Question 1

Which of the following is NOT a primary reason for government intervention in markets, according to microeconomic theory?

Accepted Answer

To maximize profits for private firms

Question 2

Suppose the government sets a price ceiling below the equilibrium price for a basic food item. What is the most likely immediate effect on the market?

Accepted Answer

A shortage of the good as quantity demanded exceeds quantity supplied

Question 3

A price floor is set above the equilibrium price in the milk market. What is the resulting excess supply if the equilibrium quantity is 15 million litres and the new quantity supplied is 25 million litres?

Accepted Answer

$$10$$ million litres

Question 4

Which of the following best describes the welfare effects of a binding price ceiling?

Accepted Answer

Deadweight loss occurs and there is a transfer of surplus from producers to consumers

Question 5

If the government imposes a $0.20 tax per unit on sellers, which of the following will NOT occur?

Accepted Answer

The equilibrium price falls

Question 6

Suppose the demand for housing is given by $$P = 900 - 20Q$$ and supply by $$P = 100 + 10Q$$, where $$Q is in $$thousands of units. What is the equilibrium price and quantity?

Accepted Answer

$$P = 500$$, $$Q = 20$$

Question 7

Which of the following statements about tax incidence is correct?

Accepted Answer

The side of the market that is more price elastic bears less of the tax burden

Question 8

A government subsidy of $$0.35$$ per unit is given to sellers. What is the effect on the supply curve?

Accepted Answer

The supply curve shifts downward by $$0.35$$

Question 9

Which of the following is a possible unintended consequence of a binding price ceiling?

Accepted Answer

Creation of black markets

Question 10

If a $$1$$ tax is imposed on sellers and the new equilibrium quantity is $$8$$ million units, what is the government tax revenue?

Accepted Answer

$$8$$ million

Question 11

Which of the following is true about the effects of a subsidy to buyers?

Accepted Answer

The demand curve shifts upward by the amount of the subsidy

Question 12

Consider a market with a binding price floor. What must the government do to maintain the floor if excess supply exists?

Accepted Answer

Purchase the entire amount of excess supply at the floor price

Question 13

Which of the following is NOT a direct effect of a tax on either buyers or sellers?

Accepted Answer

Equilibrium quantity rises

Question 14

Suppose the government wants to encourage university attendance. Which intervention is most likely to achieve this goal?

Accepted Answer

Subsidizing tuition for students

Question 15

If a price ceiling is set above the equilibrium price, what is the effect on the market?

Accepted Answer

No effect; the ceiling is non-binding

Question 16

Which of the following best describes the effect of a subsidy on total surplus in the market?

Accepted Answer

Total surplus increases, but the government incurs a cost equal to the subsidy times the new equilibrium quantity

Question 17

A tax is imposed on buyers. Which curve is directly affected and how?

Accepted Answer

The demand curve shifts downward by the amount of the tax

Question 18

Which of the following is a normative analysis question regarding government intervention?

Accepted Answer

Do you think the policy is a good idea?

Question 19

If the government subsidizes producers, which of the following is most likely to occur?

Accepted Answer

Equilibrium quantity increases and equilibrium price decreases

Question 20

Which of the following is a trade-off associated with government intervention in markets?

Accepted Answer

Intervention may achieve fairness but reduce total surplus

Government Intervention in Microeconomics: Price Controls, Taxes, and Subsidies

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