Question 1

Suppose the government imposes a price ceiling on hotel rooms at $$60, but the equilibrium price is 80. $$What is the most likely outcome in the market for hotel rooms?

Accepted Answer

A shortage of hotel rooms, as quantity demanded exceeds quantity supplied.

Question 2

A price floor is set at $$100 for a good whose equilibrium price is 80. $$What will happen in this market?

Accepted Answer

There will be a surplus, as quantity supplied exceeds quantity demanded.

Question 3

Refer to the first image. If an excise tax of $40 per hotel room is imposed on sellers, what happens to the supply curve?

Accepted Answer

The supply curve shifts upward by $40 at every quantity.

Question 4

Refer to the second image. If an excise tax of $40 per hotel room is imposed on buyers, what happens to the demand curve?

Accepted Answer

The demand curve shifts downward by $40 at every quantity.

Question 5

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

Accepted Answer

Buyers bear the entire burden.

Question 6

A quota is set below the equilibrium quantity in a market. Which of the following is NOT a likely result?

Accepted Answer

An increase in marginal cost.

Question 7

Suppose the government provides a subsidy of $0.50 per unit to sellers. What is the effect on the supply curve?

Accepted Answer

The supply curve shifts downward by $0.50 at every quantity.

Question 8

Which of the following best describes 'quota rent'?

Accepted Answer

The earnings that accrue to the holder of the right to sell the quota-limited quantity.

Question 9

If a minimum wage (price floor) is set above the equilibrium wage in the labor market, what is the likely result?

Accepted Answer

Unemployment, as quantity of labor supplied exceeds quantity demanded.

Question 10

If the government imposes a tax on a good and the supply is more elastic than demand, who bears more of the tax burden?

Accepted Answer

Buyers bear more of the tax burden.

Question 11

Which of the following is a likely inefficiency caused by a price ceiling?

Accepted Answer

Wasted resources, such as time spent waiting in line.

Question 12

Suppose the government imposes a $$40 excise tax on hotel rooms. If the equilibrium price before tax is 80 $$and the new price buyers pay is $100, what price do sellers receive after the tax?

Accepted Answer

$60

Question 13

Which of the following is NOT a type of tax discussed in the materials?

Accepted Answer

Tariff tax

Question 14

If the government imposes penalties on both buyers and sellers in the market for illegal goods, what happens to the market equilibrium?

Accepted Answer

Both the supply and demand curves shift, reducing equilibrium quantity.

Question 15

A government subsidy on ethanol increases the equilibrium quantity from 5,000 to 6,000 gallons per day. If the subsidy is $0.375 per gallon, what is the total cost to the government?

Accepted Answer

$$0.375 	imes 6,000 = 2$$,250

Question 16

Which of the following is a direct effect of a production quota set below equilibrium quantity?

Accepted Answer

A rise in price and a decrease in supply.

Question 17

If a price ceiling is set below the equilibrium price, which of the following is most likely to occur?

Accepted Answer

Increased search activity and possible illegal trading.

Question 18

Which of the following best describes tax incidence?

Accepted Answer

The division of the burden of a tax between buyers and sellers.

Question 19

If a government subsidy causes overproduction, what is the likely result?

Accepted Answer

Inefficient allocation of resources and increased marginal cost.

Question 20

Which of the following is NOT an inefficiency associated with a price floor?

Accepted Answer

Efficient allocation to consumers.

Government Actions in Markets: Price Controls, Taxes, Quotas, and Subsidies

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