Economics Chapter 4 A—Supply and Demand: Applications and Extensions
MULTIPLE CHOICE
1. Other things constant, a decrease in the demand for hair dryers will
a.
increase the price of hair dryers.
b.
increase the quantity supplied of hair dryers.
c.
increase the demand for hair dryer manufacturing workers.
d.
decrease the demand for hair dryer manufacturing workers.
2. When a government subsidy is granted to the sellers of a product, buyers 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.
3. Which of the following is a major disadvantage of setting the price of a good below equilibrium and
using waiting in line rather than price to ration the good?
a.
Compared to price rationing, waiting in line is unfair since it is easier for those with higher
incomes to wait in line.
b.
Waiting in line imposes a cost on the consumer; paying higher prices does not.
c.
Both waiting in line and higher prices are costly to consumers, but unlike the payment of a
higher price, waiting in line does not provide suppliers with an incentive to expand future
output.
d.
Waiting in line benefits consumers at the expense of producers.
4. When a price floor is above the equilibrium price,
a.
quantity demanded will exceed quantity supplied, so there will be a shortage.
b.
quantity supplied will exceed quantity demanded, so there will be a surplus.
c.
the market will be in equilibrium.
d.
This is a trick question because price floors are generally set below the equilibrium price.
5. Rent control applies to about two-thirds of the private rental housing in New York City. Economic
theory suggests that the below-equilibrium prices established by rent controls would
a.
create a surplus of rental housing.
b.
promote a rapid increase in the future supply of housing.
c.
result in poor service and quality deterioration of many rental units.
d.
lead to a reduction in housing discrimination against minorities.
6. Which of the following is the most likely result of an increase in the minimum wage?
a.
an increase in the employment of unskilled workers
b.
a decrease in the number of workers seeking minimum wage jobs
c.
an increase in the demand for unskilled workers
d.
a decrease in the employment of unskilled workers
7. If the demand for a good is highly inelastic, a tax on the good
a.
places the burden of the tax equally on buyers and sellers
b.
permits sellers to pass most of the cost increase resulting from the tax on to the consumers
of the product
c.
reduces the profits earned by sellers since they must write the check to pay the tax
d.
makes the demand more inelastic
e.
makes the demand more elastic
8. If there was an increase in the excise tax imposed on guitar suppliers, what would be the effect on the
equilibrium price and quantity of guitars?
a.
Price increases; quantity decreases
b.
Price decreases; quantity decreases
c.
Price increases; quantity increases
d.
Price decreases; quantity increases
9. The more elastic the supply of a product, the more likely it is that the
a.
burden of a tax on the product will fall on sellers.
b.
burden of a tax on the product will fall on buyers.
c.
burden of a tax on the product will fall equally on both buyers and sellers.
d.
deadweight loss of the tax will be smaller.
10. The Laffer curve illustrates the concept that
a.
an increase in marginal tax rates will always cause tax revenues to increase.
b.
an increase in marginal tax rates will always cause tax revenues to decrease.
c.
when marginal tax rates are quite high, a decrease in the tax rate may cause tax revenues
to increase.
d.
when marginal taxes are quite low, an increase in the tax rate will probably cause tax
revenues to decline.
11. When a supply and demand model is used to analyze the market for labor,
a.
demand is generally no longer downward sloping.
b.
the wage rate is used on the vertical axis as the market price.
c.
employment is used on the horizontal axis as the market quantity.
d.
both b and c.
12. Other things constant, as the price of a resource increases,
a.
the quantity of the resource demanded falls.
b.
the quantity of the resource supplied falls.
c.
the price of the product the resource helps to produce falls.
d.
there is less of an incentive for users of the resource to find substitute resources.
13. Which of the following would tend to increase the price of lumber?
a.
a technological advance that lowers the cost of cutting timber
b.
an increase in the demand for newly constructed homes
c.
a decrease in the demand for wooden rocking chairs
d.
a decrease in the tax imposed on firms who produce lumber
14. A substantial revision of the income tax code that made business and personal tax returns much easier
to complete would tend to cause which of the following changes in the labor market for accountants?
a.
an increase in the demand for accountants
b.
an increase in the employment of accountants
c.
a decrease in the wage rate of accountants
d.
an increase in the number of students choosing to major in accounting
15. How would an increase in the price of paper influence the market for college textbooks?
a.
The supply of textbooks would increase causing the price of textbooks to fall.
b.
The supply of textbooks would increase causing the price of textbooks to rise.
c.
The supply of textbooks would decrease causing the price of textbooks to fall.
d.
The supply of textbooks would decrease causing the price of textbooks to rise.
16. A new law requiring plumbers to pass strict certification tests that reduce the number of plumbers
would
a.
increase the wage rate of plumbers.
b.
decrease the wage rate of plumbers.
c.
increase the employment of plumbers.
d.
cause no change in the labor market for plumbers.
17. An increase in the number of students attending college would tend to
a.
reduce the demand for college professors.
b.
decrease the number of college professors employed.
c.
increase the demand for college professors.
d.
reduce the wage for college professors.
18. An increase in the number of students graduating with a major in psychology would result in
a.
a decrease in the supply of psychologists that would increase the wage of psychologists
and decrease the number employed.
b.
an increase in the supply of psychologists that would decrease the wage of psychologists
and increase the number employed.
c.
a decrease in the demand for psychologists that would decrease the wage of psychologists
and decrease the number employed.
d.
an increase in the demand for psychologists that would increase the wage of psychologists
and increase the number employed.
19. Other things constant, an increase in the demand for bicycles will
a.
decrease the price of bicycles.
b.
decrease the quantity of bicycles bought and sold.
c.
decrease the demand for bicycle workers and lower their wages.
d.
increase the demand for bicycle workers and increase their wages.
20. Which of the following would tend to increase the wage of coal miners?
a.
new environmental laws that make it more costly for firms to use coal in their production
process
b.
an increase in the price of oil, a substitute for coal
c.
a decrease in the demand for coal
d.
an increase in the supply of coal miners
21. An increase in the demand for a product will cause the
a.
demand for and prices of the resources used to produce the product to increase.
b.
demand for and prices of the resources used to produce the product to decrease.
c.
demand for and prices of the resources used to produce the product to remain unchanged.
d.
price of the product to decrease.
22. Other things constant, how will a decrease in the wages of teenagers affect the market for fast food
hamburgers?
a.
The supply of fast food hamburgers will increase, leading to an increase in the price of
hamburgers.
b.
The supply of fast food hamburgers will increase, leading to a reduction in the price of
hamburgers.
c.
The supply of fast food hamburgers will decrease, leading to an increase in the price of
hamburgers.
d.
The supply of fast food hamburgers will decrease, leading to a reduction in the price of
hamburgers.
23. Other things constant, if a labor union is able to successfully increase the wages of autoworkers, there
will be
a.
an increase in the supply of automobiles causing the price of automobiles to fall.
b.
an increase in the supply of automobiles causing the price of automobiles to rise.
c.
a decrease in the supply of automobiles causing the price of automobiles to fall.
d.
a decrease in the supply of automobiles causing the price of automobiles to rise.
24. How would a decrease in lumber prices influence the home construction market?
a.
The demand for newly constructed homes will increase.
b.
The demand for newly constructed homes will decrease.
c.
The supply of newly constructed homes will increase.
d.
The supply of newly constructed homes will decrease.
25. The imposition of price ceilings on a market often results in
a.
an increase in investment in the industry.
b.
a persistent surplus in the market.
c.
an increase in expenditures in the black-market.
d.
lower prices being offered on the black market.
26. If a government price control succeeds in affecting price, it can be expected to lead to a corresponding
a.
decrease in the quantity of sales only if the price is forced down.
b.
decrease in the quantity of sales if the price is forced down and an increase in the volume
of sales if the price is forced up.
c.
decrease in the quantity of sales whether the price is forced up or down.
d.
increase in the quantity of sales whether the price is forced up or down.
27. A price ceiling set below an equilibrium price tends to cause persistent imbalances in the market
because
a.
Quantity demanded exceeds quantity supplied but price cannot rise to remove the
shortage.
b.
Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus.
c.
Quantity supplied exceeds quantity demanded but price cannot rise to remove the
shortage.
d.
Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.
28. Rent controls tend to cause persistent imbalances in the market for housing because
a.
Quantity demanded exceeds quantity supplied but price cannot rise to remove the
shortage.
b.
Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus.
c.
Quantity supplied exceeds quantity demanded but price cannot rise to remove the
shortage.
d.
Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.
29. Price controls will tend to cause misallocation of resources because
a.
production (or opportunity) cost no longer corresponds to market price.
b.
people are unable to determine their preferences at the high or low price.
c.
producers no longer have incentive to be profitable.
d.
consumers no longer have incentive to spend their income efficiently.
30. The presence of price controls in a market usually is an indication that
a.
an insufficient quantity of a 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, in that market, price controls would generate no
inequities of their own.
31. 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,
a.
the demand curve for physicals shifts to the right.
b.
the supply curve for physicals shifts to the left.
c.
the quantity demanded of physicals increases and the quantity supplied of physicals
decreases.
d.
the number of physicals performed will increase.
32. When policymakers impose price controls, they
a.
are usually following the advice of mainstream economists.
b.
usually improve the efficiency of economic activity.
c.
distort the signals that normally guide the allocation of resources.
d.
demonstrate a willingness to sacrifice equity in order to improve efficiency.
33. Economists have argued that rent control is “the best way to destroy a city, other than bombing.” Why
would economists say this?
a.
They anticipate that low rents will cause low-income people to move into the city,
reducing the quality of life for other people.
b.
They anticipate that rent control will benefit landlords at the expense of tenants, increasing
inequality in the city.
c.
They anticipate that rent controls will cause a construction boom, which will make the city
crowded and more polluted.
d.
They anticipate that rent control will eliminate the incentive to maintain buildings, leading
to a deterioration of the city.
34. 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.
35. Under rent control, landlords cease to be responsive to tenants’ concerns about the quality of the
housing because
a.
with shortages and waiting lists, they have no incentive to maintain and improve their
property.
b.
they become resigned to the fact that many of their apartments are going to be vacant at
any given time.
c.
with rent control the government guarantees landlords a minimal level of profit.
d.
with rent control it becomes the government’s responsibility to maintain rental housing.
36. A minimum wage that is set above a market’s equilibrium wage will result in
a.
an excess demand for labor, that is, unemployment.
b.
an excess demand for labor, that is, a shortage of workers.
c.
an excess supply of labor, that is, unemployment.
d.
an excess supply of labor, that is, a shortage of workers.
37. When government imposes price controls in a market,
a.
non-price factors become more important in the rationing of the good.
b.
efficiency in the market is enhanced.
c.
shortages and surpluses are eliminated.
d.
buyers and sellers both become better off.
38. Which of the following is the most likely outcome of minimum wage laws?
a.
an increase in both the quantity of labor supplied by workers and the quantity of labor
demanded by firms
b.
an increase in the quantity of labor supplied by workers and a decrease in the quantity of
labor demanded by firms
c.
a decrease in the quantity of labor supplied by workers and an increase in the quantity of
labor demanded by firms
d.
a decrease in both the quantity of labor supplied by workers and the quantity of labor
demanded by firms
39. A law establishing a maximum legal price for a good or service is known as
a.
an equilibrium price.
b.
a price floor.
c.
a price ceiling.
d.
a price wall.
40. A price ceiling that sets the price of a good below market equilibrium will cause
a.
an increase in quantity demanded of the good.
b.
a decrease in quantity supplied of the good.
c.
a shortage of the good.
d.
all of the above.
41. If a government imposed price ceiling legally sets the price of beef below market equilibrium, which
of the following will most likely happen?
a.
The quantity of beef demanded will decrease.
b.
The quantity of beef supplied will increase.
c.
There will be a surplus of beef.
d.
There will be a shortage of beef.
42. Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling
of $4 per bushel. What is the most likely result of this action?
a.
There will be a shortage of corn.
b.
There will be a surplus of corn.
c.
There will be a decrease in the quantity of corn demanded as the result of the price ceiling.
d.
There will be an increase in the quantity of corn supplied as the result of the price ceiling.
43. When a price ceiling is imposed below the equilibrium price of a commodity,
a.
quantity supplied will be greater than quantity demanded for the good.
b.
the problem of scarcity will be solved.
c.
a shortage of the good will develop.
d.
a surplus of the good will develop.
44. In a market economy, which of the following will most likely cause a prolonged milk shortage?
a.
an increase in the demand for milk
b.
an increase in the supply of milk
c.
imposition of a price floor above the equilibrium price of milk
d.
imposition of a price ceiling below the equilibrium price of milk
45. When a shortage of a good is present due to a price ceiling,
a.
the amount supplied will be greater than the amount demanded.
b.
the quality of the good will generally improve.
c.
non-price factors, such as discrimination or waiting in line, will play a greater role in the
allocation of the good.
d.
the demand for the product will increase and, thereby, eliminate the shortage.
46. When a price ceiling prevents a higher market price from rationing a good,
a.
a surplus of the good will develop.
b.
scarcity of the good will be eliminated.
c.
non-price factors will play a more important role in the rationing process.
d.
the future supply of the good will expand rapidly.
47. After a natural disaster, such as a hurricane, the increased demand for certain items (like lumber,
electric generators, and chainsaws) causes their prices to rise. These higher prices
a.
discourage the flow of these items into the area.
b.
encourage consumers to purchase the items even if they do not plan to use them.
c.
help to direct the items toward their highest valued uses.
d.
do all of the above.
48. When several hurricanes hit Florida in 2004, a number of local governments imposed price controls
that prevented sellers from raising their prices for badly needed products like plywood and generators.
In the areas where the controls were imposed, they resulted in
a.
an expanded availability of these badly needed products.
b.
a reduced availability of these badly needed products.
c.
an increase in the speed with which people recovered from the hurricanes.
d.
a more efficient allocation of these goods for which price controls were in effect.
49. Because of price controls in the former Soviet Union, people often waited in long lines for food and
other necessities. Modern economic theory would indicate that, relative to price rationing, waiting in
line is
a.
just as efficient.
b.
less efficient because the time spent waiting in line imposes an opportunity cost on the
buyer that does not generate revenue for the seller.
c.
more efficient since waiting in line reduces the transaction costs of purchasing goods.
d.
more efficient since waiting in line reduces the cost of the goods to the consumer.
50. A law establishing a minimum legal price for a good or service (the minimum wage for example) is
known as
a.
an equilibrium price.
b.
a price floor.
c.
a price ceiling.
d.
a price wall.
51. A price floor that sets the price of a good above market equilibrium will cause
a.
a decrease in quantity demanded of the good.
b.
an increase in quantity supplied of the good.
c.
a surplus of the good.
d.
all of the above.
52. If a government-imposed price floor legally sets the price of milk above market equilibrium, which of
the following will most likely happen?
a.
The quantity of milk demanded will increase.
b.
The quantity of milk supplied will decrease.
c.
There will be a surplus of milk.
d.
There will be a shortage of milk.
53. A price floor set above an equilibrium price tends to cause persistent imbalances in the market because
a.
Quantity demanded exceeds quantity supplied but price cannot rise to remove the
shortage.
b.
Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus.
c.
Quantity supplied exceeds quantity demanded but price cannot rise to remove the
shortage.
d.
Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.
54. Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor
of $7 per bushel to aid growers. What is the most likely result of this action?
a.
There will be a shortage of wheat.
b.
There will be a surplus of wheat.
c.
There will be an increase in the quantity of wheat demanded as the result of the price
floor.
d.
There will be a decrease in the quantity of wheat supplied as the result of the price floor.
55. When a price floor is imposed above the equilibrium price of a commodity,
a.
quantity demanded will be greater than quantity supplied for the good.
b.
the quantity demanded by consumers will be greater than at the equilibrium price.
c.
a shortage of the good will develop.
d.
a surplus of the good will develop.
56. In a market economy, which of the following would most likely cause a prolonged grain surplus?
a.
a decrease in the demand for grain
b.
an increase in the supply of grain
c.
imposition of a price floor above the equilibrium price of grain
d.
imposition of a price ceiling below the equilibrium price of grain
57. Both price floors and price ceilings lead to
a.
shortages.
b.
surpluses.
c.
reductions in quality.
d.
a reduction in the quantity traded.
58. If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor
above market equilibrium, which of the following will most likely occur in the unskilled labor market?
a.
an increase in quantity of unskilled labor demanded
b.
a decrease in the quantity of unskilled labor supplied
c.
a shortage of unskilled labor
d.
a surplus of unskilled labor (unemployment)
59. Which of the following about minimum wage is true?
a.
Most minimum wage workers are employed more than 40 hours per week.
b.
Economic analysis indicates an increase in the minimum wage would increase the training
opportunities available to inexperienced workers.
c.
Most minimum wage workers are heads of families with incomes below the poverty level.
d.
Most minimum wage workers are employed part-time, and they are often members of a
household with an income well above the poverty level.
60. Economic analysis indicates minimum wage legislation has
a.
made it possible for any teenager who wants to work to earn almost 80 percent as much as
an adult.
b.
made it easier for teenagers to find jobs that offer the opportunity for training.
c.
been an important source of increases in income since most workers earn at or near the
minimum wage.
d.
reduced the on-the-job training opportunities available to teenagers.
61. Which one of the following will most likely be harmed by legislation exempting teenagers from the
minimum wage?
a.
a high school student seeking a part-time job
b.
a high-skilled, 30-year-old worker who is unlikely to compete with low-skilled teenagers
in the employment market
c.
a large family that often employs the services of low-skilled, part-time workers
d.
an illiterate 40-year-old worker with few labor skills
62. A market that operates outside the legal system, either by selling illegal goods or by selling goods at
illegal prices is referred to in economics as a
a.
gray market.
b.
resource market.
c.
black market.
d.
criminal market.
63. Which of the following statements is true?
a.
In both black markets and legal markets, supply and demand determine price.
b.
The quality of products sold in black markets and legal markets are similar.
c.
The price of products in black markets tends to be the same as those in legal markets for
otherwise identical products.
d.
The rate of violence is similar in black markets and legal markets.
64. Which of the following statements is true?
a.
The quality of products sold in black markets tends to be less reliable than the quality of
products in legal markets.
b.
For otherwise identical products, the price of products in black markets tends to be higher
than in legal markets.
c.
The rate of violence is higher in black markets than in legal markets.
d.
All of the above are true.
65. If drugs such as marijuana and cocaine were legalized, it would be likely that
a.
their prices would decrease.
b.
there would be a reduction in tainted or poor quality drugs.
c.
there would be less violence occurring in drug transactions.
d.
all of the above.
66. The large amount of violence associated with the current drug trade is mostly caused by
a.
the fact that drug markets must operate outside the normal legal system.
b.
buyers and sellers often being under the influence of drugs at the time of the transaction.
c.
buyers and sellers who are often unfamiliar with conducting normal transactions within
the legal system.
d.
the lack of quantity supplied and quantity demand being in balance in black markets
because there is no equilibrium price in these markets.
67. After the ban on the production and sale of alcohol ended in 1933,
a.
the quality of alcohol sold declined.
b.
the murder rate declined.
c.
the profit rate for bootleg sellers of alcohol increased.
d.
all of the above occurred.
68. A legal system that provides secure private property rights and unbiased enforcement of contracts
a.
is unnecessary for the smooth operation of markets.
b.
reduces the efficiency of markets.
c.
enhances the efficiency of markets.
d.
makes it easier for sellers to cheat or defraud consumers.
69. Taxes adversely affect the allocation of resources because
a.
they do not always fall more heavily on the rich than on the poor.
b.
the taxes collected are not enough to finance government spending.
c.
not everyone pays taxes.
d.
they distort prices and thus distort the decisions of households and firms.
70. A tax on the buyers of coffee will
a.
increase the price of coffee paid by buyers, increase the net price of coffee received by
sellers, and increase the equilibrium quantity of coffee.
b.
decrease the price of coffee paid by buyers, increase the net price of coffee received by
sellers, and decrease the equilibrium quantity of coffee.
c.
increase the price of coffee paid by buyers, decrease the net price of coffee received by
sellers, and decrease the equilibrium quantity of coffee.
d.
increase the price of coffee paid by buyers, decrease the net price of coffee received by
sellers, and increase the equilibrium quantity of coffee.
71. A tax imposed on the sellers of a good will
a.
raise the price paid by buyers and lower the equilibrium quantity.
b.
raise the price paid by buyers and raise the equilibrium quantity.
c.
raise the net price received by sellers and raise the equilibrium quantity.
d.
raise the net price received by sellers and lower the equilibrium quantity.
72. The actual burden of a tax
a.
falls most heavily on the side of the market that is more elastic.
b.
falls most heavily on the side of the market that is more inelastic.
c.
falls most heavily on the side of the market that is closest to unitary elasticity.
d.
is distributed independently of relative elasticities of supply and demand.
73. Suppose that a tax is placed on a particular good. If the sellers end up bearing most of the tax burden,
this indicates that the
a.
demand is more inelastic than supply.
b.
supply is more inelastic than demand.
c.
government has required that buyers remit the tax payments.
d.
government has required that sellers remit the tax payments.
74. Suppose that a tax is placed on a particular good. If the buyers end up bearing most of the tax burden,
this indicates 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 buyers remit the tax payments.
75. Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic. If the
government taxes this good,
a.
buyers and sellers will each share 50 percent of the burden, regardless of the elasticities of
the demand and supply curves.
b.
sellers will bear a larger share of the tax burden.
c.
the distribution of the burden will depend upon whether the buyers or the sellers are
required to send the tax to the government.
d.
buyers will bear a larger share of the tax burden.
76. A deadweight loss results from the imposition of a tax on a good because the tax
a.
induces the government to increase its expenditures.
b.
reduces the quantity of exchanges between buyers and sellers.
c.
causes a disequilibrium in the market.
d.
imposes a loss on buyers that is greater than the loss to sellers.
77. Taxes create deadweight losses because they
a.
reduce profits of firms.
b.
distort incentives.
c.
cause prices to rise.
d.
create revenue for the government.
78. Deadweight losses are associated with
a.
taxes that distort the incentives that people face.
b.
taxes that target expenditures on survivor’s benefits for Social Security.
c.
taxes that have no efficiency losses.
d.
lump-sum taxes.
79. If the government wants to generate large revenues from placing a tax on the consumption of a
particular good, it should choose a good for which
a.
the demand is price elastic
b.
the demand is unitary elastic
c.
the demand is price inelastic
d.
there are many good substitutes available for the good
80. If the demand for a good is very price elastic, the imposition of a tax on that good
a.
places the largest portion of the burden on the sellers of that product
b.
places the burden of the tax equally on buyers and sellers
c.
places the largest portion of the tax on consumers
d.
will make demand more elastic than it was before the tax
e.
will make demand more inelastic than it was before the tax
81. If the government wants to raise tax revenue and shift most of the tax burden to the consumers, it
would impose a tax on a good with a
a.
flat (elastic) demand curve and a steep (inelastic) supply curve.
b.
steep (inelastic) demand curve and a flat (elastic) supply curve.
c.
steep (inelastic) demand curve and steep (inelastic) demand curve.
d.
flat (elastic) demand curve and a flat (elastic) supply curve.
82. If the government wants to raise tax revenue and shift most of the tax burden to the sellers it would
impose a tax on a good with a
a.
flat (elastic) demand curve and a steep (inelastic) supply curve.
b.
steep (inelastic) demand curve and a flat (elastic) supply curve.
c.
steep (inelastic) demand curve and steep (inelastic) supply curve.
d.
flat (elastic) demand curve and a flat (elastic) supply curve.
83. The actual incidence (or burden) of a tax refers to
a.
the governmental agency responsible for collecting the tax.
b.
who actually bears the burden of a tax once changes in market prices are taken into
account.
c.
the degree of progressiveness in the rate structure of the tax.
d.
who the tax is legally or statutorily imposed on.
84. The statutory incidence (or burden) of a tax refers to
a.
the governmental agency responsible for collecting the tax.
b.
who actually bears the burden of a tax once changes in market prices are taken into
account.
c.
the degree of progressiveness in the rate structure of the tax.
d.
who the tax is legally or statutorily imposed on.
85. The actual burden of a tax is determined primarily by
a.
the elasticities of demand and supply.
b.
the legal (or statutory) assignment of the tax.
c.
the number of exchanges that are eliminated from the market as a result of the tax.
d.
none of the above.
86. If a $500 tax is placed legally (statutorily) on the sellers of new violins and as a result the price of
violins to consumers rises by $400, then the actual burden of the tax
a.
falls completely on violin buyers.
b.
falls completely on violin sellers.
c.
is $400 on violin buyers and $100 on sellers.
d.
is $100 on violin buyers and $400 on sellers.
87. If a $500 tax is placed legally (statutorily) on the buyers of new couches and as a result the price of
couches at stores rises by $200, the actual burden of the tax
a.
falls completely on couch buyers.
b.
falls completely on couch sellers.
c.
is $200 on couch buyers and $300 on sellers.
d.
is $300 on couch buyers and $200 on sellers.
88. If the federal government placed a 50 cent per pack excise tax on cigarette manufacturers, and if as a
result, the price to consumers of a pack of cigarettes went up by 40 cents, the
a.
actual burden of this tax falls mostly on consumers.
b.
actual burden of this tax falls mostly on manufacturers.
c.
actual burden of the tax would be shared equally by producers and consumers.
d.
tax would clearly be a progressive tax.
89. An excise tax levied on a product will impose a smaller relative burden on consumers (and a larger
relative burden on sellers) when
a.
the supply of the product is relatively inelastic.
b.
the supply of the product is relatively elastic.
c.
the demand for the product is relatively elastic.
d.
either a or c is true.
90. An excise tax levied on a product will impose a larger relative burden on consumers (and a smaller
relative burden on sellers) when
a.
the supply of the product is relatively inelastic.
b.
the supply of the product is relatively elastic.
c.
the demand for the product is relatively inelastic.
d.
either b or c is true
91. Which of the following generalizations about the burden of an excise tax is correct?
a.
The more inelastic the supply of a product, the larger the portion of an excise tax will be
paid by buyers.
b.
The more inelastic the demand for a product, the larger the portion of an excise tax will be
paid by buyers.
c.
The more elastic the supply of a product, the smaller the portion of an excise tax will be
paid by buyers.
d.
The burden of an excise tax on a product is independent of the elasticity of the supply and
demand for the product on which the tax is levied.
92. The burden of a tax will fall primarily on sellers when the
a.
demand for the product is highly inelastic and the supply is relatively elastic.
b.
demand for the product is highly elastic and the supply is relatively inelastic.
c.
tax is legally (statutorily) imposed on the seller of the product.
d.
tax is legally (statutorily) imposed on the buyer of the product.
93. The burden of a tax will fall primarily on buyers when the
a.
demand for the product is highly inelastic and the supply is relatively elastic.
b.
demand for the product is highly elastic and the supply is relatively inelastic.
c.
tax is legally (statutorily) imposed on the seller of the product.
d.
tax is legally (statutorily) imposed on the buyer of the product.
94. Suppose that the federal government levies a 50 cent excise tax on gasoline and that the demand for
gasoline is highly inelastic while the supply is highly elastic. Under these circumstances, the burden of
the tax
a.
will fall primarily on producers.
b.
will fall primarily on consumers.
c.
will be split equally between consumers and producers.
d.
cannot be determined because the burden of a tax is not influenced by the elasticities of
supply and demand.
95. In 2010 the federal government reduced the Social Security tax withholding rate from 12.4 percent
(6.2 percent on both the employer and employee) to 8.4 percent (4.2 percent on both the employer and
employee) on the wages of all workers. If the supply of labor is relatively inelastic when compared to
the elasticity of the demand for labor, the burden of this tax will
a.
continue to fall primarily on employees.
b.
continue to fall primarily on employers.
c.
be divided equally between employees and employers.
d.
change from primarily falling on employees to employers.
96. In 2010 the federal government reduced the Social Security tax withholding rate from 12.4 percent
(6.2 percent on both the employer and employee) to 8.4 percent (4.2 percent on both the employer and
employee) on the wages of all workers. If the tax were redefined such that the entire 12.4 percent was
statutorily levied on employers, economic analysis suggests that the actual burden of the tax would
a.
remain unchanged.
b.
shift more heavily toward employers.
c.
shift more heavily toward employees.
d.
be different than if the entire 12.4 percent was statutorily imposed on employees.
97. If a $2 tax per bottle of wine is imposed on wine producers, which of the following will occur?
a.
The price of wine will increase, fewer bottles will be purchased, and there will be a
deadweight loss from this tax.
b.
The price of wine will increase, more bottles will be purchased, and consumers will gain
as the result of this tax.
c.
The price of wine will decrease, more bottles will be purchased, and there will be a
deadweight loss from this tax.
d.
The price of wine and quantity sold will be unchanged.
98. The deadweight loss (or excess burden) resulting from levying a tax on an economic activity is the
a.
tax revenue raised by the government as the result of the tax.
b.
loss of potential gains from trade from activities forgone because of the tax.
c.
increase in the price of an activity as the result of the tax levied on it.
d.
marginal benefits derived from the expansion in government activities made possible by
the increase in tax revenues.
99. The term “deadweight loss” or “excess burden” is used to describe the
a.
expenditures on exercise and weight-reducing programs by individuals who are