b.
market (b)
c.
market (c)
d.
All of the above are correct.
Figure 4-24
228. Refer to Figure 4-24. The equilibrium price before the tax is imposed is
a.
P1.
b.
P2.
c.
P3.
d.
None of the above is correct.
229. Refer to Figure 4-24. The price that buyers pay after the tax is imposed is
a.
P1.
b.
P2.
c.
P3.
d.
impossible to determine from the figure.
230. Refer to Figure 4-24. The price that sellers receive after the tax is imposed is
a.
P1.
b.
P2.
c.
P3.
d.
impossible to determine from the figure.
231. Refer to Figure 4-24. The per unit burden of the tax on buyers is
a.
P3 − P1.
b.
P3 − P2.
c.
P2 − P1.
d.
Q2 − Q1.
232. Refer to Figure 4-24. The per-unit burden of the tax on sellers is
a.
P3 − P1.
b.
P3 − P2.
c.
P2 − P1.
d.
Q2 − Q1.
233. Refer to Figure 4-24. The amount of the tax on each unit of the good is
a.
P3 − P1.
b.
P3 − P2.
c.
P2 − P1.
d.
Q2 − Q1.
234. Refer to Figure 4-24. The amount of tax revenue received by the government is equal to the area
a.
P3 A C P1.
b.
A B C.
c.
P2 D A P3.
d.
P1 C D P2.
235. Refer to Figure 4-24. The amount of deadweight loss associated with the tax is equal to
a.
P3 A C P1.
b.
A B C.
c.
P2 A D P3.
d.
P1 D C P2.
Figure 4-25
236. Refer to Figure 4-25. The equilibrium price before the tax is imposed is
a.
P1.
b.
P2.
c.
P3.
d.
impossible to determine from the figure.
237. Refer to Figure 4-25. The price that buyers pay after the tax is imposed is
a.
P1.
b.
P2.
c.
P3.
d.
impossible to determine from the figure.
238. Refer to Figure 4-25. The price that sellers receive after the tax is imposed is
a.
P1.
b.
P2.
c.
P3.
d.
impossible to determine from the figure.
239. Refer to Figure 4-25. Consumer surplus before the tax was levied is represented by area
a.
A.
b.
A + B + C.
c.
D + E + F.
d.
F.
240. Refer to Figure 4-25. Producer surplus before the tax was levied is represented by area
a.
A.
b.
A + B + C.
c.
D + E + F.
d.
F.
241. Refer to Figure 4-25. After the tax is levied, consumer surplus is represented by area
a.
A.
b.
A + B + C.
c.
D + E + F.
d.
F.
242. Refer to Figure 4-25. After the tax is levied, producer surplus is represented by area
a.
A.
b.
A + B + C.
c.
D + E + F.
d.
F.
243. Refer to Figure 4-25. The tax causes a reduction in consumer surplus that is represented by area
a.
A.
b.
B + C.
c.
D + E.
d.
F.
244. Refer to Figure 4-25. The tax causes a reduction in producer surplus that is represented by area
a.
A.
b.
B + C.
c.
D + E.
d.
F.
245. Refer to Figure 4-25. The benefit to the government is
a.
measured by tax revenue and is represented by area A + B.
b.
measured by tax revenue and is represented by area B + D.
c.
measured by the net gain in total surplus and is represented by area B + D.
d.
measured by the net gain in total surplus and is represented by area D + E.
246. When the price of a good is legally set below the equilibrium level, a shortage often results. This
shortage
a.
is a temporary failure of the market mechanism.
b.
is the result of a shift in demand.
c.
is the result of a shift in supply.
d.
occurs because the price ceiling prevents the market mechanism from establishing an
equilibrium price.
247. Which of the following statements regarding black markets is true?
a.
The reliability of products sold in black markets is generally higher than the reliability of
products sold in legal markets.
b.
The prices of goods in black markets are generally lower than the prices of similar
products in legal markets.
c.
The laws of supply and demand do not affect the prices of goods exchanged in black
markets.
d.
The rate of violence is higher in black markets than in legal markets.
248. The market pricing system corrects an excess supply by
a.
raising the product price and increasing producer profits.
b.
lowering the product price and decreasing producer profits.
c.
raising the product price and decreasing producer profits.
d.
lowering the product price and increasing producer profits.
249. The Laffer Curve indicates that
a.
when tax rates are high, a rate reduction may lead to an increase in tax revenue.
b.
when tax rates are low, an increase in tax rates will generally lead to a reduction in tax
revenues.
c.
an increase in tax rates will always lead to an increase in tax revenues.
d.
the deadweight losses resulting from taxation are small at the tax rate that maximizes the
revenues derived by the government.
250. An effective minimum wage
a.
imposes a price ceiling on the wages of various categories of low-skill workers.
b.
increases the demand for low-skill workers.
c.
makes it easier for low skill workers to find jobs.
d.
increases the earnings of some low-skill workers while reducing the employment and
training opportunities available to others.
251. If Olivia’s income increases from $40,000 to $50,000 and her tax liability increases from $6,000 to
$9,000, which of the following is true?
a.
Her marginal tax rate is 18 percent in this range.
b.
Her marginal tax rate is 30 percent in this range.
c.
Her average tax rate was 22.5 percent when her income was $40,000.
d.
The tax structure must be regressive in the range between $40,000 and $50,000.
252. When a government subsidy is granted to the buyers of a product, sellers can end up capturing some of
the benefit because
a.
the market price of the product will fall in response to the subsidy.
b.
the market price of the product will rise in response to the subsidy.
c.
the market price of the product will not change in response to the subsidy.
d.
producers will reduce the supply of the product.
253. A black market is
a.
a market that operates outside the legal system, either by selling illegal goods or by selling
goods at illegal prices.
b.
a market where goods and services can be obtained at lower prices.
c.
a government-mandated market where controls are placed on prices.
d.
a market where exchanges are made using bartering.
254. Black markets that operate outside the legal system are often characterized by
a.
low profits for suppliers.
b.
lower opportunity costs for suppliers and buyers.
c.
decreased prices.
d.
the use of violence as a means of settling disputes.
255. Suppose the U.S. government banned the sale and production of cigarettes. Which of the following
would be most likely to occur?
a.
No one would smoke anymore.
b.
The amount of violence involved in the buying and selling of cigarettes would increase.
c.
The price of cigarettes would decrease.
d.
The supply for cigarettes would become elastic.
256. The “incidence of a tax” is the term used to indicate
a.
the responsibility for collecting the tax.
b.
who actually bears the tax burden.
c.
who the tax is initially levied on.
d.
the regressive rate structure of the tax.
257. Suppose that the minimum wage was increased to $10 per hour. Which of the following would be
most likely to result from the minimum wage increase?
a.
an increase in the employment of low-skill workers previously employed at wage rates of
less than $10 per hour
b.
an increase in the number of jobs providing low-skill workers with on-the-job training
c.
a reduction in the number of teenagers unemployed
d.
an increase in the demand for high-skill workers providing services that are a good
substitute for those whose wages were pushed up by the higher minimum wage
258. If political officials want to minimize the excess burden accompanying a tax, they should set the tax at
a rate
a.
that will maximize the revenue derived from the tax.
b.
slightly above the rate that will maximize the revenue derived from the tax.
c.
well below the rate that will maximize the revenue derived from the tax.
d.
that is the highest that could possibly be imposed.
259. If the Federal government enacts a new excise tax of $1.50 per case of soda. Which of the following is
most likely to occur?
a.
Consumers of soda will pay a higher price and buy a larger quantity.
b.
Consumers of soda will pay a higher price, which will increase the profits of soda
companies, inducing them to sell a larger quantity.
c.
Consumers of soda will pay a higher price and buy a smaller quantity.
d.
Consumers of soda will buy less bottled water.
260. The more elastic the supply of a product, the more likely it is that the burden of a tax will
a.
fall on sellers.
b.
fall on buyers.
c.
fall equally on both buyers and sellers.
d.
be borne by the public sector, and not by market participants.
ESSAY
261. Suppose the United Auto Workers union obtains a substantial wage increase for auto workers. How
will this affect the market for automobiles?
262. Ava states, “If raising the minimum wage to $10 an hour is good, like Senator Largess suggests, then
raising it to $20 an hour would be twice as good.” Is Ava correct? Why or why not?
263. Lowincomesville is a poor town. The mayor has decided to impose a law to cut all rental rates on
apartments in half and to fix them at this level. Will this help the poor? Why or why not? Be sure to
distinguish between the short run and the long run.
264. Bill the butcher is upset because the government plans to tax beef $.10 a pound. “I hate paying taxes,”
he says. “Because of this, I’m raising all my beef prices by $.10 a pound. The consumers will bear this
burden, not me.” Do you see anything wrong with this way of thinking? Explain.
265. The City of Greenville needs to raise revenue. Alderman Black has proposed a $10 tax on red cars in
the city, currently numbering 2,000. Mayor White, who wants more than $20,000 in revenue, proposes
taxing these cars at $100 each. Councilwoman Bluestone goes even farther, suggesting a $1,000 per
red car tax, arguing that her proposal will raise $2 million. If maximizing tax revenue is the only
consideration, which proposal should pass? Why?
266. The state of Florida is considering putting an excise tax on either good X or good Y. An economist
discovers the supply of good X is more elastic than the supply of good Y, while the demand elasticities
are identical. Which good should Florida tax in order to minimize the deadweight loss of the tax?
267. Government programs such as Medicare substantially subsidize health care purchases by some
consumers in the U.S. economy. Who benefits from these subsidies? How do they affect the price of
health care? If you are not a recipient of this program, are you made better or worse off by the
subsidy? Explain.
268. Suppose the U.S. Government banned the sale and production of cigarettes. What are likely effects of
this action on the market for cigarettes?