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Supply, Demand, and Government Policies 1615
170. 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.
171. 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.
1616 Supply, Demand, and Government Policies
172. 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
173. 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.
Supply, Demand, and Government Policies 1617
174. 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.
175. 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.
1618 Supply, Demand, and Government Policies
176. Suppose that the demand for light bulbs is inelastic, and the supply of light bulbs is elastic. A
tax of $2 per bulb levied on light bulbs will increase the price paid by buyers of light bulbs
by
a. less than $1.
b. $1.
c. between $1 and $2.
d. $2.
177.
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.
Supply, Demand, and Government Policies 1619
178. 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.
179. 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
1620 Supply, Demand, and Government Policies
180. 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.
181. 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.
Supply, Demand, and Government Policies 1621
182. 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.
183. 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.
1622 Supply, Demand, and Government Policies
184. 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.
185. 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.
Supply, Demand, and Government Policies 1623
186. 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.
1624 Supply, Demand, and Government Policies
Figure 6-29
Suppose the government imposes a $2 on this market.
187. Refer to Figure 6-29. 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.
Supply, Demand, and Government Policies 1625
188. Refer to Figure 6-29. The buyers and sellers will bear an equal 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.
189. Refer to Figure 6-29. 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.
1626 Supply, Demand, and Government Policies
190. Refer to Figure 6-29. 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.
191. Refer to Figure 6-29. 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.
Supply, Demand, and Government Policies 1627
Figure 6-30
Panel (a) Panel (b)
Panel (c)
1628 Supply, Demand, and Government Policies
192. Refer to Figure 6-30. In which market will the majority of the tax burden fall on buyers?
a. the market shown in panel (a).
b. the market shown in panel (b).
c. the market shown in panel (c).
d. All of the above are correct.
193. Refer to Figure 6-30. In which market will the majority of the tax burden fall on sellers?
a. the market shown in panel (a).
b. the market shown in panel (b).
c. the market shown in panel (c).
d. All of the above are correct.
Supply, Demand, and Government Policies 1629
194. Refer to Figure 6-30. In which market will the tax burden be most equally divided between
buyers and sellers?
a. the market shown in panel (a).
b. the market shown in panel (b).
c. the market shown in panel (c).
d. All of the above are correct.
195. 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.
1630 Supply, Demand, and Government Policies
196. 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.
197. 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.
True/False and Short Answer
1. Economic policies often have effects that their architects did not intend or anticipate.
a. True
b. False
Supply, Demand, and Government Policies 1631
2. Price controls are usually enacted when policymakers believe that the market price of a good or
service is unfair to buyers or sellers.
a. True
b. False
3. Price controls can generate inequities.
a. True
b. False
4. Rent-control laws dictate a minimum rent that landlords may charge tenants.
a. True
b. False
1632 Supply, Demand, and Government Policies
5. Minimum-wage laws dictate the lowest wage that firms may pay workers.
a. True
b. False
6. Policymakers use taxes to raise revenue for public purposes and to influence market outcomes.
a. True
b. False
7. 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.
a. True
b. False
Supply, Demand, and Government Policies 1633
8. At the equilibrium price, the quantity that buyers want to buy exactly equals the quantity that sellers
want to sell.
a. True
b. False
9. Price is the rationing mechanism in a free, competitive market.
a. True
b. False
10. Prices are inefficient rationing devices.
a. True
b. False
1634 Supply, Demand, and Government Policies
11. When free markets ration goods with prices, it is both efficient and impersonal.
a. True
b. False
12. When a free market for a good reaches equilibrium, anyone who is willing and able to pay the
market price can buy the good.
a. True
b. False
13. 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.
a. True
b. False
