Q: Which formula correctly calculates the consumer’s share of a per-unit tax?

$$ \frac{|E_d|}{E_s + |E_d|} \times \text{tax} $$

Question 1

Suppose the government imposes a 10% sales tax on televisions. If the pre-tax equilibrium price is $300, what is the new price paid by consumers if the demand for televisions is highly elastic?

Accepted Answer

Less than $330, because sellers absorb part of the tax due to elastic demand.

Question 2

Which of the following best describes allocative efficiency in a free market?

Accepted Answer

The highest valued users receive the product.

Question 3

A price ceiling set below the equilibrium price in the rental housing market will most likely result in:

Accepted Answer

A shortage of apartments.

Question 4

If the supply of wheat increases due to technological improvements and demand is price inelastic, what will happen to the equilibrium price and total revenue for farmers?

Accepted Answer

Price falls and total revenue falls.

Question 5

Which of the following is a likely long-run effect of rent controls in a city with inelastic supply and demand for apartments?

Accepted Answer

Development of a black market for apartments.

Question 6

A price floor set above the equilibrium price in the wheat market will result in:

Accepted Answer

Excess supply of wheat.

Question 7

If the government wants to support farmers’ incomes without causing a surplus, which policy is most effective?

Accepted Answer

Imposing a production quota to restrict output.

Question 8

Which formula correctly calculates the consumer’s share of a per-unit tax?

Accepted Answer

$$ \frac{|E_d|}{E_s + |E_d|} 	imes 	ext{tax} $$

Question 9

Which of the following is NOT a likely short-run consequence of a binding rent control?

Accepted Answer

Rapid increase in new apartment construction.

Question 10

If a minimum wage is set above the equilibrium wage, what is the most likely immediate effect in the labor market?

Accepted Answer

Excess supply of labor (unemployment).

Question 11

Which of the following best explains why unemployment may not rise as much as expected after a minimum wage increase?

Accepted Answer

Firms invest in capital, increasing worker productivity and labor demand.

Question 12

Economic surplus in a market is maximized when:

Accepted Answer

The price consumers are willing to pay exceeds the cost of resources used.

Question 13

If the demand for a product is perfectly inelastic, who bears the entire burden of a sales tax?

Accepted Answer

The consumer.

Question 14

Which of the following is an example of a market failure?

Accepted Answer

Excess supply due to a price floor.

Question 15

Suppose the government sets a price ceiling on milk below the equilibrium price. What is a likely long-term effect?

Accepted Answer

A persistent shortage of milk.

Question 16

If the government subsidizes wheat producers, what is the likely effect on the market price and quantity of wheat?

Accepted Answer

Price falls and quantity rises.

Question 17

Which of the following equations represents total surplus in a market?

Accepted Answer

$$ 	ext{Total Surplus} = 	ext{Consumer Surplus} + 	ext{Producer Surplus} $$

Question 18

Which of the following is a direct result of a binding price floor in the labor market?

Accepted Answer

Unemployment (excess supply of labor).

Question 19

If a government purchases the surplus created by a price floor in the wheat market, what is the effect on total surplus?

Accepted Answer

Total surplus decreases due to inefficiency.

Question 20

Which of the following best describes the 'invisible hand' as proposed by Adam Smith?

Accepted Answer

Markets allocate resources efficiently through individuals pursuing their own interests.

Price Controls, Market Efficiency, and Tax Incidence in Microeconomics

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