Question 1

Suppose the equilibrium rent for apartments in a city is $$1,200 per month. The government imposes a rent ceiling of 1$$,000 per month. What is the most likely immediate effect of this policy?

Accepted Answer

The quantity of apartments demanded will exceed the quantity supplied, creating a shortage.

Question 2

A rent ceiling set below the equilibrium rent leads to which of the following outcomes?

Accepted Answer

A deadweight loss and inefficient underproduction of housing services.

Question 3

Which of the following best describes the opportunity cost of housing when a rent ceiling creates a shortage?

Accepted Answer

It equals the regulated rent plus the opportunity cost of search activity.

Question 4

Which allocation method for scarce housing under a rent ceiling is considered fair according to the fair rules view?

Accepted Answer

None of these methods is considered fair.

Question 5

If the minimum wage is set above the equilibrium wage rate, what is the result in the labor market?

Accepted Answer

Unemployment is created because the quantity of labor supplied exceeds the quantity demanded.

Question 6

A minimum wage set above the equilibrium wage rate leads to which of the following?

Accepted Answer

A deadweight loss and decreased worker and firm surplus.

Question 7

Suppose a $$6 tax is imposed on sellers in a market. The equilibrium price before tax is 12. $$After the tax, buyers pay $$16 and sellers receive 10. $$How much of the tax is paid by buyers?

Accepted Answer

$4

Question 8

Which of the following statements about tax incidence is correct?

Accepted Answer

The division of the tax burden depends on the elasticities of demand and supply.

Question 9

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

Accepted Answer

The buyer

Question 10

Which principle states that people should pay taxes according to how easily they can bear the burden?

Accepted Answer

The ability-to-pay principle

Question 11

A production quota set below the equilibrium quantity will have which of the following effects?

Accepted Answer

Increase the price and decrease the quantity produced.

Question 12

A government subsidy to producers will generally result in which of the following?

Accepted Answer

A decrease in market price and an increase in quantity produced.

Question 13

Which of the following is a likely consequence of making a good illegal, with penalties only on sellers?

Accepted Answer

The supply curve shifts left, price rises, and quantity decreases.

Question 14

If both buyers and sellers are penalized for trading an illegal good, what happens to the market equilibrium?

Accepted Answer

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

Question 15

Which of the following goods is most likely to have the tax burden fall primarily on buyers?

Accepted Answer

A good with perfectly elastic supply

Question 16

Suppose the government wants to reduce cigarette consumption. According to economic theory, does it matter whether the tax is imposed on buyers or sellers?

Accepted Answer

No, the effect on price and quantity is the same regardless of which side is taxed.

Question 17

Which of the following best describes the effect of a subsidy on the marginal social cost and marginal social benefit at the new equilibrium?

Accepted Answer

Marginal social cost exceeds marginal social benefit.

Question 18

A deadweight loss from a tax arises because:

Accepted Answer

The tax decreases the equilibrium quantity below the efficient level.

Question 19

Which of the following is an example of a good with inelastic demand, where buyers pay most of the tax?

Accepted Answer

Alcohol

Question 20

If the supply of a good is perfectly inelastic, what happens when a tax is imposed?

Accepted Answer

The seller pays the entire tax.

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

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