Question 1

Suppose the government imposes a $4 per pizza tax in a competitive pizza market. If the demand and supply curves are linear and have equal slopes, what is the most likely outcome regarding the tax incidence?

Accepted Answer

Buyers and sellers will share the tax burden equally.

Question 2

A government places a $2 per gallon tax on suppliers in the ice cream market, shifting the supply curve upward by $2. If the demand is perfectly elastic, what is the effect on the price paid by consumers?

Accepted Answer

Consumers pay the entire $2 tax.

Question 3

If the demand for a product is more elastic than the supply, who bears a greater share of a per-unit tax imposed on the market?

Accepted Answer

Sellers bear more of the tax.

Question 4

Cigarettes are highly addictive and have a very low elasticity of demand. If a $2.00 tax is imposed on cigarettes, what is the most likely effect on the price paid by consumers?

Accepted Answer

Increase by more than $1.00 but less than $2.00.

Question 5

The size of the deadweight loss from a tax depends on which of the following factors?

Accepted Answer

Elasticities of demand and supply.

Question 6

Suppose the government imposes a tax on an industry that creates pollution. Which of the following will occur?

Accepted Answer

Decrease in pollution, increase in price, and decrease in quantity produced.

Question 7

In the market for gasoline, if a pollution tax equal to the marginal external cost is imposed, what is the resulting equilibrium quantity?

Accepted Answer

$20$ million gallons

Question 8

For a product with external benefits that is produced in a competitive, unregulated market, how can the resulting market output be described?

Accepted Answer

Underproduction compared to the efficient level.

Question 9

If the government wants to grant a subsidy so that the efficient quantity of a good with an external benefit is produced, what should the subsidy per unit equal?

Accepted Answer

$150$

Question 10

In the market for college education, if left to itself without any government intervention, a competitive market would create a deadweight loss equal to:

Accepted Answer

Area $c$

Question 11

Suppose the world price of wheat is below the U.S. equilibrium price. With international trade, what happens to U.S. consumer surplus?

Accepted Answer

It increases.

Question 12

Which of the following is an example of an external cost?

Accepted Answer

Pollution

Question 13

If the production of a good causes an external cost, the efficient quantity is:

Accepted Answer

Less than the quantity at which marginal benefit equals marginal cost.

Question 14

If the government provides households with vouchers for education, what is the dollar value of a voucher in this market?

Accepted Answer

$8,000$

Question 15

In the market for a chemical with an external cost, if the government assesses the marginal external cost tax correctly, what is the amount of the pollution tax that eliminates the inefficiency?

Accepted Answer

$2$ per pound

Question 16

Which of the following best describes the gain in total surplus from international trade in the wheat market?

Accepted Answer

Area $D$

Question 17

If the government provides households with vouchers for education, EXCLUDING the voucher, what do the students pay the schools?

Accepted Answer

$8,000$

Question 18

Suppose the government imposes a tax on a good that creates a deadweight loss. Which of the following factors will increase the size of the deadweight loss?

Accepted Answer

An increase in the elasticity of demand and supply.

Question 19

International trade benefits:

Accepted Answer

Both the exporter and the importer.

Microeconomics Study Guide: Taxes, Market Equilibrium, Externalities, and International Trade

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