Question 1

Suppose the government sets a rent ceiling below the equilibrium rent in a city. Which of the following is the most likely immediate effect?

Accepted Answer

A housing shortage, where quantity demanded exceeds quantity supplied.

Question 2

A rent ceiling set below the equilibrium rent leads to which of the following inefficiencies? Use the concepts of marginal social benefit and marginal social cost.

Accepted Answer

Marginal social benefit exceeds marginal social cost, resulting in deadweight loss.

Question 3

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 leads to a fair outcome.

Question 4

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

Accepted Answer

Unemployment will increase as the quantity of labour supplied exceeds the quantity demanded.

Question 5

Consider a labour market with a minimum wage set above equilibrium. Which of the following best describes the resulting inefficiency?

Accepted Answer

Marginal social cost of labour is less than marginal social benefit, and a deadweight loss arises.

Question 6

A $$6 tax is imposed on sellers of cigarettes. The equilibrium price before tax is 12 $$per pack. After the tax, buyers pay $$16 per pack and sellers receive 10 $$per pack. How much of the tax is paid by buyers?

Accepted Answer

$4

Question 7

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 8

If the demand for a good is perfectly inelastic, who pays the entire tax when a tax is imposed?

Accepted Answer

The buyer

Question 9

Suppose the supply of a good is perfectly elastic. What happens when a tax is imposed on this good?

Accepted Answer

The buyer pays the entire tax.

Question 10

Which principle of fairness suggests that people should pay taxes according to the benefits they receive from government services?

Accepted Answer

Benefits principle

Question 11

A production quota is imposed in a market. What is the most likely effect on price and quantity?

Accepted Answer

Price rises and quantity decreases.

Question 12

A government subsidy is paid to farmers for each tonne of grain produced. What is the most likely effect on market price and quantity?

Accepted Answer

Market price falls and quantity increases.

Question 13

Which of the following best describes the inefficiency caused by a subsidy?

Accepted Answer

Marginal social cost exceeds marginal social benefit, resulting in overproduction.

Question 14

In the market for illegal goods, what is the effect of penalties imposed on both buyers and sellers?

Accepted Answer

Demand and supply both decrease.

Question 15

If a good is legalized and taxed at a high enough rate, what is the likely effect compared to making the good illegal?

Accepted Answer

Supply decreases, price rises, and consumption falls.

Question 16

A tax creates a wedge between the price buyers pay and the price sellers receive. Which equation best represents the relationship?

Accepted Answer

$$P_{buyer} = P_{seller} + Tax$$

Question 17

Suppose the government imposes a $200 tax on computers. What is the effect on consumer surplus, producer surplus, and deadweight loss?

Accepted Answer

Consumer surplus and producer surplus both decrease, and deadweight loss increases.

Question 18

Which of the following goods is most likely to have buyers pay most of the tax due to inelastic demand?

Accepted Answer

Gasoline

Question 19

If the supply of labour is inelastic, who bears most of the burden of an income tax?

Accepted Answer

Employers

Question 20

Which principle of fairness can justify high rates of income tax on high incomes?

Accepted Answer

Ability-to-pay principle

chapter 6

Study Guide - Practice Questions

Study Guide - Flashcards