Question 1

Suppose the government imposes a $$3 per unit tax on sellers in the cigarette market. If the price buyers pay increases by 2 $$and the price sellers receive decreases by $1, what is the economic burden of the tax on buyers and sellers?

Accepted Answer

Buyers bear $$2, sellers bear 1$$

Question 2

Which of the following best explains the invariance of tax incidence?

Accepted Answer

The economic burden of a tax does not depend on who is legally responsible for paying it.

Question 3

If the demand for soda is more elastic than the supply, who will bear a greater share of a soda tax imposed on sellers?

Accepted Answer

Sellers will bear a greater share of the tax.

Question 4

A price ceiling is imposed on apartments at $$2,000 per month, while the equilibrium price is 3$$,000. What is the likely outcome?

Accepted Answer

A shortage of apartments

Question 5

Given the following: Maximum marginal benefit = $$9, Price buyers pay after tax = 7$$, New quantity = 2 billion. What is the consumer surplus after the tax? Use the formula $$CS = (Maximum\ marginal\ benefit - Price\ buyers\ pay) 	imes New\ Quantity 	imes \frac{1}{2}.$$

Accepted Answer

$$2\ billion$$

Question 6

Which of the following is a real-world example of a binding price floor?

Accepted Answer

Minimum wage laws

Question 7

If a quota is set below the equilibrium quantity, what will happen to the market price and quantity?

Accepted Answer

Price will rise and quantity will fall

Question 8

A government subsidy is introduced for childcare, shifting the demand curve to the right by $3,000. If the price sellers receive increases and the price buyers pay decreases, who benefits more from the subsidy?

Accepted Answer

The less elastic side of the market

Question 9

What is the deadweight loss from a $$3 per unit tax that reduces quantity from 4 billion to 2 billion units? Use the formula $$DWL = (Old\ Quantity - New\ Quantity) 	imes Tax 	imes \frac{1}{2}$.

Accepted Answer

$$3\ billion$$

Question 10

Which of the following is NOT a likely consequence of a binding price ceiling?

Accepted Answer

Surplus of goods

Question 11

If the government sets a quota on the number of houses that can be built, and the quota is binding, what happens to consumer surplus?

Accepted Answer

Consumer surplus decreases

Question 12

Which of the following best describes deadweight loss?

Accepted Answer

The reduction in economic surplus due to market inefficiency

Question 13

A minimum wage is set above the equilibrium wage. If labor demand is elastic, what is the likely effect on employment?

Accepted Answer

A large decrease in employment

Question 14

Which of the following policies is most likely to create a shortage in the market for kidney transplants?

Accepted Answer

A price ceiling of $0

Question 15

If a government wants to maximize the benefit of a subsidy for families, to whom should it target the subsidy?

Accepted Answer

Families with inelastic demand for childcare

Question 16

Which of the following is true about the statutory and economic incidence of a tax?

Accepted Answer

Statutory incidence refers to who is legally responsible for paying the tax, while economic incidence refers to who actually bears the burden.

Question 17

A binding price floor in the milk market encourages which of the following?

Accepted Answer

Production by inefficient producers

Question 18

Which of the following is a likely effect of a binding mandate requiring consumers to buy a minimum quantity of a good?

Accepted Answer

Buyers are forced to buy more than they want, leading to lost economic surplus

Question 19

If a tax is imposed and the supply curve is perfectly inelastic, who bears the entire economic burden of the tax?

Accepted Answer

Sellers

Question 20

Which of the following best describes the effect of a subsidy on market equilibrium?

Accepted Answer

It increases the quantity traded and lowers the price paid by buyers

Government Actions in Markets: Taxes, Subsidies, and Market Regulations

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