Question 1

Suppose the equilibrium rent for apartments in a city is $$1,500 per month. The government imposes a rent ceiling of 1$$,200 per month. Which of the following outcomes is most likely to occur as a result of this policy?

Accepted Answer

A shortage of apartments will arise, leading to increased search activity and possible illegal trading.

Question 2

A minimum wage is set above the equilibrium wage rate in the fast-food industry. What is the most likely effect on the labour market?

Accepted Answer

The quantity of labour supplied will exceed the quantity demanded, resulting in unemployment.

Question 3

Which of the following best describes the concept of tax incidence?

Accepted Answer

The division of the burden of a tax between buyers and sellers, regardless of who is legally responsible for paying the tax.

Question 4

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

Accepted Answer

The buyers

Question 5

A government introduces a production quota on milk, reducing the quantity produced below the equilibrium level. What is the most likely result?

Accepted Answer

The market price of milk rises, marginal social benefit exceeds marginal social cost, and producers have an incentive to cheat.

Question 6

Which allocation method for scarce housing under a rent ceiling is considered fair according to both the fair rules and fair results views?

Accepted Answer

None of these methods is considered fair by both views.

Question 7

Suppose a $$10 per unit tax is imposed on sellers of a good. The price paid by buyers increases by 6$$, and the price received by sellers falls by $4. What is the tax incidence on buyers and sellers?

Accepted Answer

Buyers pay $$6, sellers pay 4$$

Question 8

Which of the following statements about the effects of a subsidy is correct?

Accepted Answer

A subsidy decreases the market price, increases the quantity produced, and leads to inefficient overproduction.

Question 9

If the supply of a good is perfectly elastic, who bears the entire burden of a tax imposed on the good?

Accepted Answer

The buyers

Question 10

A city legalizes a previously illegal drug and imposes a high tax on its sale. What is the most likely effect on the market for the drug?

Accepted Answer

The supply decreases, price rises, and consumption decreases, similar to when the drug was illegal.

Question 11

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

Accepted Answer

The benefits principle

Question 12

Consider a market with a downward-sloping demand and upward-sloping supply. A tax is imposed. Where is the new equilibrium quantity found?

Accepted Answer

Where the vertical gap between the demand and supply curves equals the size of the tax.

Question 13

Which of the following best explains why a minimum wage can lead to a deadweight loss?

Accepted Answer

It causes the quantity of labour employed to be less than the efficient quantity, reducing both worker and firm surplus.

Question 14

Suppose the government imposes a production quota on wheat, reducing output below equilibrium. Which of the following is a likely consequence?

Accepted Answer

Marginal social benefit exceeds marginal social cost, and producers have an incentive to cheat.

Question 15

If a tax is imposed on a good with perfectly inelastic supply, who bears the entire burden of the tax?

Accepted Answer

The sellers

Question 16

Which of the following is NOT a likely result of a rent ceiling set below equilibrium rent?

Accepted Answer

Efficient allocation of housing

Question 17

A government wants to maximize the tax revenue from a good. According to the elasticity of demand and supply, which type of good should it tax?

Accepted Answer

A good with inelastic demand or inelastic supply

Question 18

Which of the following best describes the ability-to-pay principle?

Accepted Answer

People should pay taxes according to how easily they can bear the burden.

Question 19

In the market for illegal goods, what is the effect of imposing penalties on both buyers and sellers?

Accepted Answer

Both demand and supply decrease, leading to a lower equilibrium quantity.

Question 20

Which of the following equations correctly represents the opportunity cost of housing when a rent ceiling creates a shortage?

Accepted Answer

$$Opportunity\ cost = Rent_{regulated} + Opportunity\ cost\ of\ search\ activity$$

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

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