Question 1

Suppose the government imposes a 10% sales tax on televisions. If the original equilibrium price is $300, what is the immediate effect on the supply curve?

Accepted Answer

The supply curve shifts upward by $30.

Question 2

If a sales tax is imposed and the demand for televisions is highly elastic, who bears most of the tax burden?

Accepted Answer

Sellers bear most of the tax burden.

Question 3

Which formula best represents the division of tax burden between consumers and sellers?

Accepted Answer

The tax burden is divided according to $$\frac{E_s}{E_d + E_s}$$ for consumers and $$\frac{E_d}{E_d + E_s}$$ for sellers, where $$E_d$$ and $$E_s$$ are the price elasticities of demand and supply.

Question 4

A price ceiling is set below the equilibrium price in the rental housing market. What is the most likely short-run outcome?

Accepted Answer

Excess demand for apartments.

Question 5

Which of the following is NOT a typical consequence of rent controls in the short run?

Accepted Answer

Immediate increase in new apartment construction.

Question 6

In the long run, what is a likely effect of rent controls on the supply of apartments?

Accepted Answer

Developers are disincentivized to build new apartments.

Question 7

Why does the agricultural market often require government intervention such as price supports?

Accepted Answer

Because technological improvements increase supply while demand is price and income inelastic, leading to falling and volatile prices.

Question 8

If the government sets a price floor above the equilibrium price for wheat, what is the immediate market outcome?

Accepted Answer

Excess supply of wheat.

Question 9

Which policy is NOT a solution to the farm problem caused by falling prices and volatile incomes?

Accepted Answer

Allowing prices to fall below production costs without intervention.

Question 10

If the government subsidizes farmers so they can afford to lower prices to consumers, what happens to the supply curve?

Accepted Answer

The supply curve shifts downward.

Question 11

Suppose the minimum wage is set at $$15.00, above the equilibrium wage of 9.00. $$What is the most likely immediate effect?

Accepted Answer

Excess supply of labour (unemployment).

Question 12

Research by David Card suggests that increasing minimum wage does not necessarily increase unemployment. What is the main reason for this?

Accepted Answer

Businesses invest in capital, making workers more productive and increasing demand for labour.

Question 13

Which equation best describes economic surplus in a market exchange?

Accepted Answer

Economic surplus = Total value to consumers $$-$$ Total cost of resources used.

Question 14

What happens to economic surplus when a price control (such as a price ceiling or floor) is imposed?

Accepted Answer

Economic surplus is reduced.

Question 15

In the context of allocative efficiency, what does Adam Smith's 'invisible hand' refer to?

Accepted Answer

Market forces leading to highest valued users receiving the product.

Question 16

If a price ceiling is set at $$900 in a market where the equilibrium price is 1200$$, what is the likely outcome?

Accepted Answer

Excess demand for the product.

Question 17

Which of the following best describes productive efficiency?

Accepted Answer

Lowest cost of resources used to produce goods.

Question 18

If the demand for rental housing in Vancouver is inelastic and supply is also inelastic, what is the effect of a sudden increase in population?

Accepted Answer

Significant increase in equilibrium price.

Question 19

At any disequilibrium price, what determines the quantity exchanged in the market?

Accepted Answer

The lesser of quantity demanded and quantity supplied.

Question 20

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

Accepted Answer

Minimum wage laws.

Price Controls, Market Efficiency, and Government Intervention: Study Notes

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