Question 1

Suppose the demand for apartments in New York City is given by $$Q^D = 4,750,000 - 1,000P$$ and the supply is $$Q^S = -1,000,000 + 1,300P. $$What is the equilibrium price of apartments?

Accepted Answer

$$P = 2,500$$

Question 2

Which of the following best describes consumer surplus?

Accepted Answer

The difference between the highest price a consumer is willing to pay and the actual price paid.

Question 3

A government imposes a price ceiling on apartments at $$1,500$$ when the equilibrium price is $$2,500. $$What is the likely result?

Accepted Answer

A shortage of apartments, as quantity demanded exceeds quantity supplied.

Question 4

If a per-unit tax is imposed on sellers, what happens to the supply curve?

Accepted Answer

It shifts upward by the amount of the tax.

Question 5

Which of the following is true about deadweight loss?

Accepted Answer

It represents the reduction in economic surplus when a market is not in competitive equilibrium.

Question 6

Suppose a $$10-$$cent-per-gallon tax is imposed on gasoline. If the price consumers pay rises by $$8$$ cents and the price sellers receive falls by $$2$$ cents, what is the tax incidence?

Accepted Answer

Consumers bear 80% of the tax burden, sellers bear 20%.

Question 7

What is the formula for calculating producer surplus in a market?

Accepted Answer

The area above the supply curve and below the market price.

Question 8

If the government sets a price floor above the equilibrium price, what will happen in the market?

Accepted Answer

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

Question 9

Which of the following best describes economic efficiency in a competitive market?

Accepted Answer

A market outcome in which the marginal benefit to consumers of the last unit produced equals its marginal cost of production.

Question 10

If the demand for a good is very inelastic compared to supply, who bears most of the burden of a tax imposed on the good?

Accepted Answer

Buyers bear most of the tax burden.

Question 11

A minimum wage is an example of which type of government intervention?

Accepted Answer

A price floor.

Question 12

Suppose the government imposes a rent control (price ceiling) below the equilibrium price. What is a likely unintended consequence?

Accepted Answer

The emergence of illegal markets (black markets) for apartments.

Question 13

Which of the following is NOT a likely result of a binding price ceiling?

Accepted Answer

A surplus of the good.

Question 14

If a government imposes a per-unit tax on a good, what happens to the equilibrium quantity?

Accepted Answer

It decreases.

Question 15

Which of the following best explains why deadweight loss occurs when a tax is imposed?

Accepted Answer

Some mutually beneficial trades between buyers and sellers no longer take place.

Question 16

Suppose the supply of apartments is $$Q^S = -1,000,000 + 1,300P. If $$the government sets a price ceiling at $$P = 1,500$$, how many apartments will be supplied?

Accepted Answer

$$Q^S = 950,000$$

Question 17

Which of the following is a normative statement regarding price controls?

Accepted Answer

"Price ceilings are bad because they reduce economic efficiency."

Question 18

If the government imposes a price floor in the wheat market above equilibrium, what happens to producer surplus?

Accepted Answer

Some producer surplus increases due to higher prices, but overall economic surplus falls due to deadweight loss.

Question 19

Which of the following best describes the effect of a per-unit tax on cigarettes, as shown in the study materials?

Accepted Answer

The supply curve shifts up by the amount of the tax, equilibrium quantity falls, and both consumer and producer surplus decrease.

Question 20

Suppose Uber rides in a city have a demand curve with a maximum price of $$65.17$$ and an average price of $$13.30$$, with $$11$$ million rides per year. What is the total consumer surplus?

Accepted Answer

$$(11,000,000 	imes (65.17 - 13.30))/2 = 288,135,000$$

Economic Efficiency, Government Price Setting, and Taxes – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards