d.	are an inefficient rationing mechanism because the good does not necessarily go to the buyer who values it most highly, and discrimination according to seller bias is an inefficient rationing mechanism because it wastes buyers’ time.

ANS: C PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Interpretive

Taxes

If the government removes a tax on a good, then the quantity of the good sold will

a.	increase.
b.	decrease.
c.	not change.
d.	All of the above are possible.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Interpretive

If the government removes a tax on a good, then the price paid by buyers will

a.	increase, and the price received by sellers will increase.
b.	increase, and the price received by sellers will decrease.
c.	decrease, and the price received by sellers will increase.
d.	decrease, and the price received by sellers will decrease.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Interpretive

A tax on the sellers of coffee mugs

a.	increases the size of the coffee mug market.
b.	decreases the size of the coffee mug market.
c.	has no effect on the size of the coffee mug market.
d.	may increase, decrease, or have no effect on the size of the coffee mug market.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

When a tax is placed on the sellers of a product, buyers pay

a.	more, and sellers receive more than they did before the tax.
b.	more, and sellers receive less than they did before the tax.
c.	less, and sellers receive more than they did before the tax.
d.	less, and sellers receive less than they did before the tax.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax on the sellers of coffee will increase the price of coffee paid by buyers,

a.	increase the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee.
b.	increase the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.
c.	decrease the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee.
d.	decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax imposed on the sellers of a good will raise the

a.	price paid by buyers and lower the equilibrium quantity.
b.	price paid by buyers and raise the equilibrium quantity.
c.	effective price received by sellers and lower the equilibrium quantity.
d.	effective price received by sellers and raise the equilibrium quantity.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax imposed on the sellers of a good will lower the

a.	price paid by buyers and lower the equilibrium quantity.
b.	price paid by buyers and raise the equilibrium quantity.
c.	effective price received by sellers and lower the equilibrium quantity.
d.	effective price received by sellers and raise the equilibrium quantity.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax imposed on the sellers of a good will

a.	raise both the price buyers pay and the effective price sellers receive.
b.	raise the price buyers pay and lower the effective price sellers receive.
c.	lower the price buyers pay and raise the effective price sellers receive.
d.	lower both the price buyers pay and the effective price sellers receive.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would

a.	increase by more than $1,000.
b.	increase by exactly $1,000.
c.	increase by less than $1,000.
d.	decrease by an indeterminate amount.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would

a.	decrease by less than $500.
b.	decrease by exactly $500.
c.	decrease by more than $500.
d.	increase by an indeterminate amount.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

When a tax is placed on the sellers of cell phones, the size of the cell phone market

a.	and the effective price received by sellers both increase.
b.	increases, but the effective price received by sellers decreases.
c.	decreases, but the effective price received by sellers increases.
d.	and the effective price received by sellers both decrease.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

When a tax is placed on the sellers of cell phones, the size of the cell phone market

a.	and the price paid by buyers both increase.
b.	increases, but the price paid by buyers decreases.
c.	decreases, but the price paid by buyers increases.
d.	and the price paid by buyers both decrease.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

If the government passes a law requiring sellers of mopeds to send $200 to the government for every moped they sell, then

a.	the supply curve for mopeds shifts downward by $200.
b.	sellers of mopeds receive $200 less per mopeds than they were receiving before the tax.
c.	buyers of mopeds are unaffected by the tax.
d.	None of the above is correct.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

Suppose sellers of perfume are required to send $1.00 to the government for every bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers of perfume to rise by $0.60 per bottle. Which of the following statements is correct?

a.	The effective price received by sellers is $0.40 per bottle less than it was before the tax.
b.	Sixty percent of the burden of the tax falls on sellers.
c.	This tax causes the demand curve for perfume to shift downward by $1.00 at each quantity of perfume.
d.	All of the above are correct.

ANS: A PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Analytical

When a tax is levied on sellers of tea,

a.	the well-being of both sellers and buyers of tea is unaffected.
b.	sellers of tea are made worse off, and the well-being of buyers is unaffected.
c.	sellers of tea are made worse off, and buyers of tea are made better off.
d.	both sellers and buyers of tea are made worse off.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

If a tax is levied on the sellers of a product, then the demand curve will

a.	shift down.
b.	shift up.
c.	become flatter.
d.	not shift.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

If a tax is levied on the sellers of a product, then there will be a(n)

a.	downward shift of the demand curve.
b.	upward shift of the demand curve.
c.	movement up and to the left along the demand curve.
d.	movement down and to the right along the demand curve.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

If a tax is levied on the sellers of a product, then the supply curve will

a.	shift up.
b.	shift down.
c.	become flatter.
d.	not shift.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

If a tax is levied on the sellers of a product, then there will be a(n)

a.	downward shift of the supply curve.
b.	upward shift of the supply curve.
c.	movement up and to the right along the supply curve.
d.	movement down and to the left along the supply curve.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax on the sellers of cameras encourages

a.	sellers to supply a smaller quantity at every price.
b.	buyers to demand a smaller quantity at every price.
c.	sellers to supply a larger quantity at every price.
d.	Both a) and b) are correct.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax levied on the sellers of blueberries

a.	increases sellers’ costs, reduces profits, and shifts the supply curve up.
b.	increases sellers’ costs, reduces profits, and shifts the supply curve down.
c.	decreases sellers’ costs, increases profits, and shifts the supply curve up.
d.	decreases sellers’ costs, increases profits, and shifts the supply curve down.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax on sellers will shift the

a.	demand curve upward by the amount of the tax.
b.	demand curve downward by the amount of the tax.
c.	supply curve upward by the amount of the tax.
d.	supply curve downward by the amount of the tax.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

When a tax is imposed on the sellers of a good, the supply curve shifts

a.	upward by the amount of the tax.
b.	downward by the amount of the tax.
c.	upward by less than the amount of the tax.
d.	downward by less than the amount of the tax.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A $2.00 tax levied on the sellers of birdhouses will shift the supply curve

a.	upward by exactly $2.00.
b.	upward by less than $2.00.
c.	downward by exactly $2.00.
d.	downward by less than $2.00.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A $0.10 tax levied on the sellers of chocolate bars will cause the

a.	supply curve for chocolate bars to shift down by $0.10.
b.	supply curve for chocolate bars to shift up by $0.10.
c.	demand curve for chocolate bars to shift down by $0.10.
d.	demand curve for chocolate bars to shift up by $0.10.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

When a tax is placed on the sellers of a product, the

a.	size of the market decreases.
b.	effective price received by sellers decreases, and the price paid by buyers increases.
c.	supply of the product decreases.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the

a.	demand curve will shift upward by $20, and the price paid by buyers will decrease by less than $20.
b.	demand curve will shift upward by $20, and the price paid by buyers will decrease by $20.
c.	supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20.
d.	supply curve will shift downward by $20, and the effective price received by sellers will increase by $20.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Analytical

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the

a.	demand curve will shift upward by $20, and the effective price received by sellers will increase by $20.
b.	demand curve will shift upward by $20, and the effective price received by sellers will increase by less than $20.
c.	supply curve will shift downward by $20, and the price paid by buyers will decrease by $20.
d.	supply curve will shift downward by $20, and the price paid by buyers will decrease by less than $20.

ANS: D PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Analytical

Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle. Which of the following statements is correct?

a.	This tax causes the supply curve for liquor to shift upward by $1.00 at each quantity of liquor.
b.	The effective price received by sellers is $0.20 per bottle less than it was before the tax.
c.	Eighty percent of the burden of the tax falls on buyers.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Analytical

A tax on the buyers of sofas

a.	increases the size of the sofa market.
b.	decreases the size of the sofa market.
c.	has no effect on the size of the sofa market.
d.	may increase, decrease, or have no effect on the size of the sofa market.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

When a tax is placed on the buyers of a product, buyers pay

a.	more and sellers receive more than they did before the tax.
b.	more and sellers receive less than they did before the tax.
c.	less and sellers receive more than they did before the tax.
d.	less and sellers receive less than they did before the tax.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A tax on the buyers of cereal will increase the price of cereal paid by buyers,

a.	decrease the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal.
b.	decrease the effective price of cereal received by sellers, and increase the equilibrium quantity of cereal.
c.	increase the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal.
d.	increase the effective price of cereal received by sellers, and increase the equilibrium quantity of cereal.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A tax imposed on the buyers of a good will raise the

a.	price paid by buyers and lower the equilibrium quantity.
b.	price paid by buyers and raise the equilibrium quantity.
c.	effective price received by sellers and lower the equilibrium quantity.
d.	effective price received by sellers and raise the equilibrium quantity.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A tax imposed on the buyers of a good will lower the

a.	price paid by buyers and lower the equilibrium quantity.
b.	price paid by buyers and raise the equilibrium quantity.
c.	effective price received by sellers and lower the equilibrium quantity.
d.	effective price received by sellers and raise the equilibrium quantity.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A tax imposed on the buyers of a good will

a.	raise both the price buyers pay and the effective price sellers receive.
b.	raise the price buyers pay and lower the effective price sellers receive.
c.	lower the price buyers pay and raise the effective price sellers receive.
d.	lower both the price buyers pay and the effective price sellers receive.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

If the government levies a $5 tax per ticket on buyers of NFL game tickets, then the price paid by buyers of NFL game tickets would

a.	increase by less than $5.
b.	increase by exactly $5.
c.	increase by more than $5.
d.	decrease by an indeterminate amount.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

If the government levies a $2 tax per DVD on buyers of DVDs, then the price received by sellers of DVDs would

a.	decrease by more than $2.
b.	decrease by exactly $2.
c.	decrease by less than $2.
d.	increase by an indeterminate amount.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

When a tax is placed on the buyers of cell phones, the size of the cell phone market

a.	and the effective price received by sellers both decrease.
b.	decreases, but the effective price received by sellers increases.
c.	increases, but the effective price received by sellers decreases.
d.	and the effective price received by sellers both increase.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

When a tax is placed on the buyers of tennis racquets, the size of the tennis racquet market

a.	and the price paid by buyers both decrease.
b.	decreases, but the price paid by buyers increases.
c.	increases, but the price paid by buyers decreases.
d.	and the price paid by buyers both increase.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

Suppose buyers of vodka are required to send $1.00 to the government for every bottle of vodka they buy. Further, suppose this tax causes the effective price received by sellers of vodka to fall by $0.60 per bottle. Which of the following statements is correct?

a.	This tax causes the supply curve for vodka to shift upward by $1.00 at each quantity of vodka.
b.	The price paid by buyers is $0.40 per bottle more than it was before the tax.
c.	Sixty percent of the burden of the tax falls on buyers.
d.	All of the above are correct.

ANS: B PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Analytical

When a tax is levied on buyers of tea,

a.	buyers of tea and sellers of tea both are made worse off.
b.	buyers of tea are made worse off, and the well-being of sellers is unaffected.
c.	buyers of tea are made worse off, and sellers of tea are made better off.
d.	the well-being of both buyers of tea and sellers of tea is unaffected.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

If a tax is levied on the buyers of a product, then the demand curve will

a.	not shift.
b.	shift down.
c.	shift up.
d.	become flatter.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

If a tax is levied on the buyers of a product, then there will be a(n)

a.	upward shift of the demand curve.
b.	downward shift of the demand curve.
c.	movement up and to the left along the demand curve.
d.	movement down and to the right along the demand curve.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A tax on the buyers of personal computer external hard drives encourages

a.	sellers to supply a smaller quantity at every price.
b.	buyers to demand a smaller quantity at every price.
c.	buyers to demand a larger quantity at every price.
d.	Both a) and b) are correct.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A tax on buyers will shift the

a.	demand curve upward by the amount of the tax.
b.	demand curve downward by the amount of the tax.
c.	supply curve upward by the amount of the tax.
d.	supply curve downward by the amount of the tax.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

When a tax is imposed on the buyers of a good, the demand curve shifts

a.	upward by the amount of the tax.
b.	downward by the amount of the tax.
c.	upward by less than the amount of the tax.
d.	downward by less than the amount of the tax.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A $0.50 tax levied on the buyers of pomegranate juice will shift the demand curve

a.	upward by exactly $0.50.
b.	upward by less than $0.50.
c.	downward by exactly $0.50.
d.	downward by less than $0.50.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A $3 tax levied on the buyers of shoes will cause the

a.	supply curve for shoes to shift down by $3.
b.	supply curve for shoes to shift up by $3.
c.	demand curve for shoes to shift down by $3.
d.	demand curve for shoes to shift up by $3.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

When a tax is placed on the buyers of a product, the

a.	size of the market decreases.
b.	effective price received by sellers decreases, and the price paid by buyers increases.
c.	demand for the product decreases.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

If the government passes a law requiring buyers of college textbooks to send $5 to the government for every textbook they buy, then

a.	the demand curve for textbooks shifts downward by $5.
b.	buyers of textbooks pay $5 more per textbook than they were paying before the tax.
c.	sellers of textbooks are unaffected by the tax.
d.	All of the above are correct.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

Suppose there is currently a tax of $50 per ticket on airline tickets. Buyers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the

a.	demand curve will shift upward by $20, and the price paid by buyers will decrease by less than $20.
b.	demand curve will shift upward by $20, and the price paid by buyers will decrease by $20.
c.	supply curve will shift downward by $20, and the effective price received by sellers will increase by less than $20.
d.	supply curve will shift downward by $20, and the effective price received by sellers will increase by $20.

ANS: A PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Analytical

Suppose there is currently a tax of $50 per ticket on airline tickets. Buyers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the

a.	demand curve will shift upward by $20, and the effective price received by sellers will increase by $20.
b.	demand curve will shift upward by $20, and the effective price received by sellers will increase by less than $20.
c.	supply curve will shift downward by $20, and the price paid by buyers will decrease by $20.
d.	supply curve will shift downward by $20, and the price paid by buyers will decrease by less than $20.

ANS: B PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Analytical

Suppose buyers of tequila are required to send $1.00 to the government for every bottle of tequila they buy. Further, suppose this tax causes the effective price received by sellers of tequila to fall by $0.80 per bottle. Which of the following statements is correct?

a.	This tax causes the demand curve for tequila to shift downward by $1.00 at each quantity of tequila.
b.	The price paid by buyers is $0.20 per bottle more than it was before the tax.
c.	Eighty percent of the burden of the tax falls on sellers.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Analytical

If a tax is levied on the buyers of a product, then the supply curve will

a.	not shift.
b.	shift up.
c.	shift down.
d.	become flatter.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

If a tax is levied on the buyers of a product, then there will be a(n)

a.	downward shift of the supply curve.
b.	upward shift of the supply curve.
c.	movement up and to the right along the supply curve.
d.	movement down and to the left along the supply curve.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

Which of the following is not correct?

a.	Taxes levied on sellers and taxes levied on buyers are not equivalent.
b.	A tax places a wedge between the price that buyers pay and the price that sellers receive.
c.	The wedge between the buyers’ price and the sellers’ price is the same, regardless of whether the tax is levied on buyers or sellers.
d.	In the new after-tax equilibrium, buyers and sellers share the burden of the tax.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand | Supply

MSC: Interpretive

If the government removes a $1 tax on sellers of gasoline and imposes the same $1 tax on buyers of gasoline, then the price paid by buyers will

a.	increase, and the price received by sellers will increase.
b.	increase, and the price received by sellers will not change.
c.	not change, and the price received by sellers will increase.
d.	not change, and the price received by sellers will not change.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand | Supply

MSC: Interpretive

If the government removes a $2 tax on buyers of cigars and imposes the same $2 tax on sellers of cigars, then the price paid by buyers will

a.	not change, and the price received by sellers will not change.
b.	not change, and the price received by sellers will decrease.
c.	decrease, and the price received by sellers will not change.
d.	decrease, and the price received by sellers will decrease.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand | Supply

MSC: Interpretive

If the government wants to reduce smoking, it should impose a tax on

a.	buyers of cigarettes.
b.	sellers of cigarettes.
c.	either buyers or sellers of cigarettes.
d.	whichever side of the market is less elastic.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand | Supply

MSC: Interpretive

If the government wants to reduce the burning of fossil fuels, it should impose a tax on

a.	buyers of gasoline.
b.	sellers of gasoline.
c.	either buyers or sellers of gasoline.
d.	whichever side of the market is less elastic.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand | Supply

MSC: Interpretive

The term tax incidence refers to

a.	whether buyers or sellers of a good are required to send tax payments to the government.
b.	whether the demand curve or the supply curve shifts when the tax is imposed.
c.	the distribution of the tax burden between buyers and sellers.
d.	widespread view that taxes (and death) are the only certainties in life.

ANS: C PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Definitional

When a tax is placed on the buyers of lemonade, the

a.	sellers bear the entire burden of the tax.
b.	buyers bear the entire burden of the tax.
c.	burden of the tax will be always be equally divided between the buyers and the sellers.
d.	burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

Which of the following statements is correct concerning the burden of a tax imposed on take-out food?

a.	Buyers bear the entire burden of the tax.
b.	Sellers bear the entire burden of the tax.
c.	Buyers and sellers share the burden of the tax.
d.	We have to know whether it is the buyers or the sellers that are required to pay the tax to the government in order to make this determination.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

The tax incidence

a.	is the manner in which the burden of a tax is shared among participants in a market.
b.	can be shifted to the buyer by imposing the tax on the buyers of a product in a market.
c.	can be shifted to the seller by imposing the tax on the sellers of a product in a market.
d.	All of the above are correct.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Definitional

How is the burden of a tax divided?

(i)			When the tax is levied on the sellers, the sellers bear a higher proportion of the tax burden.
(ii)			When the tax is levied on the buyers, the buyers bear a higher proportion of the tax burden.
(iii)			Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear an equal proportion of the tax burden.
(iv)			Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden.
	a.	(i) and (ii) only
	b.	(iv) only
	c.	(i), (ii), and (iii) only
	d.	(i), (ii), and (iv) only

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

When a tax is placed on the sellers of energy drinks, the

a.	sellers bear the entire burden of the tax.
b.	buyers bear the entire burden of the tax.
c.	burden of the tax will be always be equally divided between the buyers and the sellers.
d.	burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Supply

MSC: Interpretive

If a tax is levied on the sellers of flour, then

a.	buyers will bear the entire burden of the tax.
b.	sellers will bear the entire burden of the tax.
c.	buyers and sellers will share the burden of the tax.
d.	the government will bear the entire burden of the tax.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Supply

MSC: Interpretive

Suppose the government imposes a 20-cent tax on the sellers of artificially-sweetened beverages. The tax would shift

a.	demand, raising both the equilibrium price and quantity in the market for artificially-sweetened beverages.
b.	demand, lowering the equilibrium price and raising the equilibrium quantity in the market for artificially-sweetened beverages.
c.	supply, raising the equilibrium price and lowering the equilibrium quantity in the market for artificially-sweetened beverages.
d.	supply, lowering the equilibrium price and raising the equilibrium quantity in the market for artificially-sweetened beverages.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Supply

MSC: Applicative

Suppose the government imposes a 20-cent tax on the sellers of iced tea. Which of the following is not correct? The tax would

a.	shift the supply curve upward by 20 cents.
b.	raise the equilibrium price by 20 cents.
c.	reduce the equilibrium quantity.
d.	discourage market activity.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Supply

MSC: Applicative

Suppose the government imposes a 50-cent tax on the sellers of packets of chewing gum. The tax would

a.	shift the supply curve upward by less than 50 cents.
b.	raise the equilibrium price by 50 cents.
c.	create a 50-cent tax burden each for buyers and sellers.
d.	discourage market activity.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Supply

MSC: Applicative

Suppose the government imposes a 25-cent tax on the buyers of incandescent light bulbs. Which of the following is not correct? The tax would

a.	shift the demand curve downward by 25 cents.
b.	lower the equilibrium price by 25 cents.
c.	reduce the equilibrium quantity.
d.	discourage market activity.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Supply

MSC: Applicative

Figure 6-14

The vertical distance between points A and B represents the tax in the market.

Refer to Figure 6-14. The price that buyers pay after the tax is imposed is

a.	$8.
b.	$10.
c.	$16.
d.	$24.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-14. The effective price that sellers receive after the tax is imposed is

a.	$6.
b.	$10.
c.	$16.
d.	$24.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-14. The amount of the tax per unit is

a.	$6.
b.	$8.
c.	$14.
d.	$18.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-14. The per-unit burden of the tax on buyers is

a.	$6.
b.	$8.
c.	$14.
d.	$24.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Applicative

Refer to Figure 6-14. The per-unit burden of the tax on sellers is

a.	$6.
b.	$8.
c.	$10.
d.	$14.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Applicative

Figure 6-15

Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. What will be the new equilibrium quantity in this market?

a.	less than 50 units
b.	50 units
c.	between 50 units and 100 units
d.	greater than 100 units

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Analytical

Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?

a.	$3
b.	between $3 and $5
c.	between $5 and $7
d.	$7

ANS: B PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Analytical

Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed?

a.	$3
b.	between $3 and $5
c.	between $5 and $7
d.	$7

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Analytical

Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. Which of the following is correct?

a.	One-fourth of the burden of the tax will fall on buyers, and three-fourths of the burden of the tax will fall on sellers.
b.	One-third of the burden of the tax will fall on buyers, and two-thirds of the burden of the tax will fall on sellers.
c.	One-half of the burden of the tax will fall on buyers ,and one-half of the burden of the tax will fall on sellers.
d.	Two-thirds of the burden of the tax will fall on buyers, and one-third of the burden of the tax will fall on sellers.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Analytical

Figure 6-16

Refer to Figure 6-16. Suppose a tax of $5 per unit is imposed on this market. What will be the new equilibrium quantity in this market?

a.	less than 25 units
b.	25 units
c.	between 25 units and 50 units
d.	greater than 50 units

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Analytical

Refer to Figure 6-16. Suppose a tax of $5 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?

a.	$5
b.	between $5 and $10
c.	between $10 and $14
d.	$14

ANS: B PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Analytical

Refer to Figure 6-16. Suppose a tax of $5 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed?

a.	$5
b.	between $5 and $10
c.	between $10 and $14
d.	$14

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Analytical

Refer to Figure 6-16. Suppose a tax of $5 per unit is imposed on this market. Which of the following is correct?

a.	Buyers and sellers will share the burden of the tax equally.
b.	Buyers will bear more of the burden of the tax than sellers will.
c.	Sellers will bear more of the burden of the tax than buyers will.
d.	Any of the above is possible.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Analytical

Figure 6-17

Refer to Figure 6-17. What is the amount of the tax per unit?

a.	$1
b.	$2
c.	$3
d.	$4

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-17. The price that buyers pay after the tax is imposed is

a.	$8.00.
b.	$9.00.
c.	$10.50.
d.	$12.00.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

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

a.	$8.00
b.	$9.00
c.	$10.50
d.	$12.00

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-17. How is the burden of the tax shared between buyers and sellers? Buyers bear

a.	three-fourths of the burden, and sellers bear one-fourth of the burden.
b.	two-thirds of the burden, and sellers bear one-third of the burden.
c.	one-half of the burden, and sellers bear one-half of the burden.
d.	one-fourth of the burden, and sellers bear three-fourths of the burden.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Applicative

Refer to Figure 6-17. In the after-tax equilibrium, how much revenue does the government collect from the tax on this good?

a.	$210
b.	$345
c.	$420
d.	$480

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Tax revenue

MSC: Applicative

Refer to Figure 6-17. Suppose buyers, rather than sellers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on sellers, the tax on buyers would result in

a.	buyers bearing a larger share of the tax burden.
b.	sellers bearing a smaller share of the tax burden.
c.	the same amount of tax revenue for the government.
d.	Both a) and b) are correct.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Tax revenue

MSC: Analytical

Figure 6-18

Refer to Figure 6-18. The equilibrium price in the market before the tax is imposed is

a.	$3.50.
b.	$5.
c.	$6.
d.	$7.

ANS: B PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-18. As the figure is drawn, who sends the tax payment to the government?

a.	The buyers send the tax payment.
b.	The sellers send the tax payment.
c.	A portion of the tax payment is sent by the buyers, and the remaining portion is sent by the sellers.
d.	The question of who sends the tax payment cannot be determined from the graph.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-18. The price paid by buyers after the tax is imposed is

a.	$2.50.
b.	$3.50.
c.	$5.00.
d.	$6.00.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-18. The effective price sellers receive after the tax is imposed is

a.	$2.50.
b.	$3.50.
c.	$5.00.
d.	$6.00.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

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

a.	$1.
b.	$1.50.
c.	$2.50.
d.	$3.50.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-18. Buyers pay how much of the tax per unit?

a.	$1.
b.	$1.50.
c.	$2.50.
d.	$3.50.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Applicative

Refer to Figure 6-18. Sellers pay how much of the tax per unit?

a.	$1.00.
b.	$1.50.
c.	$2.50.
d.	$3.50.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Applicative

Refer to Figure 6-18. Suppose the same supply and demand curves apply, and a tax of the same amount per unit as shown here is imposed. Now, however, the buyers of the good, rather than the sellers, are required to pay the tax to the government. After the buyers pay the tax, relative to the case depicted in the figure, the burden on buyers will be

a.	larger, and the burden on sellers will be smaller.
b.	smaller, and the burden on sellers will be larger.
c.	the same, and the burden on sellers will be the same.
d.	The relative burdens in the two cases cannot be determined without further information.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Applicative

Refer to Figure 6-18. How much tax revenue does this tax generate for the government?

a.	$75
b.	$125
c.	$175
d.	$300

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax revenue

MSC: Applicative

Figure 6-19

Refer to Figure 6-19. The price paid by buyers after the tax is imposed is

a.	$3.
b.	$4.
c.	$5.
d.	$7.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-19. The effective price received by sellers after the tax is imposed is

a.	$3.
b.	$4.
c.	$5.
d.	$7.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-19. For every unit of the good that is sold, sellers are required to send

a.	one dollar to the government, and buyers are required to send two dollars to the government.
b.	two dollars to the government, and buyers are required to send one dollar to the government.
c.	three dollars to the government, and buyers are required to send nothing to the government.
d.	nothing to the government, and buyers are required to send two dollars to the government.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-19. Which of the following is correct?

a.	One-fourth of the burden of the tax falls on buyers, and three-fourths of the burden of the tax falls on sellers.
b.	One-third of the burden of the tax falls on buyers, and two-thirds of the burden of the tax falls on sellers.
c.	One-half of the burden of the tax falls on buyers, and one-half of the burden of the tax falls on sellers.
d.	Two-thirds of the burden of the tax falls on buyers, and one-third of the burden of the tax falls on sellers.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Applicative

Refer to Figure 6-19. How much tax revenue does this tax produce for the government?

a.	$24
b.	$30
c.	$32
d.	$56

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax revenue

MSC: Applicative

If a tax is levied on the buyers of dog food, then

a.	buyers will bear the entire burden of the tax.
b.	sellers will bear the entire burden of the tax.
c.	buyers and sellers will share the burden of the tax.
d.	the government will bear the entire burden of the tax.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Demand

MSC: Interpretive

Suppose the government imposes a $40 tax on the buyers of refrigerators. The tax would

a.	shift the demand curve downward by less than $40.
b.	raise the equilibrium price by $40.
c.	create a $20 tax burden each for buyers and sellers.
d.	discourage market activity.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Demand

MSC: Applicative

Figure 6-20

Refer to Figure 6-20. Which of the following statements is correct?

a.	The amount of the tax per unit is $6.
b.	The tax leaves the size of the market unchanged.
c.	The tax is levied on buyers of the good, rather than on sellers.
d.	All of the above are correct.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-20. What is the amount of the tax per unit?

a.	$8
b.	$6
c.	$4
d.	$2

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-20. The price paid by buyers after the tax is imposed is

a.	$24.
b.	$21.
c.	$18.
d.	$16.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-20. The per-unit burden of the tax on buyers of the good is

a.	$2.
b.	$4.
c.	$6.
d.	$8.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Applicative

Refer to Figure 6-20. Andrew is a buyer of the good. Taking the tax into account, how much does Andrew effectively pay to acquire one unit of the good?

a.	$16
b.	$18
c.	$24
d.	$26

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-20. Suppose sellers, rather than buyers, were required to pay this tax (in the same amount per unit as shown in the graph). Relative to the tax on buyers, the tax on sellers would result in

a.	buyers bearing the same share of the tax burden.
b.	sellers bearing the same share of the tax burden.
c.	the same amount of tax revenue for the government.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Tax revenue

MSC: Analytical

Refer to Figure 6-20. In the after-tax equilibrium, government collects

a.	$1,440 in tax revenue; of this amount, $960 represents a burden on buyers and $480 represents a burden on sellers.
b.	$1,440 in tax revenue; of this amount, $720 represents a burden on buyers and $720 represents a burden on sellers.
c.	$1,680 in tax revenue; of this amount, $1,260 represents a burden on buyers and $420 represents a burden on sellers.
d.	$1,680 in tax revenue; of this amount, $840 represents a burden on buyers and $840 represents a burden on sellers.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Tax revenue

MSC: Applicative

Figure 6-21

Refer to Figure 6-21. The equilibrium price in the market before the tax is imposed is

a.	$1.
b.	$2.
c.	$5.
d.	$6.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-22. As the figure is drawn, who sends the tax payment to the government?

a.	The buyers send the tax payment.
b.	The sellers send the tax payment.
c.	A portion of the tax payment is sent by the buyers, and the remaining portion is sent by the sellers.
d.	The question of who sends the tax payment cannot be determined from the figure.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-22. The price that buyers pay after the tax is imposed is

a.	$5.
b.	$6.
c.	$7.
d.	$8.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-22. The effective price that sellers receive after the tax is imposed is

a.	$5.
b.	$6.
c.	$7.
d.	$8.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-22. The amount of the tax per unit is

a.	$1.
b.	$1.50.
c.	$2.
d.	$3.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-22. The burden of the tax on buyers is

a.	$1 per unit.
b.	$1.50 per unit.
c.	$2 per unit.
d.	$3 per unit.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Applicative

Refer to Figure 6-22. The burden of the tax on sellers is

a.	$1 per unit.
b.	$1.50 per unit.
c.	$2 per unit.
d.	$3 per unit.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Applicative

Refer to Figure 6-22. Suppose the same supply and demand curves apply, and a tax of the same amount per unit as shown here is imposed. Now, however, the sellers of the good, rather than the buyers, are required to pay the tax to the government. After the sellers are required to pay the tax, relative to the case depicted in the graph, the burden on buyers will be

a.	larger, and the burden on sellers will be smaller.
b.	smaller, and the burden on sellers will be larger.
c.	the same, and the burden on sellers will be the same.
d.	The relative burdens in the two cases cannot be determined without further information.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Applicative

Refer to Figure 6-22. How much tax revenue does this tax generate for the government?

a.	$150
b.	$180
c.	$250
d.	$300

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax revenue

MSC: Applicative

Figure 6-23

Refer to Figure 6-23. The price paid by buyers after the tax is imposed is

a.	$8.
b.	$10.
c.	$14.
d.	$18.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-23. The effective price received by sellers after the tax is imposed is

a.	$8.
b.	$10.
c.	$14.
d.	$18.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-23. The amount of the tax per unit is

a.	$4.
b.	$5.
c.	$6.
d.	$10.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

Refer to Figure 6-23. The per-unit burden of the tax is

a.	$4 for buyers and $6 for sellers.
b.	$5 for buyers and $5 for sellers.
c.	$6 for buyers and $4 for sellers.
d.	$10 for buyers and $0 for sellers.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Applicative

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

a.	$480
b.	$600
c.	$800
d.	$1120

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax revenue

MSC: Applicative

Which of the following causes the price paid by buyers to be different than the price received by sellers?

a.	a binding price floor
b.	a binding price ceiling
c.	a tax on the good
d.	All of the above are correct.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Interpretive

The price paid by buyers in a market will decrease if the government

a.	increases a binding price floor in that market.
b.	increases a binding price ceiling in that market.
c.	decreases a tax on the good sold in that market.
d.	All of the above are correct.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Analytical

The price received by sellers in a market will increase if the government decreases a

a.	binding price floor in that market.
b.	binding price ceiling in that market.
c.	tax on the good sold in that market.
d.	None of the above is correct.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Analytical

The quantity sold in a market will decrease if the government

a.	decreases a binding price floor in that market.
b.	increases a binding price ceiling in that market.
c.	increases a tax on the good sold in that market.
d.	All of the above are correct.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Analytical

The price paid by buyers in a market will increase if the government

a.	decreases a binding price floor in that market.
b.	increases a binding price ceiling in that market.
c.	decreases a tax on the good sold in that market.
d.	imposes a binding price ceiling in that market.

ANS: B PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Analytical

The price received by sellers in a market will increase if the government

a.	decreases a binding price floor in that market.
b.	increases a binding price ceiling in that market.
c.	increases a tax on the good sold in that market.
d.	imposes a binding price ceiling in that market.

ANS: B PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Analytical

The price received by sellers in a market will decrease if the government

a.	imposes a binding price floor in that market.
b.	decreases a binding price ceiling in that market.
c.	decreases a tax on the good sold in that market.
d.	increases a binding price floor in that market.

ANS: B PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Analytical

The quantity sold in a market will decrease if the government decreases a

a.	binding price floor in that market.
b.	binding price ceiling in that market.
c.	tax on the good sold in that market.
d.	All of the above are correct.

ANS: B PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Analytical

Which of the following causes a shortage of a good?

a.	a binding price floor
b.	a binding price ceiling
c.	a tax on the good
d.	None of the above is correct.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Interpretive

The price paid by buyers in a market will increase if the government

(i)			increases a binding price floor in that market.
(ii)			increases a binding price ceiling in that market.
(iii)			decreases a tax on the good sold in that market.
	a.	(ii) only
	b.	(iii) only
	c.	(i) and (ii) only
	d.	(i), (ii), and (iii)

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Analytical

The price received by sellers in a market will decrease if the government

a.	increases a binding price floor in that market.
b.	increases a binding price ceiling in that market.
c.	decreases a tax on the good sold in that market.
d.	None of the above is correct.

ANS: D PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Analytical

The quantity sold in a market will increase if the government

a.	decreases a binding price floor in that market.
b.	increases a binding price ceiling in that market.
c.	decreases a tax on the good sold in that market.
d.	More than one of the above is correct.

ANS: D PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Analytical

The price paid by buyers in a market will decrease if the government

a.	imposes a binding price floor in that market.
b.	increases a binding price ceiling in that market.
c.	increases a tax on the good sold in that market.
d.	decreases a binding price floor in that market.

ANS: D PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Analytical

The quantity sold in a market will increase if the government

a.	decreases a binding price floor in that market.
b.	decreases a binding price ceiling in that market.
c.	increases a tax on the good sold in that market.
d.	More than one of the above is correct.

ANS: A PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Analytical

Which of the following causes a surplus of a good?

a.	a binding price floor
b.	a binding price ceiling
c.	a tax on the good
d.	More than one of the above is correct.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Price ceilings | Price floors | Taxes MSC: Interpretive

A payroll tax is a

a.	fixed number of dollars that every firm must pay to the government for each worker that the firm hires.
b.	tax that each firm must pay to the government before the firm can hire workers and operate its business.
c.	tax on the wages that firms pay their workers.
d.	tax on all wages above the minimum wage.

ANS: C PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Payroll taxes

MSC: Definitional

When a payroll tax is enacted, the wage received by workers

a.	falls, and the wage paid by firms rises.
b.	falls, and the wage paid by firms falls.
c.	rises, and the wage paid by firms falls.
d.	rises, and the wage paid by firms rises.

ANS: A PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Payroll taxes

MSC: Definitional

A key lesson from the payroll tax is that the

a.	tax is a tax solely on workers.
b.	tax is a tax solely on firms that hire workers.
c.	tax eliminates any wedge that might exist between the wage that firms pay and the wage that workers receive.
d.	true burden of a tax cannot be legislated.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Payroll taxes | Tax incidence

MSC: Interpretive

You receive a paycheck from your employer, and your pay stub indicates that $300 was deducted to pay the FICA (Social Security/Medicare) tax. Which of the following statements is correct?

a.	The $300 that you paid is not necessarily the true burden of the tax that falls on you, the employee.
b.	Your employer is required by law to pay $300 to match the $300 deducted from your check.
c.	This type of tax is an example of a payroll tax.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Payroll taxes | Tax incidence

MSC: Interpretive

You receive a paycheck from your employer, and your pay stub indicates that $400 was deducted to pay the FICA (Social Security/Medicare) tax. Which of the following statements is correct?

a.	This type of tax is an example of a payback tax.
b.	Your employer is required by law to pay $400 to match the $400 deducted from your check.
c.	The $400 that you paid is the true burden of the tax that falls on you, the employee.
d.	All of the above are correct.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Payroll taxes | Tax incidence

MSC: Interpretive

The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. The mayor will be able to successfully divide the burden of the tax equally if the

a.	demand for labor is more elastic than the supply of labor.
b.	supply of labor is more elastic than the demand for labor.
c.	demand for labor and supply of labor are equally elastic.
d.	It is not possible for the tax burden to fall equally on firms and workers.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Payroll taxes | Tax incidence

MSC: Interpretive

The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. Workers will bear

a.	an equal share of the tax in comparison to firms.
b.	a greater share of the tax in comparison to firms.
c.	a smaller share of the tax in comparison to firms.
d.	All of the above are possible.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Payroll taxes | Tax incidence

MSC: Interpretive

Most labor economists believe that the supply of labor is

a.	less elastic than the demand, and, therefore, firms bear most of the burden of the payroll tax.
b.	less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.
c.	more elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.
d.	more elastic than the demand, and, therefore, firms bear most of the burden of the payroll tax.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand

TOP: Payroll taxes | Tax incidence | Elasticity MSC: Interpretive

The federal government uses the revenue from the FICA (Federal Insurance Contribution Act) tax to pay for

a.	unemployment compensation.
b.	the salaries of members of Congress.
c.	Social Security and Medicare.
d.	housing subsidies for low-income people.

ANS: C PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: FICA taxes

MSC: Definitional

The Federal Insurance Contribution Act (FICA) tax is an example of a(n)

a.	payroll tax.
b.	sales tax.
c.	farm subsidy.
d.	income subsidy.

ANS: A PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: FICA taxes

MSC: Definitional

Congress intended that

a.	the entire FICA tax be paid by workers.
b.	the entire FICA tax be paid by firms.
c.	one-quarter of the FICA tax be paid by workers, and three-quarters be paid by firms.
d.	half the FICA tax be paid by workers, and half be paid by firms.

ANS: D PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: FICA taxes | Tax incidence

MSC: Definitional

Although lawmakers legislated a fifty-fifty division of the payment of the FICA tax,

a.	the actual tax incidence is unaffected by the legislated tax incidence.
b.	the employer now is required by law to pay more than 50 percent of the tax.
c.	the employee now is required by law to pay more than 50 percent of the tax.
d.	employers are no longer required by law to pay any portion of the tax.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: FICA taxes | Tax incidence

MSC: Interpretive

Lawmakers designed the burden of the FICA payroll tax to be split evenly between workers and firms. Labor economists believe that

a.	lawmakers may have actually achieved their goal because statistics show that the tax burden is currently equally divided.
b.	the tax raises too little revenue for the government, so it should be eliminated.
c.	firms bear most of the burden of the tax.
d.	workers bear most of the burden of the tax.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: FICA taxes | Tax incidence

MSC: Interpretive

Tax incidence

a.	depends on the legislated burden.
b.	is entirely random.
c.	depends on the elasticities of supply and demand.
d.	falls entirely on buyers or entirely on sellers.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

The incidence of a tax falls more heavily on

a.	consumers than producers if demand is more inelastic than supply.
b.	producers than consumers if supply is more inelastic than demand.
c.	consumers than producers if supply is more elastic than demand.
d.	All of the above are correct.

ANS: D PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the

a.	buyers will bear a greater burden of the tax than the sellers.
b.	sellers will bear a greater burden of the tax than the buyers.
c.	buyers and sellers are likely to share the burden of the tax equally.
d.	buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

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

a.	buyers will bear most of the burden of the tax.
b.	sellers will bear most of the burden of the tax.
c.	the burden of the tax will be shared equally between buyers and sellers.
d.	it is impossible to determine how the burden of the tax will be shared.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by

a.	less than $0.50.
b.	$0.50.
c.	between $0.50 and $1.
d.	$1.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Analytical

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

a.	less than $0.50.
b.	$0.50.
c.	between $0.50 and $1.
d.	$1.

ANS: A PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Analytical

The tax burden will fall most heavily on buyers of the good when the demand curve

a.	is relatively steep, and the supply curve is relatively flat.
b.	is relatively flat, and the supply curve is relatively steep.
c.	and the supply curve are both relatively flat.
d.	and the supply curve are both relatively steep.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Buyers of a good bear the larger share of the tax burden when the

(i)			supply is more elastic than the demand for the product.
(ii)			demand in more elastic than the supply for the product.
(iii)			tax is placed on the sellers of the product.
(iv)			tax is placed on the buyers of the product.
	a.	(i) only
	b.	(ii) only
	c.	(i) and (iii) only
	d.	(i) and (iv) only

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the

a.	demand is more inelastic than the supply.
b.	supply is more inelastic than the demand.
c.	government has required that buyers remit the tax payments.
d.	government has required that sellers remit the tax payments.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Suppose that in a particular market, the demand curve is highly elastic, and the supply curve is highly inelastic. If a tax is imposed in this market, then the

a.	buyers will bear a greater burden of the tax than the sellers.
b.	sellers will bear a greater burden of the tax than the buyers.
c.	buyers and sellers are likely to share the burden of the tax equally.
d.	buyers and sellers will not share the burden equally, but it is impossible to determine who will bear the greater burden of the tax without more information.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

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

a.	buyers will bear most of the burden of the tax.
b.	sellers will bear most of the burden of the tax.
c.	the burden of the tax will be shared equally between buyers and sellers.
d.	it is impossible to determine how the burden of the tax will be shared.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Suppose that the demand for lava lamps is elastic, and the supply of lava lamps is inelastic. A tax of $2 per lamp levied on lava lamps will increase the price paid by buyers of lava lamps by

a.	less than $1.
b.	$1.
c.	between $1 and $2.
d.	$2.

ANS: A PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Analytical

Suppose that the demand for digital cameras is elastic, and the supply of digital cameras is inelastic. A tax of $20 per camera levied on digital cameras will decrease the effective price received by sellers of digital cameras by

a.	less than $10.
b.	$10.
c.	between $10 and $20.
d.	$20.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Analytical

The tax burden will fall most heavily on sellers of the good when the demand curve

a.	is relatively steep, and the supply curve is relatively flat.
b.	is relatively flat, and the supply curve is relatively steep.
c.	and the supply curve are both relatively flat.
d.	and the supply curve are both relatively steep.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Sellers of a good bear the larger share of the tax burden when a tax is placed on a product for which the

(i)			supply is more elastic than the demand.
(ii)			demand in more elastic than the supply.
(iii)			tax is placed on the sellers of the product.
(iv)			tax is placed on the buyers of the product.
	a.	(i) only
	b.	(ii) only
	c.	(i) and (iv) only
	d.	(ii) and (iii) only

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Suppose that a tax is placed on books. If the sellers pay the majority of the tax, then we know that the

a.	demand is more inelastic than the supply.
b.	supply is more inelastic than the demand.
c.	government has required that buyers remit the tax payments.
d.	government has required that sellers remit the tax payments.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

The demand for salt is inelastic, and the supply of salt is elastic. The demand for caviar is elastic, and the supply of caviar is inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt, and a tax of $1 per pound is levied on the buyers of caviar. We would expect that most of the burden of these taxes will fall on

a.	sellers of salt and the buyers of caviar.
b.	sellers of salt and the sellers of caviar.
c.	buyers of salt and the sellers of caviar.
d.	buyers of salt and the buyers of caviar.

ANS: C PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Analytical

Suppose the demand for macaroni is inelastic, the supply of macaroni is elastic, the demand for cigarettes is inelastic, and the supply of cigarettes is elastic. If a tax were levied on the sellers of both of these commodities, we would expect that the burden of

a.	both taxes would fall more heavily on the buyers than on the sellers.
b.	the macaroni tax would fall more heavily on the sellers than on the buyers, and the burden of the cigarette tax would fall more heavily on the buyers than on the sellers.
c.	the macaroni tax would fall more heavily on the buyers than on the sellers, and the burden of the cigarette tax would fall more heavily on the sellers than on the buyers.
d.	both taxes would fall more heavily on the sellers than on the buyers.

ANS: A PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Analytical

Which of the following is correct? A tax burden

a.	falls more heavily on the side of the market that is more elastic.
b.	falls more heavily on the side of the market that is less elastic.
c.	falls more heavily on the side of the market that is closest to unit elastic.
d.	is distributed independently of the relative elasticities of supply and demand.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Definitional

A tax burden falls more heavily on the side of the market that

a.	has a fewer number of participants.
b.	is more inelastic.
c.	is closer to unit elastic.
d.	is less inelastic.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Which of the following statements is correct?

a.	A tax levied on buyers will never be partially paid by sellers.
b.	Who actually pays a tax depends on the price elasticities of supply and demand.
c.	Government can decide who actually pays a tax.
d.	A tax levied on sellers always will be passed on completely to buyers.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect

a.	most of the burden of the tax to fall on sellers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.
b.	most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.
c.	the distribution of the tax burden between buyers and sellers of cigarettes to depend on whether buyers or sellers of cigarettes are required to pay the tax to the government.
d.	a large percentage of smokers to quit smoking in response to the tax.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Figure 6-24

Suppose the government imposes a $2 on this market.

Refer to Figure 6-24. The buyers will bear a higher share of the tax burden than sellers if the demand is

a.	D1, and the supply is S1.
b.	D2, and the supply is S1.
c.	D1, and the supply is S2.
d.	D2, and the supply is S2.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Applicative

Refer to Figure 6-24. The buyers and sellers will bear an eaqual share of the tax burden if the demand is

a.	D1, and the supply is S1.
b.	D2, and the supply is S1.
c.	D1, and the supply is S2.
d.	D2, and the supply is S2.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Applicative

Refer to Figure 6-24. Suppose D1 represents the demand curve for paperback novels, D2 represents the demand curve for gasoline, and S1 represents the supply curve for paperback novels and gasoline. After the imposition of the $2 on paperback novels and on gasoline, the

a.	buyers of gasoline bear a higher burden of the $2 tax than buyers of paperback novels.
b.	sellers of gasoline bear a higher burden of the $2 tax than sellers of paperback novels.
c.	buyers of gasoline bear an equal burden of the $2 tax as buyers of paperback novels.
d.	Both a) and b) are correct.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Applicative

Refer to Figure 6-24. Suppose D1 represents the demand curve for gasoline in both the short run and long run, S1 represents the supply curve for gasoline in the short run, and S2 represents the supply curve for gasoline in the long run. After the imposition of the $2, the price paid by buyers will be

a.	higher in the long run than in the short run.
b.	higher in the short run than in the long run.
c.	equivalent in the short run and the long run.
d.	unable to be determined without additional information.

ANS: A PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Applicative

Refer to Figure 6-24. Suppose D1 represents the demand curve for gasoline in both the short run and long run, S1 represents the supply curve for gasoline in the short run, and S2 represents the supply curve for gasoline in the long run. After the imposition of the $2,

a.	buyers bear a higher burden of the tax in the short run than in the long run.
b.	sellers bear a higher burden of the tax in the short run than in the long run.
c.	buyers and sellers bear an equal burden of the tax in both the short run and long run.
d.	buyers and sellers bear an equal burden of the tax in the short run, but buyers bear a higher burden of the tax in the long run.

ANS: B PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Applicative

Figure 6-25

Panel (a)	Panel (b)


Panel (c)

Refer to Figure 6-25. In which market will the majority of the tax burden fall on buyers?

a.	market (a)
b.	market (b)
c.	market (c)
d.	All of the above are correct.

ANS: B PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Refer to Figure 6-25. In which market will the majority of the tax burden fall on sellers?

a.	market (a)
b.	market (b)
c.	market (c)
d.	All of the above are correct.

ANS: A PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

Refer to Figure 6-25. In which market will the tax burden be most equally divided between buyers and sellers?

a.	market (a)
b.	market (b)
c.	market (c)
d.	All of the above are correct.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

In 1990, Congress passed a new luxury tax on items such as yachts, private airplanes, furs, jewelry, and expensive cars. The goal of the tax was to

a.	raise revenue from the wealthy.
b.	prevent wealthy people from buying luxuries.
c.	force producers of luxury goods to reduce employment.
d.	limit exports of luxury goods to other countries.

ANS: A PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Luxury tax

MSC: Definitional

Which of the following was not a result of the luxury tax imposed by Congress in 1990?

a.	The larger part of the tax burden fell on sellers.
b.	A larger part of the tax burden fell on the middle class than on the rich.
c.	Even the wealthy demanded fewer luxury goods.
d.	The tax was never repealed or even modified.

ANS: D PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Luxury tax | Tax incidence

MSC: Interpretive

The burden of a luxury tax falls

a.	more on the rich than on the middle class.
b.	more on the poor than on the rich.
c.	more on the middle class than on the rich.
d.	equally on the rich, the middle class, and the poor.

ANS: C PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Luxury tax | Tax incidence

MSC: Interpretive

TRUE/FALSE

Economic policies often have effects that their architects did not intend or anticipate.

ANS: T PTS: 1 DIF: 1 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Public policy

MSC: Definitional

Price controls are usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers.

ANS: T PTS: 1 DIF: 1 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Definitional

Price controls can generate inequities.

ANS: T PTS: 1 DIF: 1 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Definitional

Rent-control laws dictate a minimum rent that landlords may charge tenants.

ANS: F PTS: 1 DIF: 1 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Definitional

Minimum-wage laws dictate the lowest wage that firms may pay workers.

ANS: T PTS: 1 DIF: 1 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

Policymakers use taxes to raise revenue for public purposes and to influence market outcomes.

ANS: T PTS: 1 DIF: 1 REF: 6-0

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Definitional

If a good or service is sold in a competitive market free of government regulation, then the price of the good or service adjusts to balance supply and demand.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Definitional

At the equilibrium price, the quantity that buyers want to buy exactly equals the quantity that sellers want to sell.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Definitional

Price is the rationing mechanism in a free, competitive market.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Interpretive

Prices are inefficient rationing devices.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Interpretive

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

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Interpretive

When a free market for a good reaches equilibrium, anyone who is willing and able to pay the market price can buy the good.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Interpretive

When a free market for a good reaches equilibrium, anyone who is willing and able to sell at the market price can sell the good.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Prices

MSC: Interpretive

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

ANS: F PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Definitional

A price ceiling set above the equilibrium price is not binding.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

If a price ceiling is not binding, then it will have no effect on the market.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

To be binding, a price ceiling must be set above the equilibrium price.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

A price ceiling set below the equilibrium price is binding.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

A price ceiling set below the equilibrium price is nonbinding.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

A price ceiling set below the equilibrium price causes quantity demanded to exceed quantity supplied.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

A price ceiling set above the equilibrium price causes quantity demanded to exceed quantity supplied.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

A binding price ceiling causes quantity demanded to be less than quantity supplied.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

A price ceiling set below the equilibrium price causes a shortage in the market.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

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

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

A binding price ceiling causes a shortage in the market.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

When a binding price ceiling is imposed on a market for a good, some people who want to buy the good cannot do so.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Long lines and discrimination are examples of rationing methods that may naturally develop in response to a binding price ceiling.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Price ceilings are typically imposed to benefit buyers.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Price ceilings are typically imposed to benefit sellers.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

Binding price ceilings benefit consumers because they allow consumers to buy all the goods they demand at a lower price.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

All buyers benefit from a binding price ceiling.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

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

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

When the government imposes a binding price ceiling on a competitive market, a surplus of the good arises, and sellers must ration the scarce goods among the large number of potential buyers.

ANS: F PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Definitional

The rationing mechanisms that develop under binding price ceilings are usually inefficient.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

If a price ceiling of $2 per gallon is imposed on gasoline, and the market equilibrium price is $1.50, then the price ceiling is a binding constraint on the market.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

If a price ceiling of $1.50 per gallon is imposed on gasoline, and the market equilibrium price is $2, then the price ceiling is a binding constraint on the market.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

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

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Interpretive

One common example of a price ceiling is rent control.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Definitional

The goal of rent control is to help the poor by making housing more affordable.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Definitional

Economists argue that rent control is a highly efficient way to help the poor raise their standard of living.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

The primary effect of rent control in the short run is to reduce rents.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Definitional

The effects of rent control in the long run include lower rents and lower-quality housing.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

Rent control may lead to lower rents for those who find housing, but the quality of the housing may also be lower.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Interpretive

Renters of rent-controlled apartments will likely benefit from both lower rents and higher quality of apartments.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Applicative

In a free market, the price of housing adjusts to eliminate the shortages that give rise to undesirable landlord behavior.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control

MSC: Definitional

Because the supply and demand of housing are inelastic in the short run, the initial shortage caused by rent control is large.

ANS: F PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control | Elasticity

MSC: Definitional

The housing shortages caused by rent control are larger in the long run than in the short run because both the supply of housing and the demand for housing are more elastic in the long run.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Rent control | Elasticity

MSC: Interpretive

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

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Definitional

A price floor set above the equilibrium price is not binding.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

A price floor set above the equilibrium price is binding.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

If a price floor is not binding, then it will have no effect on the market.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

To be binding, a price floor must be set above the equilibrium price.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

A price floor set below the equilibrium price causes quantity supplied to exceed quantity demanded.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

A price floor set above the equilibrium price causes quantity supplied to exceed quantity demanded.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

A binding price floor causes quantity supplied to be less than quantity demanded.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

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

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

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

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

A binding price floor causes a shortage in the market.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

When a binding price floor is imposed on a market for a good, some people who want to sell the good cannot do so.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

Discrimination is an example of a rationing mechanism that may naturally develop in response to a binding price floor.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

Price floors are typically imposed to benefit buyers.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

Price floors are typically imposed to benefit sellers.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

Binding price floors benefit sellers because they allow sellers to sell all the goods they want at a higher price.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

Not all sellers benefit from a binding price floor.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

A binding price floor may not help all sellers, but it does not hurt any sellers.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

The rationing mechanisms that develop under binding price floors are usually efficient.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Interpretive

If the equilibrium price of an airline ticket is $400 and the government imposes a price floor of $500 on airline tickets, then fewer airline tickets will be sold than at the market equilibrium.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

If the equilibrium price of an airline ticket is $500 and the government imposes a price floor of $400 on airline tickets, then fewer airline tickets will be sold than at the market equilibrium.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Figure 6-26

Refer to Figure 6-26. A price ceiling set at $30 would create a shortage of 20 units.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-26. A price ceiling set at $70 would create a shortage of 40 units.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings

MSC: Applicative

Refer to Figure 6-26. A price floor set at $60 would create a surplus of 20 units.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Refer to Figure 6-26. A price floor set at $40 would create a surplus of 20 units.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price floors

MSC: Applicative

Workers determine the supply of labor, and firms determine the demand for labor.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Labor markets

MSC: Definitional

In an unregulated labor market, the wage adjusts to balance labor supply and labor demand.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Labor markets

MSC: Interpretive

The economy contains many labor markets for different types of workers.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Labor markets

MSC: Definitional

One common example of a price floor is the minimum wage.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

The goal of the minimum wage is to ensure workers a minimally adequate standard of living.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

The United States is the only country in the world with minimum-wage laws.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

States in the U.S. may mandate minimum wages above the federal level.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

A binding minimum wage causes the quantity of labor demanded to exceed the quantity of labor supplied.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

A binding minimum wage creates unemployment.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

A binding minimum wage creates a surplus of labor.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

A binding minimum wage creates a shortage of labor.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

A binding minimum wage may not help all workers, but it does not hurt any workers.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

A binding minimum wage raises the incomes of some workers, but it lowers the incomes of workers who cannot find jobs.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

The impact of the minimum wage depends on the skill and experience of the worker.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

Workers with high skills and much experience are not typically affected by the minimum wage.

ANS: T PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

The minimum wage has its greatest impact on the market for teenage labor.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

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

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

Studies by economists have found that a 10 percent increase in the minimum wage decreases teenage employment 10 percent.

ANS: F PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

A large majority of economists favor eliminating the minimum wage.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

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

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Definitional

If the equilibrium wage is $4 per hour and the minimum wage is $5.15 per hour, then a shortage of labor will exist.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Applicative

Minimum-wage laws are precise policy instruments that can specifically target workers whose family incomes are low.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Applicative

Minimum-wage laws benefit society by creating a surplus of labor.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Minimum wage

MSC: Applicative

Most economists are in favor of price controls as a way of allocating resources in the economy.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Interpretive

When policymakers set prices by legal decree, they obscure the signals that normally guide the allocation of society’s resources.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Definitional

Price controls often hurt those they are trying to help.

ANS: T PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Definitional

Rent subsidies and wage subsidies are better than price controls at helping the poor because they have no costs associated with them.

ANS: F PTS: 1 DIF: 2 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price controls

MSC: Interpretive

A price ceiling is always a binding price control, whereas a price floor may be either binding or not binding.

ANS: F PTS: 1 DIF: 1 REF: 6-1

NAT: Analytic LOC: Supply and demand TOP: Price ceilings | Price floors

MSC: Interpretive

A tax on golf clubs will cause buyers of golf clubs to pay a higher price, sellers of golf clubs to receive a lower price, and fewer golf clubs to be sold.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Applicative

When a tax is imposed on a good, the result is always a shortage of the good.

ANS: F PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes

MSC: Interpretive

When a tax of $1.00 per gallon is imposed on sellers of gasoline, the supply curve for gasoline shifts upward, but by less than $1.00.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax on sellers shifts the supply curve but not the demand curve.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax on sellers shifts the supply curve to the left.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax on sellers increases supply.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax on sellers and an increase in input prices affect the supply curve in the same way.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax of $1 on sellers shifts the supply curve upward by exactly $1.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Applicative

A tax of $1 on sellers always increases the equilibrium price by $1.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Applicative

A tax on sellers reduces the size of a market.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax on sellers increases the quantity of the good sold in the market.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax on sellers usually causes buyers to pay more for the good and sellers to receive less for the good than they did before the tax was levied.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

A tax on buyers shifts the demand curve and the supply curve.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A tax on buyers shifts the demand curve to the right.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A tax on buyers decreases demand.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A tax of $1 on buyers shifts the demand curve downward by exactly $1.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Applicative

A tax of $1 on buyers always decreases the equilibrium price by $1.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Applicative

A tax on buyers increases the size of a market.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A tax on buyers decreases the quantity of the good sold in the market.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

A tax on buyers usually causes buyers to pay more for the good and sellers to receive less for the good than they did before the tax was levied.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand

MSC: Interpretive

Regardless of whether a tax is levied on sellers or buyers, taxes discourage market activity.

ANS: T PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand | Supply

MSC: Definitional

Regardless of whether a tax is levied on sellers or buyers, taxes encourage market activity.

ANS: F PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand | Supply

MSC: Definitional

Taxes levied on sellers and taxes levied on buyers are equivalent.

ANS: T PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand | Supply

MSC: Definitional

The wedge between the buyers’ price and the sellers’ price is the same, regardless of whether the tax is levied on buyers or sellers.

ANS: T PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Demand | Supply

MSC: Definitional

The term tax incidence refers to how the burden of a tax is distributed among the various people who make up the economy.

ANS: T PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Definitional

If a tax is imposed on the sellers of a product, then the tax burden will fall entirely on the sellers.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

If a tax is imposed on the buyers of a product, then the tax burden will fall entirely on the buyers.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

Whether a tax is levied on sellers or buyers, buyers and sellers usually share the burden of taxes.

ANS: T PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Definitional

The tax incidence depends on whether the tax is levied on buyers or sellers.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

Lawmakers can decide whether the buyers or the sellers must send a tax to the government, but they cannot legislate the true burden of a tax.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

Buyers and sellers always share the burden of a tax equally.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

Buyers and sellers rarely share the burden of a tax equally.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

Who bears the majority of a tax burden depends on whether the tax is placed on the buyers or the sellers.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

Figure 6-27

Refer to Figure 6-27. If the government places a $2 tax in the market, the buyer pays $4.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

Refer to Figure 6-27. If the government places a $2 tax in the market, the buyer pays $6.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

Refer to Figure 6-27. If the government places a $2 tax in the market, the seller receives $6.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

Refer to Figure 6-27. If the government places a $2 tax in the market, the seller receives $4.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Supply

MSC: Interpretive

Refer to Figure 6-27. If the government places a $2 tax in the market, the buyer bears $2 of the tax burden.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

Refer to Figure 6-27. If the government places a $2 tax in the market, the buyer bears $1 of the tax burden.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

Refer to Figure 6-27. If the government places a $2 tax in the market, the seller bears $2 of the tax burden.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

Refer to Figure 6-27. If the government places a $2 tax in the market, the seller bears $1 of the tax burden.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence

MSC: Interpretive

Most labor economists believe that the supply of labor is much more elastic than the demand.

ANS: F PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Labor markets | Elasticity

MSC: Definitional

FICA is an example of a payroll tax, which is a tax on the wages that firms pay their workers.

ANS: T PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Payroll taxes

MSC: Definitional

Since half of the FICA tax is paid by firms and the other half is paid by workers, the burden of the tax must fall equally on firms and workers.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Payroll taxes | Tax incidence

MSC: Interpretive

Workers, rather than firms, bear most of the burden of the payroll tax.

ANS: T PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Payroll taxes | Tax incidence

MSC: Definitional

Who bears the majority of a tax burden depends on the relative elasticity of supply and demand.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

If the demand curve is very elastic and the supply curve is very inelastic in a market, then the sellers will bear a greater burden of a tax imposed on the market, even if the tax is imposed on the buyers.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

If the demand curve is very inelastic and the supply curve is very elastic in a market, then the sellers will bear a greater burden of a tax imposed on the market, even if the tax is imposed on the buyers.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

A tax burden falls more heavily on the side of the market that is less elastic.

ANS: T PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Definitional

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

ANS: T PTS: 1 DIF: 1 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Definitional

A tax on a market with elastic demand and elastic supply will shrink the market more than a tax on a market with inelastic demand and inelastic supply will shrink the market.

ANS: T PTS: 1 DIF: 3 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Taxes | Elasticity

MSC: Analytical

The true burden of a payroll tax has nothing to do with the percentage of the tax that employers are required to pay.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Payroll taxes | Tax incidence

MSC: Interpretive

Even though federal law mandates that workers and firms each pay half of the total FICA tax, the tax burden may not fall equally on workers and firms.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Payroll taxes | Tax incidence

MSC: Interpretive

Most of the burden of a luxury tax falls on the middle class workers who produce luxury goods rather than on the rich who buy them.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Luxury tax | Tax incidence

MSC: Interpretive

The burden that results from a tax on yachts falls more heavily on the buyers of yachts than on the sellers of yachts.

ANS: F PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Luxury tax | Tax incidence

MSC: Interpretive

The burden of a luxury tax most likely falls more heavily on sellers because demand is more elastic and supply is more inelastic.

ANS: T PTS: 1 DIF: 2 REF: 6-2

NAT: Analytic LOC: Supply and demand TOP: Luxury tax | Tax incidence

MSC: Interpretive

SHORT ANSWER

Using a supply and demand diagram, show a labor market with a binding minimum wage. Use the diagram to show those who are helped by the minimum wage and those who are hurt by the minimum wage.

ANS:

Those who are helped by the minimum wage are the workers who are still employed and now receive the higher wage. In the diagram, those would be measured by the quantity of labor demanded at the minimum wage, q0. The minimum wage creates unemployment equal to the difference between the quantity of labor supplied and the quantity demanded at the minimum wage, q2-q0. The perceptive student might note that the unemployed group can be divided into those who lose their jobs as a result of the minimum wage (the competitive equilibrium quantity of labor minus the quantity demanded at the minimum wage, q1-q0), and those who enter the market as a result of the higher wage but cannot find employment (quantity of labor supplied at the minimum wage minus the competitive equilibrium quantity, q2-q1). The buyers of the labor (employers) are also worse off because they have to pay a higher wage for labor and, hence, hire a smaller quantity.

PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic

LOC: Supply and demand TOP: Minimum wage

MSC: Interpretive

a.	Using the graph shown, analyze the effect a $300 price ceiling would have on the market for ten-speed bicycles. Would this be a binding price ceiling?
b.	Using the graph shown, analyze the effect a $700 price floor would have on this market for ten-speed bicycles. Would this be a binding price floor?
c.	Why would policymakers choose to impose a price ceiling or price floor?

ANS:

a.	For this example, a $300 price ceiling would cause a shortage of 4,000 bicycles. A price ceiling is binding if it is set at any price below equilibrium price. Because the equilibrium price in this market is $500, this would be a binding price ceiling.
b.	For this example, a $700 price floor would cause a surplus of 4,000 bicycles. A price floor is binding if it is set at any price above equilibrium price. Because the equilibrium price in this market is $500, this would be a binding price floor.
c.	More than one reason may exist for policymakers to impose a price ceiling or price floor in a market. Often this is done in an attempt to increase equality; a price ceiling may be imposed if policymakers perceive the equilibrium price to be unfair to buyers, and a price floor may be imposed if policymakers perceive the equilibrium price to be unfair to sellers.

PTS: 1 DIF: 2 REF: 6-1 NAT: Analytic

LOC: Supply and demand TOP: Price ceilings | Price floors

MSC: Applicative

Using the graph shown, answer the following questions.

a.	What was the equilibrium price in this market before the tax?
b.	What is the amount of the tax?
c.	How much of the tax will the buyers pay?
d.	How much of the tax will the sellers pay?
e.	How much will the buyer pay for the product after the tax is imposed?
f.	How much will the seller receive after the tax is imposed?
g.	As a result of the tax, what has happened to the level of market activity?

ANS:

a.	$6
b.	$4
c.	$1
d.	$3
e.	$7
f.	$3
g.	As a result of the tax, the level of market activity has fallen, from 60 units bought and sold to only 50 units bought and sold.

PTS: 1 DIF: 2 REF: 6-2 NAT: Analytic

LOC: Supply and demand TOP: Taxes | Tax incidence

MSC: Applicative

Using the graph shown, answer the following questions.

a.		What was the equilibrium price in this market before the tax?
b.		What is the amount of the tax?
c.		How much of the tax will the buyers pay?
d.		How much of the tax will the sellers pay?
e.	How much will the buyer pay for the product after the tax is imposed?
f.	How much will the seller receive after the tax is imposed?
g.	As a result of the tax, what has happened to the level of market activity?

ANS:

a.	$5
b.	$3
c.	$2
d.	$1
e.	$7
f.	$4
g.	As a result of the tax, the level of market activity has fallen, from 10 units bought and sold to only 8 units bought and sold.

PTS: 1 DIF: 2 REF: 6-2 NAT: Analytic

LOC: Supply and demand TOP: Taxes | Tax incidence

MSC: Applicative

Using the graph shown, in which the vertical distance between points A and B represents the tax in the market, answer the following questions.

a.	What was the equilibrium price and quantity in this market before the tax?
b.	What is the amount of the tax?
c.	How much of the tax will the buyers pay?
d.	How much of the tax will the sellers pay?
e.	How much will the buyer pay for the product after the tax is imposed?
f.	How much will the seller receive after the tax is imposed?
g.	As a result of the tax, what has happened to the level of market activity?

ANS:

a.	$8; 8,000 units
b.	$5
c.	$3
d.	$2
e.	$11
f.	$6
g.	As a result of the tax, instead of 8,000 units bought and sold, only 6,000 will be bought and sold.

PTS: 1 DIF: 2 REF: 6-2 NAT: Analytic

LOC: Supply and demand TOP: Taxes | Tax incidence

MSC: Applicative

How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.

ANS:

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

PTS: 1 DIF: 2 REF: 6-2 NAT: Analytic

LOC: Supply and demand TOP: Tax incidence | Elasticity

MSC: Interpretive

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