Question 1

Which of the following best describes a binding price ceiling in a competitive market?

Accepted Answer

A legal maximum price set below the equilibrium price, causing a shortage.

Question 2

Suppose the equilibrium price of muffins is $$3. If the government imposes a price floor of 4$$, what will be the likely market outcome?

Accepted Answer

There will be a surplus of muffins.

Question 3

A $$1.50 per unit tax is imposed on sellers in the pizza market. If the equilibrium price before tax is 10 $$and the new price buyers pay is $11, what price do sellers receive after the tax?

Accepted Answer

$9.50

Question 4

Which of the following statements about tax incidence is correct?

Accepted Answer

The side of the market that is less elastic bears most of the tax burden.

Question 5

If a binding price ceiling is imposed in the market for apartments, what is a likely long-run effect?

Accepted Answer

The shortage will become larger as supply and demand become more elastic.

Question 6

A government imposes a $$30 tax on buyers of bicycles. If buyers pay 10 $$more and sellers receive $20 less than before, what is the tax incidence?

Accepted Answer

Buyers bear $$10 of the tax, sellers bear 20.$$

Question 7

Which of the following is an example of a price floor?

Accepted Answer

Minimum wage laws.

Question 8

Suppose the demand for luxury yachts is highly elastic and the supply is relatively inelastic. If a luxury tax is imposed, who bears most of the tax burden?

Accepted Answer

Sellers (yacht manufacturers).

Question 9

If the government sets a minimum wage above the equilibrium wage, what is the most likely outcome in the labor market for teenagers?

Accepted Answer

A surplus of teenage workers (unemployment).

Question 10

Which of the following best explains why economists often oppose price controls?

Accepted Answer

Price controls disrupt the balancing function of prices, leading to shortages or surpluses.

Question 11

A binding price floor is set in the market for wheat. What will happen to the quantity supplied and quantity demanded?

Accepted Answer

Quantity supplied will increase, quantity demanded will decrease.

Question 12

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

Accepted Answer

Buyers.

Question 13

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

Accepted Answer

A surplus of the good.

Question 14

Suppose the government wants to help the poor afford housing. Which alternative to rent control might economists recommend?

Accepted Answer

Rent subsidies.

Question 15

If a price ceiling is set at $$90 in a market where the equilibrium price is 100$$, what will be the result?

Accepted Answer

A shortage of goods.

Question 16

Which of the following best describes the effect of a tax on the equilibrium quantity in a market?

Accepted Answer

The equilibrium quantity decreases.

Question 17

A government imposes a price ceiling on gasoline below the equilibrium price. What is a likely unintended consequence?

Accepted Answer

Long lines at gas stations.

Question 18

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

Accepted Answer

Buyers.

Question 19

Which of the following is true about the effects of a tax, regardless of whether it is imposed on buyers or sellers?

Accepted Answer

The effects on price and quantity, and the tax incidence, are the same.

Question 20

A 10% increase in the minimum wage is estimated to decrease teenage employment by 1-3%. What does this suggest about the elasticity of demand for teenage labor?

Accepted Answer

Demand is relatively inelastic.

Supply, Demand, and Government Policies: Price Controls and Tax Incidence

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