$$\frac{\text{Tax} \times \text{Change in Quantity Sold Due to Tax}}{2} $$

$$\text{Government Budget Deficit} = \text{Government Spending} - \text{Tax Revenue} $$

Question 1

Which of the following is NOT a primary reason governments impose taxes and subsidies?

Accepted Answer

To increase producer surplus in all markets

Question 2

A government budget deficit occurs when:

Accepted Answer

Government spending exceeds tax revenue

Question 3

Which tax type is described as a tax paid as a percentage of the sale price of an item?

Accepted Answer

Ad valorem tax

Question 4

If a $2 per-unit tax is imposed on producers, what happens to the supply curve?

Accepted Answer

It shifts left by $2

Question 5

Given a linear supply and demand curve, the deadweight loss (DWL) from a per-unit tax can be calculated as:

Accepted Answer

$$\frac{	ext{Tax} 	imes 	ext{Change in Quantity Sold Due to Tax}}{2} $$

Question 6

Who bears the burden of a tax in a competitive market?

Accepted Answer

The burden is shared based on relative elasticities of supply and demand

Question 7

If the supply curve is more elastic than the demand curve, who bears more of the tax burden?

Accepted Answer

Consumers

Question 8

What happens to consumer surplus (CS), producer surplus (PS), and total surplus (TS) when a tax is imposed?

Accepted Answer

CS goes down, PS goes down, TS goes down

Question 9

Which side of the market enjoys a subsidy more?

Accepted Answer

The less elastic side

Question 10

A price ceiling set below the equilibrium price will:

Accepted Answer

Create excess demand

Question 11

During the 1973-74 oil crisis, the U.S. government imposed a price ceiling on gasoline. What was the primary outcome?

Accepted Answer

Gas shortages

Question 12

Which formula correctly represents the government budget deficit?

Accepted Answer

$$	ext{Government Budget Deficit} = 	ext{Government Spending} - 	ext{Tax Revenue} $$

Question 13

Which of the following is a regressive tax system?

Accepted Answer

Lower tax rates on higher incomes

Question 14

What is the effect of a per-unit subsidy given to producers?

Accepted Answer

Overproduction compared to equilibrium

Question 15

Which of the following is true about deadweight loss (DWL) when a tax is imposed?

Accepted Answer

DWL increases as the tax increases

Question 16

If a price floor is set above the equilibrium price, what is the likely outcome?

Accepted Answer

Excess supply

Question 17

Which tax is most likely to be considered regressive?

Accepted Answer

Sales tax

Question 18

What happens to the supply curve when an ad valorem tax is imposed?

Accepted Answer

It rotates to the left

Question 19

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

Accepted Answer

Minimum wage

Question 20

In a market with a per-unit tax, what happens to the equilibrium quantity?

Accepted Answer

It decreases

Government Intervention: Taxes, Subsidies, and Price Regulation in Microeconomics

Study Guide - Practice Questions