Test Bank for Microeconomics Canadian 1st Edition

Karlan Morduch Alam Wong 0070265143

9780070265141

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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) A type of public policy that might be set in response to the rising prices of a basic necessity, such
as food, might be:
A) to pay producers to make more of the good.
B) to subsidize the price of necessities.
C) to make it illegal to charge lower prices for the good.
D) To subsidize the price of non-necessities.
Answer: B

2) Government attempts to lower, raise, or simply stabilize prices can:

A) create unintended side effects. B) always be positive.
C) Always increase producer surplus. D) Always increase consumer surplus.
Answer: A

3) Government attempts to stabilize prices can:

A) increase prices in the long run. B) decrease total
surplus.
C) keep a market at its equilibrium. D) prove the usefulness of a central planner.
Answer: B

4) Government attempts to lower prices can:

A) always create a better outcome.
B) create missing markets.
C) prevent a market from reaching its equilibrium.
D) lead to more producer surplus.
Answer: C

5) Governments may attempt to raise, lower, or stabilize prices because:

1
 A) governments changing the price in the market could increase consumer surplus without
putting producers out of business.
B) the market's equilibrium is not maximizing consumer surplus.
C) market failures occur.
D) doing so will always create a better outcome.
Answer: C

6) Governments may intervene in a market because:

A) the government wants to redistribute the surplus in a market.
B) the government wants to decrease total surplus in the market.
C) the government wants to increase both consumer and producer surplus at the same time.
D) None of these are reasons for a government to intervene.
Answer: A

2
 7) Governments may choose to intervene in a market in an attempt to:
A) give suppliers more money
B) give consumers more money
C) encourage the production.
D) discourage the consumption of certain goods.
Answer: D

8) Situations in which the assumption of efficient, competitive markets fails to hold are called:
A) market failures. B) market interventions.
C) missing markets. D) inelastic-response markets.
Answer: A

9) Market failures are:

A) situations in which the assumption of efficient, competitive markets holds.
B) situations in which the assumption of inefficient, noncompetitive markets holds.
C) situations in which the assumption of inefficient, competitive markets fails to hold.
D) situations in which the assumption of efficient, competitive markets fails to hold.
Answer: D

10) If there is a sole producer of a good, and he faces no threat of competition, it is likely that:
A) he is charging an inefficiently low price.
B) government intervention will decrease total surplus
C) he is acting efficiently.
D) government intervention could increase total surplus.
Answer: D

11) A market failure is most likely to occur when:

A) a sole producer of a good faces no threat of competition.
B) several producers of a good search for the lowest-cost method of production.
C) several producers of a good compete for customers by having price wars.
D) many producers produce identical products, and only the consumers and producers are
affected by the transactions.
Answer: A

12) If there is a sole producer of a good, and he faces no threat of competition, it is likely that:
A) government intervention will decrease consumer and producer surplus.
B) government intervention will change prices and have no effect on surplus.
C) government intervention will increase total surplus.
D) government intervention will make things better for everyone.
Answer: C

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13) The government imposing a minimum wage is an example of an attempt to:
A) encourage the consumption of inferior goods.
B) redistribute surplus in a market.
C) discourage the consumption of inferior goods.
D) correct a market failure.
Answer: B

14) In evaluating policy effectiveness, economists rely on:

A) normative analysis.
B) positive analysis.
C) both normative and positive analysis.
D) Economists can never fully analyze any real-world policy effectiveness.
Answer: C

15) Positive analysis:

A) examines if the policy actually accomplished its goals.
B) isthe best way to analyze a policy.
C) leads to the best solutions.
D) makes concluding actions obvious for policymakers.
Answer: A

16) Positive analysis:

A) involves the formulation and testing of hypotheses.
B) weighs the fairness ofa policy.
C) examines if the outcome is desirable.
D) involves value judgments concerning the desirability of alternative outcomes.
Answer: A

17) Normative analysis:

A) examines whether the policy is a good idea.
B) leads to the best solutions.
C) examines if the policy actually accomplished its goal.
D) involves the formulation and testing of hypotheses.
Answer: A

18) Price controls:

A) are regulations that sets a maximum or minimum legal price for a particular good.
B) regulate quantity sold.
C) prevent the market from reaching an inefficient equilibrium when the market shifts.
D) ensure market equilibrium.
Answer: A

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19) A price ceiling is:
A) a legal minimum price.
B) a legal minimum quantity that can be sold at a particular price.
C) a legal maximum price.
D) a legal maximum quantity that can be sold at a particular price.
Answer: C

20) A price floor is:

A) a legal maximum quantity that can be sold at a particular price.
B) a legal minimum quantity that can be sold at a particular price.
C) a legal maximum price.
D) a legal minimum price.
Answer: D

21) An effective price ceiling:

A) can lead more goods to be produced in a market.
B) must be set below the equilibrium price.
C) must be set at the equilibrium price.
D) must be set above the equilibrium price.
Answer: B

22) An effective price floor:

A) must be set above the equilibrium price.
B) can result in an increase in the quantity sold.
C) must be set at the equilibrium price.
D) must be set below the equilibrium price.
Answer: A

23) An effective price ceiling:

A) must be set below the equilibrium price, and will likely cause a surplus.
B) must be set above the equilibrium price, and will likely cause a shortage.
C) must be set below the equilibrium price, and will likely cause a shortage.
D) must be set above the equilibrium price, and will likely cause a surplus.
Answer: C

24) An effective price floor:

A) must be set below the equilibrium price, and will likely cause a surplus.
B) must be set below the equilibrium price, and will likely cause a shortage.
C) must be set above the equilibrium price, and will likely cause a shortage.
D) must be set above the equilibrium price, and will likely cause a surplus.
Answer: D

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25) Governments tend to set price ceilings:
A) to prevent consumers from choosing the wrong goods.
B) to ensure everyone can afford certain goods.
C) to ensure producers make enough for everyone.
D) to ensure producers make enough profit to stay in the industry.
Answer: B

26) An effective price ceiling:

A) will increase total well being.
B) will cause quantity supplied to exceed quantity demanded.
C) will set a legal minimum price in a market.
D) will cause quantity demanded to exceed quantity supplied.
Answer: D

27) An effective price floor:

A) will set a legal maximum price in a market.
B) will cause quantity demanded to exceed quantity supplied.
C) will increase total well being.
D) will cause quantity supplied to exceed quantity demanded.
Answer: D

28) In an effort to prevent hunger in their nation, a government might respond to rising food prices by:
A) setting a price ceiling on basic food necessities.
B) setting a minimum quantity each farmer must provide free of charge.
C) demanding neighbouring countries provide free food to their citizens.
D) setting a price floor on basic food necessities.
Answer: A

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29) The graph shown best represents:

A) a market for an inferior good. B) a missing market.

C) an effective price floor. D) an effective price ceiling.
Answer: D

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30) The graph shown best represents:

A) a missing market. B) a market for an inferior good.

C) an ineffective price ceiling. D) an ineffective price floor.
Answer: D

8
31) An effective price ceiling that could be set in the market in the graph shown would be:

A) $8. B) $15. C) $30. D) $11.

Answer: A

9
32) If an effective price ceiling were placed in the market in the graph shown:

A) the demand curve would have to shift.

B) quantity demanded would exceed quantity supplied.
C) quantity supplied would exceed quantity demanded.
D) the supply curve would have to shift.
Answer: B

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33) If a price ceiling of $8 were placed in the market in the graph shown:

A) a shortage of 7 would occur. B) a shortage of 23 would occur.

C) a shortage of 8 would occur. D) a shortage of 15 would occur.
Answer: B

10
34) If a price ceiling of $8 were placed in the market in the graph shown:

A) a surplus of 23 would occur. B) a surplus of 7 would occur.

C) a shortage of 23 would occur. D) a shortage of 7 would occur.
Answer: C

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35) If a price ceiling of $8 were placed in the market in the graph shown, which area represents deadweig
loss?

A) F+G B) B + D+F+G C) E D) B+D

Answer: D

12
36) If a price ceiling of $8 were placed in the market in the graph shown:

A) all producers are made better off.

B) all consumers are made worse off.
C) some surplus is transferred from producer to consumer.
D) some surplus is transferred from consumer to producer.
Answer: C

13
37) If a price ceiling of $8 were placed on the market in the graph shown, which area represents the surpl
is transferred?

A) C+D+F+G B) C +D C) C D) F+G
Answer: C

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38) After a price ceiling of $8 is placed on the market in the graph shown, which area represents consum
surplus?

A) A+B+C+D+F+G B) A +B
C) A + B + C D) A + C
Answer: D

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39) After a price ceiling of $8 is placed on the market in the graph shown, which area represents produce
surplus?

A) A+C+E B) C +D+F+G C) E D) C+D+E

Answer: C

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40) After a price ceiling of $8 is placed on the market in the graph shown, which area represents total sur

A) A+C+E B) A +B+C+D+E+F+G
C) A+B+C+D+E D) A+B+C+D+E+F
Answer: A

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41) What could happen to render the price ceiling set in the graph shown ineffective?

A) Demand could decrease, and shift to the left.

B) Supply could decrease, and shift to the left.
C) Demand could increase, and shift to the right.
D) None of these would cause the price ceiling to be ineffective.
Answer: A

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42) Which of the following changes to the market in the graph shown could cause the price ceiling to bec
ineffective?

A) Supply could increase, and shift to the left. B)

Supply could increase, and shift to the right. C)
Demand could increase, and shift to the right.
D) Supply could decrease, and shift to the left.
Answer: B

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43) A price ceiling of $8 placed on the market in the graph shown:

A) is effective, and causes a surplus.

B) is ineffective, and does not prevent the market from reaching equilibrium.
C) is effective, and causes a shortage.
D) is ineffective, and does not affect the market.
Answer: C

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44) After a price ceiling of $8 is placed on the market in the graph shown, the total number of units trade

A) falls by 8 relative to equilibrium. B) falls by 23 relative to equilibrium.

C) falls by 15 relative to equilibrium. D) increases by 15 relative to equilibrium.
Answer: A

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45) If an ineffective price ceiling were to be set in the market in the graph shown, it could be set at:

A) $10. B) $8. C) $15. D) $5.

Answer: C

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46) After a price ceiling of $8 is placed on the market in the graph shown:

A) the quantity produced in the market increases.

B) some consumers win because they pay a lower price.
C) producers sell because they sell at a lower price.
D) the quantity traded in the market increases.
Answer: B

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47) If the intended aim of the price ceiling set in the graph shown was a net increase in the well-being of
consumers:

A) then the policy was effective since consumers lost surplus overall.
B) then the policy was ineffective since consumers gained in surplus overall.
C) then the policy was effective since consumers gained in surplus overall.
D) then the policy was ineffective since consumers lost surplus overall.
Answer: C

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48) If the intended aim of the price ceiling set in the graph shown was a net increase in the well being of
consumers, then positive analysis would have us consider:

A) whether the producer surplus lost due to lower prices is greater than the producer surplus lost
due to fewer transactions taking place.
B) whether the surplus transferred from producers to consumers is larger than the consumer
surplus lost to deadweight loss.
C) whether the surplus transferred from consumers to producers is larger than the consumer
surplus lost to deadweight loss.
D) whether the producer surplus lost to deadweight loss is greater than the producer surplus
gained from a higher price.
Answer: B

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49) If the intended aim of the price ceiling set in the graph shown was a net increase in the well being of
consumers, then positive analysis would conclude:

A) the policy was effective, since surplus gained by consumers through lower prices is greater
than the surplus they lost through deadweight loss.
B) the policy was ineffective, since the amount of deadweight loss is greater than the surplus
gained by consumers from lower prices.
C) the policy was effective, since surplus lost by producers through lower prices is less than the
surplus gained by consumers through lower prices.
D) the policy was ineffective, since surplus gained by consumers through lower prices is less
than the surplus they lost through deadweight loss.
Answer: A

26
50) If the intended aim of the price ceiling set in the graph shown was a net increase in the well being of
consumers, then positive analysis would conclude:

A) the policy was effective, since area A + C is larger than B + D.

B) the policy was ineffective, since A + C + E is larger than B + D.
C) the policy was effective, since area B is smaller than area C.
D) the policy was ineffective, since D is larger than E.
Answer: C

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51) If the intended aim of the price ceiling set in the graph shown was a net increase in the well being of
consumers, then normative analysis would conclude that:

A) the policy was effective, since surplus gained by consumers through lower prices is less than
the surplus they lost through deadweight loss.
B) there is no "right" conclusion to be reached (in a normative sense), since people have
different opinions concerning what constitutes a better outcome.
C) the policy was effective, since surplus lost by producers through lower prices is less than the
surplus gained by consumers through lower prices.
D) the policy was ineffective, since surplus gained by consumers through lower prices is less
than the surplus they lost through deadweight loss.
Answer: B

52) One way to allocate the scarce good created from an effective price ceiling is to:
A) give them to the friends and family of the producers.
B) offer it on a first-come, first-served basis.
C) ration a certain quantity per household.
D) All of these are examples of allocating using non-price methods.
Answer: D

53) Because a price ceiling causes:

A) a shortage, a central planner must distribute the goods fairly.
B) a shortage, some form of rationing must occur.
C) a surplus, a central planner must distribute the goods fairly.
D) a surplus, rationing must occur.
Answer: B

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54) A prominent argument against the use of price ceilings is:
A) they lead to a surplus and a waste of society's resources.
B) they are unfair.
C) they keep markets from minimizing the deadweight loss.
D) None of these is used as an argument against price ceilings.
Answer: C

55) The graph shown best represents:

A) a missing market. B) a market for an inferior good.

C) an effective price ceiling. D) an effective price floor.
Answer: D

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56) The graph shown best represents:

A) a missing market. B) an ineffective price floor.

C) a market for an inferior good. D) an ineffective price ceiling.
Answer: D

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57) An effective price floor that could be set in the market in the graph shown would be:

A) $16. B) $23. C) $12. D) $8.

Answer: B

31
58) If an effective price floor were placed in the market in the graph shown:

A) the supply curve would have to shift.

B) quantity demanded would exceed quantity supplied.
C) the demand curve would have to shift.
D) quantity supplied would exceed quantity demanded.
Answer: D

32
59) If a price floor of $23 were placed in the market in the graph shown:

A) a shortage of 37 would occur. B) a surplus of 37 would occur.

C) a shortage of 27 would occur. D) a shortage of 10 would occur.
Answer: B

33
60) If a price floor of $23 were placed in the market in the graph shown:

A) a surplus of 20 would occur. B) a surplus of 27 would occur.

C) a surplus of 10 would occur. D) a surplus of 37 would occur.
Answer: D

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61) If a price floor of $23 were placed in the market in the graph shown, which area represents deadweig

A) C+D+F B) C +F C) B+C+E+F D) G
Answer: B

35
62) If a price floor of $23 were placed in the market in the graph shown:

A) all consumers are worse off.

B) some surplus is transferred from producer to consumer.
C) some surplus is transferred from consumer to producer.
D) all consumers are better off.
Answer: C

36
63) If a price floor of $23 were placed on the market in the graph shown, which area represents the surpl
is transferred?

A) C B) B + C C) B+C+D D) B
Answer: D

37
64) After a price floor of $23 is placed on the market in the graph shown, which area represents consume
surplus?

A) A+B B) A +B+C C) A D) A+B+C+G

Answer: C

38
65) After a price floor of $23 is placed on the market in the graph shown, which area represents producer
surplus?

A) B+C+D B) B + C +D+F C) B+C+D+E D) B+E

Answer: D

39
66) After a price floor of $23 is placed on the market in the graph shown, which area represents total sur

A) A B) A +B+E
C) A+B+C+E+F D) B+C+E+F
Answer: B

40
67) A price floor of $23 placed on the market in the graph shown:

A) is effective, and causes a shortage.

B) is effective, and causes a surplus.
C) is ineffective, and does not prevent the market from reaching equilibrium.
D) is ineffective, and does not affect the market.
Answer: B

41
68) After a price floor of $23 is placed on the market in the graph shown, the total number of units traded

A) falls by 27 relative to equilibrium. B) falls by 20 relative to equilibrium.

C) increases by 10 relative to equilibrium. D) falls by 37 relative to equilibrium.
Answer: A

42
69) If an ineffective price floor were to be set in the market in the graph shown, it could be set at:

A) $8.
B) $30.
C) $23.
D) All of these would be effective price floors for this market.
Answer: A

43
70) After a price floor of $23 is placed on the market in the graph shown:

A) the quantity demanded in the market increases.

B) the quantity traded in the market increases.
C) consumers lose because they pay a higher price.
D) producers lose because they sell at a higher price.
Answer: C

44
71) If the intended aim of the price floor set in the graph shown was a net increase in the wellbeing of pr
then positive analysis would have us consider:

A) whether the producer surplus lost to deadweight loss is greater than the producer surplus
gained from a higher price.
B) whether the producer surplus lost due to lower prices is greater than the producer surplus lost
due to fewer transactions taking place.
C) whether the surplus transferred from producers to consumers is larger than the consumer
surplus lost to deadweight loss.
D) whether the surplus transferred from consumers to producers is larger than the consumer
surplus lost to deadweight loss.
Answer: A

45
72) If the intended aim of the price floor set in the graph shown was a net increase in the well-being of
producers, then positive analysis would consider:

A) the policy to be ineffective if area E + B is larger than C + F.

B) the policy to be effective if area E + B is larger than C + F.
C) the policy to be ineffective if area B is larger than area F.
D) the policy to be effective if area B is larger than area F.
Answer: D

46
73) If the intended aim of the price floor set in the graph shown was a net increase in the well-being of
producers, then normative analysis would conclude that:

A) the policy was effective, since surplus gained by producers through higher prices is greater
than the surplus lost by consumers through higher prices.
B) the policy was effective, since surplus gained by producers through higher prices is greater
than the surplus they lost through deadweight loss.
C) the policy was ineffective, since surplus gained by producers through higher prices is greater
than the surplus they lost through deadweight loss.
D) there is no "right" conclusion to be reached in a normative sense, since people have different
opinions concerning what constitutes a better outcome.
Answer: D

47
74) Which of the following changes to the market in the graph shown could cause the price floor to beco
ineffective?

A)Supply could increase, and shift to the left. B)

Supply could increase, and shift to the right. C)
Demand could decrease, and shift to the left. D)
Supply could decrease, and shift to the left.
Answer: D

75) One way to ensure all producers benefit from a price floor is to:
A) give them to the friends and family of the producers.
B) ration a certain quantity per household.
C) give a government guarantee to buy all surplus.
D) All of these are examples of ensuring all producers benefit using non-price methods.
Answer: C

76) Because a price floor causes:

A) a surplus, some producers may ultimately lose because they won't have enough customers.
B) a shortage, a central planner must distribute the goods fairly.
C) a surplus, a central planner must distribute the goods fairly.
D) a shortage, rationing must occur.
Answer: A

48
77) An unintended consequence of price ceilings is:
A) non-price rationing must occur, and can lead to bribes.
B) the transfer of surplus from producer to consumer rarely is recognized.
C) the loss of surplus always outweighs the benefits of the policy.
D) None of these is correct.
Answer: A

78) An unintended consequence of price floors is:

A) non-price rationing must occur, and can lead to bribes.
B) the transfer of surplus from consumer to producer is rarely recognized.
C) the cost to taxpayers if the government buys all surplus.
D) the loss of surplus always outweighs the benefits of the policy.
Answer: C

79) Taxes:
A) always have positive consequences.
B) are the main way that governments raise revenue to pay for public programs.
C) always have negative consequences.
D) are always used to correct market failures.
Answer: B

80) Any tax on a good can:

A) discourage consumption of the good. B) Encourage consumption of the good.
C) create a new source of private revenue. D) encourage production of the good.
Answer: A

81) A tax on sellers has what effect on a market?

A) Demand shifts vertically upward by the amount of the tax.
B) Supply shifts vertically downward by the amount of the tax.
C) Supply shifts vertically upward by the amount of the tax.
D) Demand shifts vertically downward by the amount of the tax.
Answer: C

82) A tax on sellers:

A) shifts the supply curve up by the amount of the tax.
B) shifts the supply curve left by the amount of the tax.
C) shifts the demand curve down by the amount of the tax.
D) shifts the demand curve left by the amount of the tax.
Answer: A

49
83) A tax on sellers:
A) cause equilibrium price and quantity to decrease.
B) causes equilibrium price to increase and equilibrium quantity to decrease.
C) cause equilibrium price to decrease and equilibrium quantity to increase.
D) cause equilibrium price and quantity to increase.
Answer: B

84) A tax on sellers:

A) shifts the demand curve vertically upwards by the amount of the tax, but does not affect the
demand curve.
B) A shifts the demand curve vertically downwards by the amount of the tax, but does not affect
the demand curve.
C) shifts the supply curve vertically upwards by the amount of the tax, but does not affect the
demand curve.
D) shifts the supply curve vertically downwards by the amount of the tax, but does not affect the
demand curve.
Answer: C

85) When a tax is imposed on a market:

A) greater total transactions take place in the market.
B) The price the buyer pays is lower than the amount the seller receives.
C) the equilibrium tax-inclusive price increases and the equilibrium quantity rises.
D) the price the buyer pays is higher than the amount the seller receives.
Answer: D

86) A tax wedge:

A) only occurs in markets when the tax is placed on buyers.
B) refers to the difference in the price the buyer pays and the price the sellers keep.
C) only occurs in markets when taxes are placed on large corporations.
D) only occurs in markets when the tax is placed on sellers.
Answer: B

87) The difference in the price the buyer pays and the price the sellers keep in the presence of a tax is
called:
A) a tax differential. B) the tax incidence.
C) a tax wedge. D) the tax burden.
Answer: C

50
88) Suppose a tax has been imposed in the graph shown. Which kind of tax is most likely demonstrated b
graph?

A) A tax on buyers B) A
tax on big corporations
C) A tax on sellers D) None of these is true.
Answer: C

51
89) Consider the graph shown. What would most likely be the cause of a shift from S1 to S2?

A) A tax on buyers B) A tax on sellers

C) A subsidy for buyers D) A subsidy for sellers
Answer: B

52
90) Suppose a tax on sellers has been imposed in the graph shown. What is the total tax paid per unit of t
good?

A) $31 B) $10 C) $37 D) $15

Answer: B

53
91) The graph shown demonstrates a tax on sellers. What is the amount of tax revenue being generated fr
the tax?

A) $80 B) $310 C) $135 D) $150

Answer: D

54
92) The graph shown demonstrates a tax a sellers. Before the tax was imposed, the sellers produced _
units and received for each one sold.

A) 15; $6 B) 31; $9 C) 15; $16 D) 31; $19

Answer: B

55
93) The graph shown demonstrates a tax on sellers. Once the tax has been imposed, the sellers produce
units and receive for each one sold.

A) 31; $9 B) 31; $19 C) 15; $16 D) 15; $6

Answer: D

56
94) The graph shown demonstrates a tax on sellers. Before the tax was imposed, the buyers purchased
units and paid for each one.

A) 31; $9 B) 15; $16 C) 15; $6 D) 31; $19

Answer: A

57
95) Suppose a tax on sellers has been imposed in the graph shown. Once the tax is in place, the buyers
experience:

A) a decrease in demand. B) an increase in quantity demanded.

C) an increase in demand. D) a decrease in quantity demanded.
Answer: D

58
96) Suppose a tax on sellers has been imposed in the graph shown. Once the tax is in place, the buyers pu
units and pay for each one.

A) 31; $19 B) 31; $9 C) 15; $6 D) 15; $16

Answer: D

59
97) Suppose a tax on sellers has been imposed in the graph shown. The amount of deadweight loss gener
this tax is:

A) $160. B) $129.50. C) $0. D) $80.

Answer: D

60
98) The graph shown demonstrates a tax on sellers. Who bears the greater tax incidence?

A) The government
B) The incidence is equally shared between buyer and seller.
C) The seller
D) The buyer
Answer: D

61
99) The graph shown demonstrates a tax on sellers. How many fewer units are being sold due to the imp
of a tax on this market?

A) 15 B) 31 C) 16 D) 37
Answer: C

62
100) The graph shown demonstrates a tax on sellers. Which of the following can be said about the effect o
tax?

A) The price paid by buyers is greater than that received by sellers, and the difference is the tax
wedge.
B) The price paid by buyers is greater than that received by sellers, and the difference is the total
tax revenue.
C) The price paid by buyers and received by sellers is higher than it was before the tax was
imposed.
D) The price paid by buyers is less than that received by sellers, and the difference is the total
tax revenue.
Answer: A

63
101) The graph shown demonstrates a tax on sellers. Which of the following can be said about the effect o
tax?

A) The tax creates a surplus, and the government must buy the excess.
B) The tax creates a shortage, and the government must regulate the market.
C) The tax raises the price producers will sell to consumers at every quantity.
D) None of these is true.
Answer: C

102) Does a tax on sellers affect the supply curve?

A) Yes, it shifts up by the amount of the tax.
B) Yes, it shifts to the right by the amount of the tax.
C) No, there is change in the quantity supplied, but the supply curve does not move.
D) Yes, it shifts to the left by the amount of the tax.
Answer: A

103) Does a tax on sellers affect the demand curve?

A) No, there is change in the quantity demanded, but the demand curve does not move.
B) Yes, it shifts up by the amount of the tax.
C) Yes, it shifts to the left by the amount of the tax.
D) Yes, it shifts to the right by the amount of the tax.
Answer: A

64
104) Suppose a tax has been imposed in the graph. Which kind of tax is most likely demonstrated by this

A) A tax on buyers B) Atax on sellers

C) A tax on big corporations D) None of these is true.
Answer: A

65
105) Consider the graph. What would most likely be the cause of a shift from D1 to D2?

A) A subsidy for buyers B) A tax on buyers

C) A tax on sellers D) A subsidy for sellers
Answer: B

66
106) Suppose a tax on buyers has been imposed in the graph shown. How much are buyers being taxed on
unit sold?

A) $4 B) $12 C) $8 D) $16
Answer: B

67
107) The graph shown demonstrates a tax on buyers. What is the amount of tax revenue being generated f
the tax?

A) $48 B) $96 C) $72 D) $36

Answer: C

68
108) The graph shown demonstrates a tax on buyers. Before the tax was imposed, the sellers produced
units and received for each one sold.

A) 6; $22 B) 9; $30 C) 9; $18 D) 6; $34

Answer: B

69
109) The graph shown demonstrates a tax on buyers. Once the tax has been imposed, the sellers produce
units and receive for each one sold.

A) 6; $34 B) 9; $30 C) 9; $18 D) 6; $22

Answer: D

70
110) The graph shown demonstrates a tax on buyers. Before the tax was imposed, the buyers purchased
units and paid for each one.

A) 6; $34 B) 6; $22 C) 9; $18 D) 9; $30

Answer: D

71
111) Suppose a tax on buyers has been imposed in the graph shown. Once the tax is in place, the sellers
experience:

A) an increase in supply. B) a decrease in supply.

C) a decrease in quantity supplied. D) an increase in quantity supplied.
Answer: C

72
112) Suppose a tax on buyers has been imposed in the graph shown. Once the tax is in place, the buyers p
units and pay for each one.

A) 9; $18 B) 6; $34 C) 6; $22 D) 9; $30

Answer: B

73
113) Suppose a tax on buyers has been imposed in the graph shown. The amount of deadweight loss gener
this tax is:

A) $72. B) $36. C) $18. D) $0.

Answer: C

74
114) The graph shown demonstrates a tax on buyers. Who bears the greater tax incidence?

A) The government
B) The buyer
C) The incidence is equally shared between buyer and seller.
D) The seller
Answer: D

75
115) The graph shown demonstrates a tax on buyers. How many fewer units are being sold due to the imp
of a tax on this market?

A) 6 B) 9 C) 12 D) 3
Answer: D

76
116) The graph shown demonstrates a tax on buyers. Which of the following can be said about the effect o
tax?

A) The price paid by buyers is greater than that received by sellers, and the difference is the tax
wedge.
B) The price paid by buyers is less than that received by sellers, and the difference is the total
tax revenue.
C) The price paid by buyers and received by sellers is higher than it was before the tax was
imposed.
D) The price paid by buyers is greater than that received by sellers, and the difference is the total
tax revenue.
Answer: A

77
117) The graph shown demonstrates a tax on buyers. Which of the following can be said about the effect o
tax?

A) The tax creates a shortage, and the government must regulate the market.
B) The tax creates a surplus, and the government must buy the excess.
C) The tax reduces the quantity demanded at each price level.
D) None of these is true.
Answer: C

78
118) Does a tax on buyers affect the supply curve?

A) Yes, it shifts to the right by the amount of the tax.

B) No, there is change in the quantity supplied, but the supply curve does not move.
C) Yes, it shifts to the left by the amount of the tax.
D) Yes, it shifts up by the amount of the tax.
Answer: B

119) Does a tax on buyers affect the demand curve?

A) Yes, it shifts down by the amount of the tax.
B) Yes, it shifts up by the amount of the tax.
C) No, there is a change in the quantity demanded, but the demand curve does not move.
D) Yes, it shifts to the left by the amount of the tax.
Answer: A

120) When a tax is placed on sellers:

A) buyers always bear a higher incidence than sellers.
B) the effect on buyers and sellers is the same as a tax on buyers would be.
C) sellers always bear a higher incidence than buyers.
D) None of these is true.
Answer: B

79
121) When a tax is placed on buyers:
A) the equilibrium quantity will unequivocally increase.
B) the resulting price paid by consumers is the same as if the tax were placed on sellers.
C) the quantity provided by producers will increase.
D) The quantity demand by consumers will increase.
Answer: B

122) The relative tax burden borne by buyers and sellers is called the:
A) tax incidence. B) tax revenue. C) tax wedge. D) real tax.
Answer: A

123) Tax incidence is:

A) the difference between what the buyers pay and what the sellers receive in a market where
taxes are present.
B) the relative tax burden borne by buyers and sellers.
C) the difference between the tax revenue generated and the value of deadweight loss caused by
the imposition of the tax.
D) the generated revenue that comes from taxes in markets.
Answer: B

124) Tax incidence:

A) depends on whether the tax revenue is greater than the deadweight loss caused by the tax.
B) depends on the relative elasticity of the supply and demand curves in a market.
C) depends on whether it is a buyers tax or sellers tax that is being imposed.
D) depends on the amount of tax revenue generated once administrative burdens are taken into
account.
Answer: B

125) If the demand curve is more elastic than the supply curve, then:
A) the sellers will bear a greater tax incidence than buyers.
B) tax incidence will be shared equally by buyer and seller.
C) the buyers will bear a greater tax incidence than sellers.
D) None of these is true.
Answer: A

126) If the demand curve is less elastic than the supply curve, then:
A) the buyers will bear a smaller tax burden than sellers.
B) the buyers will bear a greater tax incidence.
C) the sellers will bear a greater tax incidence.
D) the sellers will bear a greater tax burden than buyers.
Answer: B

80
127) If the supply curve is more inelastic than the demand curve, then:
A) the sellers will bear a greater tax incidence than the buyers.
B) the sellers will bear an equal tax incidence as the buyers.
C) the sellers will bear a smaller tax incidence than the buyers.
D) Any of these could be true.
Answer: A

128) If the producers bear a larger portion of tax incidence than the buyers, which of the following
must be true?
A) They face a very inelastic demand.
B) Their supply curve must be more inelastic than the buyers demand curve.
C) They are not as business savvy as the buyers.
D) Their supply curve must be more elastic than the buyers demand curve.
Answer: B

129) If the producers bear a smaller tax incidence than the buyers in a market, which of the following
must be true?
A) Their supply curve must be more elastic than the buyers demand curve in this market.
B) Their supply curve must be less elastic than the buyers demand curve in this market.
C) It must be a market for luxury items.
D) It must be a market for inferior goods.
Answer: A

130) Policymakers who wish to punish businesses that pollute by taxing them:
A) forget that the suppliers of their product may actually bear the greatest burden of the tax.
B) forget that buyers of their product will likely not bear the burden of that tax.
C) forget that they have control over who actually bears the tax incidence.
D) forget that the buyers of their product will likely share the burden of that tax.
Answer: D

131) A subsidy:
A) is used by governments to discourage the production and consumption of a particular good or
service.
B) is used by governments as an supplement to price controls to benefit certain groups without
generating a shortage or an excess supply.
C) is a requirement that the government pay an extra amount to producers or consumers of a
good.
D) Is a requirement that the government pay an extra amount to producers and consumers of a
good.
Answer: C

81
132) A subsidy:
A) has the same impact on a market as a tax.
B) has a smaller impact on a market than a tax of the same amount.
C) has a larger impact on a market than a tax of the same amount.
D) is the reverse of a tax.
Answer: D

133) The graph shown best represents which of the following?

A) A tax on buyers B) Asubsidy to buyers

C) A tax on sellers D) A subsidy to sellers
Answer: B

82
134) A subsidy to buyers has been placed in the market in the graph shown. Why might the government en
such a policy?

A) As a way to encourage consumers to substitute away from the good

B) As a way to encourage the consumption of the good
C) As a way to discourage the consumption of the good
D) As a way to discourage the production of the good
Answer: B

83
135) A subsidy to buyers has been placed in the market in the graph shown. The result is:

A) customers are worse off than before the subsidy.

B) producers are worse off than before the subsidy.
C) a higher quantity bought and sold at a higher price.
D) None of the above.
Answer: C

84
136) A subsidy to buyers has been placed on the market in the graph shown. What is the amount of the su
per unit of this good?

A) $6 B) $22 C) $16 D) $10

Answer: C

85
137) Assume a subsidy to buyers has been enacted in the market in the graph shown. With the subsidy, the
buy units and pay for each of them.

A) 100; $30 B) 150; $40 C) 150; $24 D) 100; $46

Answer: C

86
138) The graph shown shows a subsidy to buyers. Before the subsidy is put in place, the buyers bought
units and paid for each of them.

A) 100; $46 B) 150; $40 C) 150; $24 D) 100; $30

Answer: D

87
139) Assume a subsidy to buyers has been enacted in the market in the graph shown. With the subsidy, the
producers sell units and receive for each of them.

A) 100; $30 B) 100; $46 C) 150; $24 D) 150; $40

Answer: D

88
140) The graph shown portrays a subsidy to buyers. Before the subsidy is put in place, the producers sold
units and received for each of them.

A) 150; $24 B) 150; $40 C) 100; $46 D) 100; $30

Answer: D

89
141) The graph shown portrays a subsidy to buyers. The subsidy causes:

A) 50 more units to be sold in this market. B) 50 fewer units to be sold in this market.
C) 150 more units to be sold in this market. D) 100 fewer units to be sold in this market.
Answer: A

90
142) The graph shown portrays a subsidy to buyers. Once the subsidy is in place, the buyers pay
sellers receive _ ; the difference is .

A) $24; $40; the amount of government revenue

B) $30; $46; the amount of the subsidy
C) $24; $40; the amount of the subsidy
D) $40; $24; the amount of the subsidy
Answer: C

91
143) The graph shown portrays a subsidy to buyers. The amount of money spent on this subsidy by the
government is:

A) $800. B) $2,400. C) $6,000. D) $3,600.

Answer: B

144) Does a subsidy to buyers affect the supply curve?

A) Yes, it shifts supply to the right by the amount of the subsidy.
B) Yes, it shifts supply up by the amount of the subsidy.
C) No, the quantity supplied will decrease, but the supply curve does not move.
D) No, the quantity supplied will increase, but the supply curve does not move.
Answer: D

145) Does a subsidy to sellers affect the demand curve?

A) No, the quantity demanded will decrease, but the demand curve does not move.
B) Yes, it shifts demand to the right by the amount of the subsidy.
C) No, the quantity demanded will increase, but the demand curve does not move.
D) Yes, it shifts demand up by the amount of the subsidy.
Answer: C

92
146) Does a subsidy to sellers affect the supply curve?
A) Yes, it shifts supply vertically downward by the amount of the subsidy.
B) No, the quantity supplied will increase, but the supply curve does not move.
C) Yes, it shifts supply to the right by the amount of the subsidy.
D) No, the quantity supplied will decrease, but the supply curve does not move.
Answer: A

147) Does a subsidy to buyers affect the demand curve?

A) No, the quantity demanded will increase, but the demand curve does not move.
B) No, the quantity demanded will decrease, but the demand curve does not move.
C) Yes, it shifts demand to the right by the amount of the subsidy.
D) Yes, it shifts demand up by the amount of the subsidy.
Answer: D

148) If the government wants to encourage the consumption of a particular good, they should enact:
A) a subsidy to buyers, since they want to affect consumption of the good.
B) a subsidy to sellers, since they want more to be produced and offered for sale.
C) a subsidy on either buyers or sellers, since they will both have the same effect on the market.
D) a subsidy to buyers, since they deserve the benefit more than the producers.
Answer: C

149) Who actually benefits from a subsidy to sellers?

A) Only consumers benefit from any kind of subsidy.
B) The benefit is shared depending on elasticity of the supply and demand curves.
C) Only sellers benefit, since it is their subsidy.
D) None of these statements is true.
Answer: B

150) Who benefits from a subsidy to buyers?

A) Only consumers benefit, since it is their subsidy.
B) Only sellers benefit from any kind of subsidy.
C) The benefit is shared depending on the elasticity of the supply and demand curves.
D) None of these statements is true.
Answer: C

151) Consumers may benefit more than sellers from a subsidy to sellers if:
A) they deserve the subsidy more.
B) the demand curve is relatively more elastic than the supply curve.
C) the demand curve is relatively less elastic than the supply curve.
D) Consumers can never benefit more than sellers from a subsidy to sellers.
Answer: C

93
152) Is it possible for sellers to benefit more than consumers from a subsidy to buyers?
A) Yes, if the supply curve is relatively less inelastic than the demand curve.
B) Yes, if the supply curve is relatively more inelastic than the demand curve.
C) Yes, if the sellers need it more.
D) Producers can never benefit more than buyers from a subsidy to buyers.
Answer: B

153) The government is deciding where to place a tax of $0.50 because they want to raise revenues. In
which market will they likely generate more revenue?
A) In markets with inelastic supply and demand, since the increase in quantity traded will be
smaller than in a market with elastic supply and demand curves
B) In markets with elastic supply and demand, since the decrease in quantity traded will be
smaller than in a market with inelastic supply and demand curves
C) In markets with inelastic supply and demand, since the decrease in quantity traded will be
smaller than in a market with elastic supply and demand curves
D) In markets with elastic supply and demand, since the increase in quantity traded will be
smaller than in a market with inelastic supply and demand curves
Answer: C

154) The government is deciding where to put a $1 tax–either in a market with elastic supply and
demand curves, or a market with inelastic supply and demand curves. If their aim is to raise the
most revenue with the smallest deadweight loss, where should the tax be placed?
A) In the market with inelastic supply and demand curves
B) In the market with elastic supply and demand curves
C) It is impossible to say without more information
D) Since the burden is shared, it doesn't matter which market it is placed in
Answer: A

155) Would you expect a tax on cigarettes to be more effective over the long run or the short run?
A) Long run because demand becomes less elastic over time
B) Long run because demand becomes more elastic over time
C) Short run because demand becomes more elastic over time
D) Short run because demand becomes less elastic over time
Answer: B

156) In general, price controls have a:

A) larger effect in the long run because demand and supply become more elastic over time.
B) smaller effect in the short run because demand and supply become less elastic over time.
C) larger effect in the short run since demand and supply become more elastic over time.
D) smaller effect in the long run since demand and supply become less elastic over time.
Answer: A

94
Answer Key
Testname: UNTITLED20

1) B
2) A
3) B
4) C
5) C
6) A
7) D
8) A
9) D
10) D
11) A
12) C
13) B
14) C
15) A
16) A
17) A
18) A
19) C
20) D
21) B
22) A
23) C
24) D
25) B
26) D
27) D
28) A
29) D
30) D
31) A
32) B
33) B
34) C
35) D
36) C
37) C
38) D
39) C
40) A
41) A
42) B
43) C
44) A
45) C
46) B
47) C
48) B
49) A
50) C
95
Answer Key
Testname: UNTITLED20

51) B
52) D
53) B
54) C
55) D
56) D
57) B
58) D
59) B
60) D
61) B
62) C
63) D
64) C
65) D
66) B
67) B
68) A
69) A
70) C
71) A
72) D
73) D
74) D
75) C
76) A
77) A
78) C
79) B
80) A
81) C
82) A
83) B
84) C
85) D
86) B
87) C
88) C
89) B
90) B
91) D
92) B
93) D
94) A
95) D
96) D
97) D
98) D
99) C
100) A
96
Answer Key
Testname: UNTITLED20

101) C
102) A
103) A
104) A
105) B
106) B
107) C
108) B
109) D
110) D
111) C
112) B
113) C
114) D
115) D
116) A
117) C
118) B
119) A
120) B
121) B
122) A
123) B
124) B
125) A
126) B
127) A
128) B
129) A
130) D
131) C
132) D
133) B
134) B
135) C
136) C
137) C
138) D
139) D
140) D
141) A
142) C
143) B
144) D
145) C
146) A
147) D
148) C
149) B
150) C
97
Answer Key
Testname: UNTITLED20

151) C
152) B
153) C
154) A
155) B
156) A

98