Microeconomics Chapter 4 A—Supply and Demand: Applications and Extensions
MULTIPLE CHOICE
1. Other things constant, a decrease in the demand for computers will
a.
increase the price of computers.
b.
increase the quantity supplied of computers.
c.
increase the demand for computer manufacturing workers.
d.
decrease the demand for computer 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 beer suppliers, what would be the effect on the
equilibrium price and quantity of beer?
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 engineering would result in
a.
a decrease in the supply of engineers that would increase the wage of engineers and
decrease the number employed.
b.
an increase in the supply of engineers that would decrease the wage of engineers and
increase the number employed.
c.
a decrease in the demand for engineers that would decrease the wage of engineers and
decrease the number employed.
d.
an increase in the demand for engineers that would increase the wage of engineers and
increase the number employed.
19. Other things constant, an increase in the demand for motorcycles will
a.
decrease the price of motorcycles.
b.
decrease the quantity of motorcycles bought and sold.
c.
decrease the demand for motorcycle workers and lower their wages.
d.
increase the demand for motorcycle 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. Which of the following is correct?
a.
An increase in the number of students choosing to major in marketing would likely lead to
an increase in the wage earned by marketing graduates.
b.
A new law allowing nurses to offer patients some of the medical services that are currently
only available through doctors would increase the wage rate earned by doctors.
c.
An increase in the demand for newly constructed homes would lead to a reduction in the
price of lumber.
d.
New licensing requirements that substantially lowered the number of plumbers would
likely lead to an increase in the wage rate of plumbers.
23. 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.
24. 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.
25. 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.
26. When prices of products are set below equilibrium,
a.
society’s resources are inefficiently allocated.
b.
firms expand output to increase profits.
c.
firms earn excessively high profits.
d.
consumers benefit from surpluses of cheap goods.
27. 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.
28. 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.
29. 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.
30. 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.
31. 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.
32. 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.
33. 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.
34. 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.
35. 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.
36. 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.
37. 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.
38. Which of the following statements about rent control is accurate?
a.
Rent control has proven successful in providing low-cost housing for poor people.
b.
Rent control has produced an increase in available rental units.
c.
Many well-to-do people live in rent-controlled apartments.
d.
All of the above are accurate statements.
39. Which of the following characterizations 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.
40. 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.
41. 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.
42. 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
43. A law establishing a maximum legal price for a good or service (rent controls for example) is known
as
a.
an equilibrium price.
b.
a price floor.
c.
a price ceiling.
d.
a price wall.
44. 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.
45. 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.
46. 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.
47. 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.
48. 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
49. 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.
50. If we observe long lines of people camping out to get tickets to a concert, this tells us
a.
the ticket price is below the market equilibrium price.
b.
the ticket price is above the market equilibrium price.
c.
it is likely to be a good concert, but it doesn’t tell us anything about the ticket price.
d.
the opportunity cost of time of the people in line is higher than the average for the general
population.
51. Which of the following would occur following the imposition of a price ceiling that sets the price of a
good (for example, rental housing) below the market equilibrium?
a.
an improvement in the quality of the good
b.
an increase in the amount of the good available
c.
a shortage of the good
d.
a surplus of the good
52. 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.
53. 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.
54. 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.
55. 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.
56. Whenever a shortage occurs (for example, in parking spaces), and the price does not rise or is not
permitted to rise, some method of non-price rationing must occur (for example, driving around looking
for a parking space). Which of the following is an advantage of price rationing relative to non-price
rationing methods?
a.
Economic theory indicates that price rationing leads to a less economically efficient
allocation of goods.
b.
Non-price rationing techniques redistribute income from consumers to producers; price
rationing does not.
c.
The demand for goods will be more elastic if price rationing is used to allocate goods.
d.
When higher prices are used to resolve shortages, the higher prices will encourage
suppliers to increase the quantity available.
57. If a local government enacts rent control legislation that sets the price of rental housing below
equilibrium, which of the following will most likely happen in the local rental housing market?
a.
Discrimination in the rental housing market will be less likely.
b.
The quality of rental housing will improve.
c.
A surplus of rental housing will develop.
d.
A shortage of rental housing will develop.
58. Which of the following will most likely result from rent controls that reduce monthly rental rates
below market equilibrium?
a.
Shortages and black markets for rental housing will develop.
b.
The quality of rental housing will improve.
c.
The future supply of rental housing will increase rapidly.
d.
Discrimination against minorities and persons with unconventional lifestyles will decline
in the rental housing market.
59. 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.
60. 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.
61. 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.
62. Which of the following will most likely occur when government price controls fix the price of a good
above market equilibrium?
a.
Waiting lines to buy the good will develop.
b.
The quality of the good will deteriorate.
c.
Consumers will buy more than they would at the market equilibrium price.
d.
A surplus of the good will develop.
63. 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.
64. 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.
65. 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.
66. 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
67. Both price floors and price ceilings lead to
a.
shortages.
b.
surpluses.
c.
reductions in quality.
d.
a reduction in the quantity traded.
68. 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)
69. A legally mandated minimum wage is an example of
a.
the invisible hand principle.
b.
a price floor.
c.
a price ceiling.
d.
a fringe benefit.
70. Which of the following 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.
71. A politician was recently quoted as saying, “Our country can only reach full employment by raising
the minimum wage, which would cause the demand for products to increase . . . and eventually cause
production to expand.” His analysis overlooks the fact that
a.
minimum wage legislation increases costs of production (and thus product prices) and
creates an excess supply (unemployment) of unskilled labor.
b.
automation is the prime cause of unemployment.
c.
full employment can only be reached by increasing the minimum wage substantially.
d.
minimum wage legislation may increase the employment of low-skilled workers, but this
will be offset by an equal reduction in the employment of skilled workers.
72. 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.
73. Which of the following is true?
a.
An increase in the minimum wage will reduce the training opportunities available to
inexperienced workers.
b.
The minimum wage is an example of a price floor.
c.
Most minimum wage workers are employed part-time, and they are generally either a
spouse or a teenage member of a household with an income well above the poverty level.
d.
All of the above are true.
74. 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
75. Exempting teenagers from the minimum wage would probably cause
a.
the unemployment rate of teenagers to increase.
b.
an increase in the demand for unionized labor, which is a good substitute for labor services
provided by teenagers.
c.
an increase in the number of jobs offering on-the-job training to teenagers.
d.
all of the above.
76. 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.
77. 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.
78. 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.
79. 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.
80. 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.
81. 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.
82. During the Prohibition period (when the production and sale of alcohol was illegal),
a.
the quality of alcohol sold became less reliable.
b.
the murder rate increased.
c.
gangsters dominated the alcohol trade.
d.
all of the above occurred.
83. Compared to legal markets, black markets have
a.
products of higher quality.
b.
higher prices.
c.
lower profit rates.
d.
less violence.
84. Compared to legal markets, black markets have
a.
products of higher quality.
b.
similar prices.
c.
lower profit rates.
d.
more violence.
85. 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.
86. When a tax is imposed on a good, the actual incidence of the tax generally
a.
falls entirely on the buyer.
b.
falls entirely on the seller.
c.
is shared between the buyer and seller.
d.
is the same as the statutory incidence.
87. 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.
88. 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.
89. 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.
90. A tax imposed on the sellers of a good
a.
raises both the price buyers pay and the net price received by sellers.
b.
raises the price buyers pay and lowers the net price received by sellers.
c.
lowers the price buyers pay and raises the net price received by sellers.
d.
lowers both the price buyers pay and the price received by sellers.
91. The actual incidence of a tax
a.
depends on the statutory incidence.
b.
is entirely random.
c.
depends on the elasticities of supply and demand.
d.
falls entirely on buyers or entirely on sellers.
92. 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.
93. Suppose that a tax is placed on DVDs. 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.
94. Suppose that a tax is placed on textbooks. 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.
95. 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.
96. When a tax is imposed on a good,
a.
the supply curve for the good always shifts.
b.
the demand curve for the good always shifts.
c.
the amount of the good that buyers are willing to buy at each price always remains
unchanged.
d.
the equilibrium quantity of the good always decreases.
97. 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.
98. 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.
99. 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.