Question 1

Suppose the government imposes a price ceiling on bread at a level below the equilibrium price. What is the most likely immediate market outcome?

Accepted Answer

A persistent shortage of bread (Qd \u003e Qs)

Question 2

Which of the following best describes a binding price floor?

Accepted Answer

A legal minimum price set above equilibrium price

Question 3

In the labor market for unskilled workers, if the minimum wage is set above the equilibrium wage, what is the likely result?

Accepted Answer

Involuntary unemployment among low-skilled workers

Question 4

Given the demand $$Q_d = 500 - 2P$$ and supply $$Q_s = -100 + 4P$$ for hotel rooms, what is the equilibrium price ($$P^*) $$and quantity ($$Q^*$$)?

Accepted Answer

$$P^* = 100, Q^* = 300$$

Question 5

If a price ceiling is set at $$P = 80 in $$the hotel room market above, is it binding, and what is the resulting shortage or surplus?

Accepted Answer

Binding; shortage of 120 rooms/day

Question 6

Which of the following is NOT an unintended consequence of binding price ceilings?

Accepted Answer

Chronic surpluses

Question 7

A government imposes a per-unit tax on bubble tea. According to the equivalence theorem, who bears the economic burden of the tax?

Accepted Answer

The burden is split according to the relative elasticities of supply and demand, regardless of who remits the tax

Question 8

If demand for gasoline is highly inelastic and supply is elastic, who bears most of the burden of a gasoline tax?

Accepted Answer

Buyers

Question 9

Which of the following best explains why minimum wage laws may have no effect on skilled workers?

Accepted Answer

The equilibrium wage for skilled workers is above the minimum wage

Question 10

A binding price floor in the agricultural market is most likely to result in:

Accepted Answer

A persistent surplus of agricultural goods

Question 11

Which policy is most likely to create waiting queues, black markets, and degraded quality?

Accepted Answer

Binding price ceiling

Question 12

If the government collects a tax from sellers instead of buyers, what happens to the market outcome?

Accepted Answer

The outcome is unchanged; the burden splits according to elasticities

Question 13

Which side of the market bears more of the tax burden when supply is highly elastic and demand is inelastic?

Accepted Answer

Buyers

Question 14

What is the primary market outcome of a binding price ceiling?

Accepted Answer

Chronic shortage ($$Q_d \u003e Q_s)$$

Question 15

Suppose the government imposes a price floor at $$P = 120 in $$the hotel room market above. What is the resulting surplus?

Accepted Answer

120 rooms/day

Question 16

Which of the following statements about tax incidence is TRUE?

Accepted Answer

Tax incidence depends on the relative elasticities of supply and demand

Question 17

Why might a government-imposed rent ceiling lead to a decline in housing quality?

Accepted Answer

Landlords have less incentive to maintain or improve properties

Question 18

Which of the following best summarizes the 'Golden Rule of Tax Incidence'?

Accepted Answer

The burden of a tax falls most heavily on the side of the market that is less elastic

Question 19

Which of the following is a real-world example of a binding price floor?

Accepted Answer

Minimum wage laws

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

Study Guide - Practice Questions