Question 1

Suppose the government imposes a binding price ceiling on apartments below the equilibrium price. Which of the following is a likely long-run effect?

Accepted Answer

The shortage of apartments will become larger as supply and demand become more elastic.

Question 2

A binding price floor is imposed in the cheese market at $$P_f$$, above the equilibrium price $$P_1. $$What is the resulting market outcome?

Accepted Answer

A surplus equal to $$Q_3$$ - $$Q_2$$ units of cheese.

Question 3

If the government imposes a $$1$$ per unit tax on sellers in a market with demand $$Q_D = 500 - 30P$$ and supply $$Q_S = 20P$$, what is the new equilibrium price paid by buyers?

Accepted Answer

Buyers pay $$P = 11$$ per unit.

Question 4

Which of the following best describes the economic methodology for analyzing a market intervention?

Accepted Answer

Identify decision makers, model their optimization, and aggregate choices to find equilibrium.

Question 5

When a binding minimum wage is imposed above the equilibrium wage, what is a likely consequence in the labor market?

Accepted Answer

Unemployment increases as quantity of labor supplied exceeds quantity demanded.

Question 6

If the demand for a good is inelastic and the supply is elastic, who bears most of the burden of a tax imposed on the good?

Accepted Answer

Buyers bear most of the tax burden.

Question 7

A $$2$$ per unit tax is imposed on beer. Which of the following best describes the effect on the supply and demand diagram?

Accepted Answer

The tax creates a wedge of $$2$$ between the price buyers pay and the price sellers receive, reducing the quantity sold.

Question 8

If the supply of tickets to a sports event is perfectly inelastic, and a $$5$$ per ticket tax is imposed on buyers, who bears the tax burden?

Accepted Answer

The entire burden falls on the sellers (team owners).

Question 9

Which of the following statements about tax incidence is correct?

Accepted Answer

The division of the tax burden depends on the elasticities of supply and demand, not on who legally pays the tax.

Question 10

Suppose the government wants to raise revenue by taxing food, which has inelastic demand. Who will bear most of the tax burden?

Accepted Answer

Consumers will bear most of the tax burden.

Question 11

If a price ceiling is set above the equilibrium price, what is the effect on the market?

Accepted Answer

There is no effect; the price ceiling is not binding.

Question 12

A government purchases all surplus cheese at a price floor above equilibrium. Who benefits and who loses from this policy?

Accepted Answer

Producers benefit, taxpayers lose.

Question 13

If the price elasticity of demand for labor is greater than one, what happens to total wage payments when the minimum wage increases?

Accepted Answer

Total wage payments decrease.

Question 14

Which of the following is a possible unintended consequence of rent control?

Accepted Answer

Landlords may reduce the quality of apartments.

Question 15

If a $$500$$ tax is imposed on luxury cars, will the price paid by consumers rise by more, less, or exactly $$500$$?

Accepted Answer

The price will rise by less than $$500.$$

Question 16

Which of the following increases quantity supplied, decreases quantity demanded, and increases the price that consumers pay?

Accepted Answer

The imposition of a binding price floor.

Question 17

Which of the following increases quantity supplied, increases quantity demanded, and decreases the price that consumers pay?

Accepted Answer

The repeal of a tax on a good.

Question 18

If the government imposes a $$1$$ per unit tax on consumers, what is the equivalent policy?

Accepted Answer

A $$1$$ per unit tax on producers.

Question 19

When a good is taxed, the burden of the tax falls mainly on consumers if:

Accepted Answer

Supply is elastic and demand is inelastic.

Question 20

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

Accepted Answer

A surplus of the good.

6. Government Policies in Markets: Price Controls and Tax Incidence

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