Question 1

Suppose the equilibrium rent for apartments in a city is $$1,200 per month. The government imposes a rent ceiling of 1$$,000 per month. What is the most likely immediate effect on the housing market?

Accepted Answer

A shortage of apartments will occur because quantity demanded exceeds quantity supplied.

Question 2

Which of the following best describes the opportunity cost of housing when a rent ceiling creates a shortage?

Accepted Answer

It equals the regulated rent plus the opportunity cost of search activity.

Question 3

A rent ceiling set below the equilibrium rent leads to which of the following outcomes?

Accepted Answer

Underproduction of housing services and a deadweight loss.

Question 4

Which allocation method for scarce housing under a rent ceiling is considered fair according to the fair results view?

Accepted Answer

None of these methods leads to a fair outcome.

Question 5

If the minimum wage is set above the equilibrium wage rate, what is the result in the labour market?

Accepted Answer

Unemployment is created because quantity supplied exceeds quantity demanded.

Question 6

Consider a labour market where the equilibrium wage is $$14/hour and the minimum wage is set at 15/$$hour. What is the quantity of labour employed?

Accepted Answer

It is the quantity demanded at $15/hour.

Question 7

A minimum wage set above the equilibrium wage rate leads to which of the following inefficiencies?

Accepted Answer

Marginal social benefit from labour is less than marginal social cost.

Question 8

Which group is most likely to bear the burden of a tax on a good with perfectly inelastic demand?

Accepted Answer

Buyers

Question 9

Suppose a $$6 tax is imposed on sellers of cigarettes. The equilibrium price rises from 12 to$$ $$16 per pack, and the price received by sellers falls to 10. $$How much of the tax is paid by buyers and how much by sellers?

Accepted Answer

Buyers pay $$4, sellers pay 2.$$

Question 10

What is the effect of a tax on buyers compared to a tax on sellers, assuming the tax amount is the same?

Accepted Answer

Both taxes have the same effect on equilibrium price and quantity.

Question 11

Which equation correctly represents the equilibrium quantity after a tax is imposed?

Accepted Answer

$$D(p_{buyer}) = S(p_{seller})$$ where $$p_{buyer} - p_{seller} = 	ext{tax}$$

Question 12

Which of the following is true about the efficiency effects of taxes?

Accepted Answer

Taxes create a deadweight loss unless demand or supply is perfectly inelastic.

Question 13

According to the ability-to-pay principle, who should pay more taxes?

Accepted Answer

Those who can more easily bear the burden, such as the rich.

Question 14

A production quota is imposed on a farm product, reducing output from 16 million to 14 million kilograms and raising price from $$3 to 5 $$per kilogram. What is the likely effect on efficiency?

Accepted Answer

Production becomes inefficient as marginal social cost falls below marginal social benefit.

Question 15

A government subsidy of $$20 per tonne is paid to farmers, increasing supply from 40 to 60 million tonnes and lowering market price from 40 to$$ $30 per tonne. What is the effect on marginal social cost and benefit?

Accepted Answer

Marginal social cost exceeds marginal social benefit, leading to inefficient overproduction.

Question 16

Which of the following best describes the deadweight loss created by a price ceiling set below equilibrium?

Accepted Answer

It is the loss of total surplus due to underproduction.

Question 17

If a tax is imposed on a good with highly elastic supply and inelastic demand, who bears most of the tax burden?

Accepted Answer

Buyers

Question 18

Which principle states that people should pay taxes equal to the benefits they receive from government services?

Accepted Answer

Benefits principle

Question 19

A government wants to reduce smoking by taxing cigarettes. According to microeconomic theory, does it matter whether the tax is imposed on buyers or sellers?

Accepted Answer

No, the effect on price and quantity is the same regardless of who is taxed.

Government Actions in Markets: Price Controls, Taxes, Quotas, and Subsidies

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