Question 1

Suppose the equilibrium price of a gallon of milk is $$3. The government imposes a price ceiling of 2 $$per gallon. What will be the likely outcome in the milk market?

Accepted Answer

There will be a shortage of milk because quantity demanded will exceed quantity supplied.

Question 2

A city government imposes rent control, setting the maximum rent below the market equilibrium. In the long run, what is the most likely effect on the quantity and quality of available apartments?

Accepted Answer

The quantity of apartments will decrease and quality will deteriorate due to reduced landlord incentives.

Question 3

If the government sets a minimum wage (price floor) above the equilibrium wage in a competitive labor market, what is the most likely result?

Accepted Answer

Unemployment will increase because the quantity of labor supplied exceeds the quantity demanded.

Question 4

A tax of $$1 per unit is imposed on sellers in a market. The supply curve shifts upward by 1. If $$the equilibrium price before tax was $$5 and after tax buyers pay 5.60$$, what price do sellers receive after the tax?

Accepted Answer

$4.60

Question 5

Which of the following best explains why a binding price ceiling leads to inefficient allocation of resources?

Accepted Answer

It leads to rationing mechanisms such as long lines and favoritism, so goods may not go to those who value them most.

Question 6

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

Accepted Answer

Consumers, because they have fewer alternatives and are less responsive to price changes.

Question 7

A government imposes a price floor of $$10 on a good whose equilibrium price is 7. $$What will be the effect on the market?

Accepted Answer

There will be a surplus because quantity supplied exceeds quantity demanded.

Question 8

If a tax is imposed on buyers, how does the demand curve shift and what is the effect on equilibrium quantity?

Accepted Answer

The demand curve shifts down by the amount of the tax; equilibrium quantity decreases.

Question 9

Which of the following statements about tax incidence is correct?

Accepted Answer

The side of the market that is less elastic bears more of the tax burden.

Question 10

Suppose the government wants to raise tax revenue by taxing food. If the demand for food is inelastic, what is the likely effect on total tax revenue and who will bear most of the burden?

Accepted Answer

Tax revenue will be high and consumers will bear most of the burden.

Question 11

A binding price floor is set in the wheat market. Which of the following is a likely unintended consequence?

Accepted Answer

There will be unsold wheat, leading to government purchases or waste.

Question 12

If the government imposes a tax on sellers, which of the following best describes the effect on the supply curve?

Accepted Answer

The supply curve shifts upward by the amount of the tax.

Question 13

Which of the following policies is often considered a better alternative to rent control for helping low-income renters?

Accepted Answer

A rent subsidy for tenants.

Question 14

Suppose the government imposes a $$2 tax on a good. The price buyers pay increases by 1.20$$, and the price sellers receive decreases by $0.80. What does this imply about the relative elasticities of supply and demand?

Accepted Answer

Supply is more elastic than demand.

Question 15

Which of the following best describes the effect of a non-binding price ceiling?

Accepted Answer

It has no effect on the market outcome.

Question 16

A payroll tax is imposed on firms. What is the effect on the labor market?

Accepted Answer

The wage received by workers decreases, and the wage paid by firms increases.

Question 17

If the government imposes a binding price ceiling on gasoline after a supply shock (such as an increase in crude oil prices), what is the most likely outcome?

Accepted Answer

A shortage of gasoline as quantity demanded exceeds quantity supplied.

Question 18

Which of the following equations correctly represents the shortage caused by a binding price ceiling?

Accepted Answer

$$	ext{Shortage} = Q_d - Q_s$$

Question 19

Which of the following is NOT a likely unintended consequence of rent control?

Accepted Answer

Increased construction of new rental housing.

Supply, Demand, and Government Policies: Price Controls and Tax Incidence

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