Question 1

Suppose the government sets a rent ceiling at $$1,000 per month in a city where the equilibrium rent is 1$$,300 per month. Which of the following is the most likely outcome in the housing market?

Accepted Answer

A shortage of housing, as the quantity demanded exceeds the quantity supplied.

Question 2

A city government imposes a rent ceiling below the equilibrium rent. Which of the following best describes the resulting allocation of scarce housing?

Accepted Answer

Housing is allocated by mechanisms such as lottery, first-come first-served, or discrimination.

Question 3

If the minimum wage is set above the equilibrium wage rate, what is the most likely effect on the labor market?

Accepted Answer

The quantity of labor supplied will exceed the quantity demanded, creating unemployment.

Question 4

A $$3 per-unit tax is imposed on cigarettes. The equilibrium price before tax is 6 $$per pack. After the tax, buyers pay $$8 per pack and sellers receive 5 $$per pack. How is the tax burden shared?

Accepted Answer

Buyers pay $$2, sellers pay 1.$$

Question 5

Which of the following statements about the economic incidence of a tax is correct?

Accepted Answer

The economic incidence is determined by the relative elasticities of supply and demand.

Question 6

Suppose the demand for gasoline is highly inelastic. If a tax is imposed on gasoline, who will bear most of the tax burden?

Accepted Answer

Buyers will bear most of the tax burden.

Question 7

A minimum wage law is considered inefficient because:

Accepted Answer

It decreases the quantity of labor employed below the efficient quantity, creating a deadweight loss.

Question 8

If the supply of a good is perfectly inelastic, what happens when a per-unit tax is imposed?

Accepted Answer

Sellers bear the entire burden of the tax.

Question 9

Which of the following best describes the effect of a production quota set below the equilibrium quantity?

Accepted Answer

The market price rises and quantity decreases.

Question 10

A government subsidy to producers will generally:

Accepted Answer

Decrease the market price and increase the quantity produced.

Question 11

In the market for illegal drugs, if penalties are imposed only on sellers, what is the likely effect?

Accepted Answer

The supply curve shifts left, increasing the market price and decreasing the quantity traded.

Question 12

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

Accepted Answer

The benefits principle.

Question 13

Suppose the government legalizes and taxes a previously illegal good at a high rate. What is the most likely effect on the quantity consumed?

Accepted Answer

The quantity consumed can be reduced to the illegal market level if the tax is high enough.

Question 14

If the demand for a good is perfectly elastic, who bears the entire burden of a per-unit tax?

Accepted Answer

Sellers.

Question 15

Which of the following is NOT a typical consequence of a binding rent ceiling?

Accepted Answer

An increase in the quality of available housing.

Question 16

A deadweight loss from a tax arises because:

Accepted Answer

The tax decreases the equilibrium quantity below the efficient level.

Question 17

Suppose the government wants to maximize tax revenue with minimal deadweight loss. On which type of good should it impose a tax?

Accepted Answer

A good with highly inelastic demand.

Question 18

Which of the following best explains why a minimum wage can lead to discrimination by employers?

Accepted Answer

With excess supply of labor, employers can choose workers based on personal preferences.

Question 19

If a per-unit tax is imposed and the supply curve is more elastic than the demand curve, who bears the larger share of the tax burden?

Accepted Answer

Buyers.

Question 20

Which of the following equations correctly represents the deadweight loss ($$DWL) $$from a per-unit tax $$t in a $$competitive market?

Accepted Answer

$$DWL = \frac{1}{2} 	imes t 	imes (Q^* - Q_t)$$

Government Actions in Markets: Price Controls, Taxes, Subsidies, and Illegal Goods

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