1596 Supply, Demand, and Government Policies
130. Refer to Figure 6-27. Suppose a tax of $3 per unit is imposed on this market. How much
will sellers receive per unit after the tax is imposed?
a. $16
b. between $16 and $20
c. between $20 and $22
d. $22
131. Refer to Figure 6-27. Suppose a tax of $6 per unit is imposed on this market. How much will
buyers pay per unit after the tax is imposed?
a. $16
b. between $16 and $20
c. between $20 and $22
d. $22
Supply, Demand, and Government Policies 1597
132. Refer to Figure 6-27. Suppose a tax of $6 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.
1598 Supply, Demand, and Government Policies
133. Refer to Figure 6-28. Suppose a tax of $6 per unit is imposed on this market. What will be the new
equilibrium quantity in this market?
a. less than 20 units
b. 20 units
c. between 20 units and 35 units
d. greater than 35 units
134. Refer to Figure 6-28. Suppose a tax of $6 per unit is imposed on this market. How much will
sellers receive per unit after the tax is imposed?
a. $4
b. between $4 and $7
c. between $7 and $10
d. $10
Supply, Demand, and Government Policies 1599
135. Refer to Figure 6-28. Suppose a tax of $4 per unit is imposed on this market. How much will
buyers pay per unit after the tax is imposed?
a. $4
b. between $4 and $7
c. between $7 and $10
d. $10
136. Refer to Figure 6-28. Suppose a tax of $4 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.
c. Sellers will bear more of the burden of the tax than buyers.
d. Any of the above is possible in this market.
137. 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.
138. 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.
Supply, Demand, and Government Policies 1601
139. 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.
140. 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.
1602 Supply, Demand, and Government Policies
141. 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.
142. 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.
Supply, Demand, and Government Policies 1603
143. 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.
144. 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.
145. 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.
146. 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)
147. 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.
148. 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.
1606 Supply, Demand, and Government Policies
149. 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.
150. 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.
Supply, Demand, and Government Policies 1607
151. 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.
152. 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.
1608 Supply, Demand, and Government Policies
153. 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.
154. 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.
Supply, Demand, and Government Policies 1609
155. 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.
156. 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.
1610 Supply, Demand, and Government Policies
157. 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.
158. 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.
Supply, Demand, and Government Policies 1611
159. 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.
160. 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.
1612 Supply, Demand, and Government Policies
161. 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.
162. 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.
163. 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.
Supply, Demand, and Government Policies 1613
164. 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.
165. 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.
1614 Supply, Demand, and Government Policies
166. 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.
167. 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.
Supply, Demand, and Government Policies 1615
168. 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.
169. 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.