Question 1

Does a subsidy to sellers affect the demand curve?

Accepted Answer

A)   Yes, it shifts demand up by the amount of the subsidy.
B)   Yes, it shifts demand to the right by the amount of the subsidy.
C)   No, the quantity demanded will increase, but the demand curve does not move.
D)   No, the quantity demanded will decrease, but the demand curve does not move.E) None of the above
F) All of the above

Question 2

If there is a sole producer of a good, and he faces no threat of competition, it is likely that:

Accepted Answer

A)   government intervention will have no impact on the market.
B)   government intervention will raise prices to consumers.
C)   government intervention will increase total surplus.
D)   government intervention will make things better for buyers and sellers.E) All of the above
F) A) and C)

Question 3

An example of a market failure is when:

Accepted Answer

A)   one person's consumption of a good imposes costs on others
B)   a firm selling a product faces competition from many other sellers.
C)   a good is priced too high for poor families to afford.
D)   the distribution of surplus is unfair.E) None of the above
F) A) and B)

Question 4

The graph shown demonstrates a tax on buyers. Once the tax has been imposed, the sellers produce ____ units and receive _____ for each one sold.

Accepted Answer

A)   6; $22
B)   6; $34
C)   9; $18
D)   9; $30E) All of the above
F) C) and D)

Question 5

Suppose a tax on sellers has been imposed in the graph shown. Once the tax is in place, the buyers purchase ____ units and pay ____ for each one.

Accepted Answer

A)   15; $16
B)   15; $6
C)   31; $9
D)   31; $19E) All of the above
F) A) and B)

Question 6

A price floor that is binding:

Accepted Answer

A)   must be set above the equilibrium price, and will likely cause a shortage.
B)   must be set below the equilibrium price, and will likely cause a shortage.
C)   must be set above the equilibrium price, and will likely cause a surplus.
D)   must be set below the equilibrium price, and will likely cause a surplus.E) A) and B)
F) C) and D)

Question 7

A tax on sellers:

Accepted Answer

A)   causes equilibrium price to increase and equilibrium quantity to decrease.
B)   cause equilibrium price and quantity to increase.
C)   cause equilibrium price and quantity to decrease.
D)   cause equilibrium price to decrease and equilibrium quantity to increase.E) B) and C)
F) None of the above

Question 8

Government attempts to lower, raise, or simply stabilize prices can:

Accepted Answer

A)   shift the distribution of surplus.
B)   create unintended side effects.
C)   reduce efficiency of a market.
D)   All of these are true.E) B) and C)
F) A) and C)

Question 9

A subsidy to buyers has been placed on the market in the graph shown. What is the amount of the subsidy per unit of this good?

Accepted Answer

A)   $22
B)   $16
C)   $10
D)   $6E) A) and B)
F) B) and D)

Question 10

The graph shown demonstrates a tax on sellers. Once the tax has been imposed, the sellers produce ____ units and receive _____ for each one sold.

Accepted Answer

A)   15; $16
B)   15; $6
C)   31; $9
D)   31; $19E) A) and B)
F) A) and C)

Question 11

A price ceiling is non-binding when:

Accepted Answer

A)   it is set above the equilibrium price.
B)   it is set below the equilibrium price.
C)   it reduces the output in a market.
D)   it increases the output in a market.E) A) and B)
F) B) and D)

Question 12

With reference to the graph above, if the intended aim of the price ceiling set at $6 was a net increase in the well-being of consumers, then normative analysis would conclude that:

Accepted Answer

A)   the policy was effective, since surplus gained by consumers through lower prices is less than the surplus they lost through deadweight loss.
B)   the policy was ineffective, since surplus gained by consumers through lower prices is less than the surplus they lost through deadweight loss.
C)   the policy was effective, since surplus lost by producers through lower prices is less than the surplus gained by consumers through lower prices.
D)   there is no "right" conclusion to be reached (in a normative sense) , since people have different opinions concerning what constitutes a better outcome.E) All of the above
F) C) and D)

Question 13

The graph shown demonstrates a tax on buyers. Before the tax was imposed, the sellers produced ________ units and received __________ for each one sold.

Accepted Answer

A)   6; $22
B)   6; $34
C)   9; $18
D)   9; $30E) A) and B)
F) B) and D)

Question 14

After a price ceiling of $8 is placed on the market in the graph shown, which area represents total surplus?

Accepted Answer

A)   A + B + C + D + E + F + G
B)   A + B + C + D + E
C)   A + C + E
D)   A + B + C + D + E + FE) B) and C)
F) B) and D)

Question 15

The graph shown best represents:

Accepted Answer

A)   a non-binding price ceiling.
B)   a non-binding price floor.
C)   a missing market.
D)   a market for an inferior good.E) A) and C)
F) None of the above

Question 16

The difference in the price the buyer pays and the price the sellers keep in the presence of a tax is called:

Accepted Answer

A)   a tax differential.
B)   a tax wedge.
C)   the tax incidence.
D)   the tax burden.E) B) and C)
F) None of the above

Question 17

A price ceiling is:

Accepted Answer

A)   a legal maximum price.
B)   a legal minimum price.
C)   a legal maximum quantity that can be sold at a particular price.
D)   a legal minimum quantity that can be sold at a particular price.E) B) and D)
F) A) and B)

Question 18

After a price ceiling of $8 is placed on the market in the graph shown, which area represents consumer surplus?

Accepted Answer

A)   A + C
B)   A + B
C)   A + B + C
D)   A + B + C + D + F + GE) C) and D)
F) None of the above

Question 19

If the intended aim of the price floor set in the graph shown was a net increase in the well-being of producers, then positive analysis would have us consider:

Accepted Answer

A)   whether the surplus transferred from producers to consumers is larger than the consumer surplus lost to deadweight loss.
B)   whether the surplus transferred from consumers to producers is larger than the consumer surplus lost to deadweight loss.
C)   whether the producer surplus lost to deadweight loss is greater than the producer surplus gained from a higher price.
D)   whether the producer surplus lost due to lower prices is greater than the producer surplus lost due to fewer transactions taking place.E) A) and C)
F) C) and D)

Question 20

With reference to the graph above, if the intended aim of the price ceiling set at $6 was a net increase in the well-being of consumers, then positive analysis would conclude:

Accepted Answer

A)   the policy was effective, since surplus gained by consumers through lower prices is greater than the surplus they lost through deadweight loss.
B)   the policy was ineffective, since surplus gained by consumers through lower prices is less than the surplus they lost through deadweight loss.
C)   the policy was effective, since surplus lost by producers through lower prices is less than the surplus gained by consumers through lower prices.
D)   the policy was ineffective, since the amount of deadweight loss is greater than the surplus gained by consumers from lower prices.E) B) and C)
F) A) and D)

Exam 6: Government Intervention

Government attempts to lower, raise, or simply stabilize prices can:

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With reference to the graph above, if the intended aim of the price ceiling set at $6 was a net increase in the well-being of consumers, then positive analysis would conclude:

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The graph shown demonstrates a tax on buyers. Once the tax has been imposed, the sellers produce ____ units and receive _____ for each one sold.

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An example of a market failure is when:

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A price ceiling is non-binding when:

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The graph shown best represents:

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The difference in the price the buyer pays and the price the sellers keep in the presence of a tax is called:

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If there is a sole producer of a good, and he faces no threat of competition, it is likely that:

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The graph shown demonstrates a tax on buyers. Before the tax was imposed, the sellers produced ________ units and received __________ for each one sold.

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A tax on sellers:

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A subsidy to buyers has been placed on the market in the graph shown. What is the amount of the subsidy per unit of this good?

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With reference to the graph above, if the intended aim of the price ceiling set at $6 was a net increase in the well-being of consumers, then normative analysis would conclude that:

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A price floor that is binding:

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The graph shown demonstrates a tax on sellers. Once the tax has been imposed, the sellers produce ____ units and receive _____ for each one sold.

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Suppose a tax on sellers has been imposed in the graph shown. Once the tax is in place, the buyers purchase ____ units and pay ____ for each one.

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Does a subsidy to sellers affect the demand curve?

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After a price ceiling of $8 is placed on the market in the graph shown, which area represents total surplus?

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A price ceiling is:

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After a price ceiling of $8 is placed on the market in the graph shown, which area represents consumer surplus?

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If the intended aim of the price floor set in the graph shown was a net increase in the well-being of producers, then positive analysis would have us consider:

Correct AnswerverifiedShow Answer

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The graph shown demonstrates a tax on buyers. Once the tax has been imposed, the sellers produce units and receive _ for each one sold.

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The graph shown demonstrates a tax on buyers. Before the tax was imposed, the sellers produced units and received __ for each one sold.

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The graph shown demonstrates a tax on sellers. Once the tax has been imposed, the sellers produce units and receive _ for each one sold.

Correct Answer
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Suppose a tax on sellers has been imposed in the graph shown. Once the tax is in place, the buyers purchase units and pay for each one.

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