Question 1

A government imposes a price ceiling of $$4.00 per gallon on gasoline, while the equilibrium price is 5.00 $$per gallon. What is the likely outcome in the gasoline market?

Accepted Answer

There will be a shortage of gasoline.

Question 2

Which side of the market is more likely to lobby for a price floor?

Accepted Answer

The sellers.

Question 3

If a tax is collected from the sellers of a good, how does the supply curve shift?

Accepted Answer

The supply curve shifts upward by the size of the tax per unit: $$P_{new} = P_{old} + Tax$$

Question 4

When a tax is collected from buyers in a market, what happens to the tax burden?

Accepted Answer

The tax burden on buyers and sellers is the same as an equivalent tax collected from sellers.

Question 5

A tax placed on a good that is a necessity for consumers will likely generate a tax burden that:

Accepted Answer

Falls more heavily on buyers.

Question 6

Consumer surplus is defined as:

Accepted Answer

The difference between the price a buyer is willing to pay and the price they actually pay: $$CS = WTP - P$$

Question 7

Suppose the government sets a price ceiling below the equilibrium price. Which of the following is most likely to occur in the short run?

Accepted Answer

A shortage will develop.

Question 8

If the government sets a price ceiling and then there is a significant increase in demand, what could happen?

Accepted Answer

The price ceiling could become a binding constraint.

Question 9

Which formula correctly calculates total consumer surplus in a market?

Accepted Answer

$$CS_{total} = \sum_{i=1}^{n} (WTP_i - P)$$

Question 10

If neither Amy nor Carlos is willing to pay $60 for a 3D printer, what is their consumer surplus?

Accepted Answer

$$0$$

Question 11

Suppose the equilibrium price of a good is $$10, and the government sets a price floor at 15. $$What is the likely result?

Accepted Answer

A surplus will develop.

Question 12

If the shortage created by a price ceiling is greater in the long run than in the short run, what does this imply about supply and demand elasticity?

Accepted Answer

Supply and demand are more elastic in the long run.

Question 13

Which of the following best describes a binding price ceiling?

Accepted Answer

A price ceiling set below the equilibrium price.

Question 14

If the government imposes a tax of $$2 per unit on sellers, what is the new supply curve equation if the original supply curve is P = 3Q + 5$?

Accepted Answer

$$P = 3Q + 7$$

Question 15

If a tax is imposed on a good and the demand for the good is perfectly inelastic, who bears the entire burden of the tax?

Accepted Answer

Buyers.

Question 16

Which of the following statements is true regarding consumer surplus?

Accepted Answer

Consumer surplus increases as the market price decreases.

Question 17

If the government imposes a price ceiling and the demand for the good increases, what is the most likely effect?

Accepted Answer

The shortage will become larger.

Question 18

Suppose the government imposes a $$5 per unit tax on a good. If the price buyers pay increases by 3 $$and the price sellers receive decreases by $2, what is the tax incidence?

Accepted Answer

Buyers bear $$3$$ and sellers bear $$2 of $$the tax.

Question 19

If the government sets a price floor above the equilibrium price, what is the effect on consumer surplus?

Accepted Answer

Consumer surplus decreases.

Supply, Demand, Price Controls, and Tax Incidence: Key Concepts and Applications

Study Guide - Practice Questions

Study Guide - Flashcards