Question 1

The incidence of a tax:&#10;A) falls entirely on consumers if demand is perfectly elastic.&#10;B) falls entirely on consumers if demand is perfectly inelastic.&#10;C) is shared by suppliers and consumers if demand is perfectly elastic.&#10;D) falls entirely on suppliers if demand is perfectly inelastic.

Accepted Answer

DWhen demand is perfectly inelastic, consumers are willing to pay any price for a product, meaning the incidence of a tax falls entirely on consumers (B). Conversely, when supply is perfectly inelastic, suppliers have to bear the cost of the tax, as they cannot change their production level in response to price changes, leading to the incidence falling entirely on suppliers (D).

Question 2

The deadweight loss of taxation:&#10;A) is the lost consumer surplus due to a gain in producer surplus from a tax.&#10;B) is the lost producer surplus due to a gain in consumer surplus from a tax.&#10;C) is the lost aggregate surplus due to a tax.&#10;D) is the difference between consumer and producer surplus after a tax.

Accepted Answer

The deadweight loss of taxation is the lost aggregate surplus due to a tax. It represents the reduction in total surplus that results from the market not being able to achieve the socially optimal level of output and consumption. It arises due to market inefficiencies caused by the tax, such as reduced production and consumption, distortion of prices, allocation of resources away from their optimal use, and disincentives for innovation and entrepreneurship. The deadweight loss increases with the size of the tax and the price elasticity of demand and supply. Therefore, it is considered a welfare loss or inefficiency that reduces economic growth and welfare. Option A refers to the producer surplus gained by the tax at the expense of the consumer surplus loss, which is not the same as the deadweight loss. Option B refers to the opposite case, which also does not explain the deadweight loss. Option D is a vague statement that does not specify the magnitude or direction of the change in surplus due to the tax, and it does not account for the deadweight loss.

Question 3

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The producer surplus after the tax is:

A) $3.56 million.
B) $4.50 million.
C) $1.89 million.
D) $7.11 million.

Accepted Answer

The producer surplus after the tax is $3.56 million.The tax shifts the supply curve up by $0.50, so the new supply curve is Qs = 4P - 1.5. The equilibrium price is now $2.25, and the equilibrium quantity is now 6 million gallons.Producer surplus is the area below the supply curve and above the equilibrium price. In this case, producer surplus is the area of the triangle with base 6 and height 0.75, which is $3.56 million.

Question 4

The incidence of a tax:&#10;A) falls entirely on consumers if supply is perfectly inelastic.&#10;B) falls entirely on consumers if demand is perfectly elastic.&#10;C) is shared by suppliers and consumers if demand is perfectly elastic.&#10;D) falls entirely on suppliers if demand is perfectly elastic.

Accepted Answer

If demand is perfectly elastic, any increase in price due to the tax will cause consumers to stop buying the product entirely, meaning suppliers have no choice but to bear the full burden of the tax. This is because if they try to pass on the tax to consumers by increasing the price, consumers will simply switch to a substitute product with a lower price, causing the suppliers to lose all their sales.

Question 5

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The change in producer surplus due to the tax is:

A) $3.56 million.
B) $1.89 million.
C) $7.11 million.
D) $944,444.

Accepted Answer

The answer of Suppose the market demand function for ice...

Question 6

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The loss in consumer surplus due to the tax is:

A) $3.56 million.
B) $1.89 million.
C) $7.11 million.
D) $944,444.

Accepted Answer

To find the loss in consumer surplus due to the tax, we first need to determine the equilibrium price and quantity without the tax, and then with the tax. Without the tax, setting the demand equal to supply gives us 10 - 2P = 4P - 2, solving for P gives us P = $2, and the quantity Q = 10 - 2*2 = 6 million gallons. With a $0.50 tax, the new supply equation becomes 4(P + 0.5) - 2, leading to a new equilibrium. Solving the adjusted equations for the new price and quantity, we find the price consumers pay increases, and the quantity decreases. The loss in consumer surplus is the area of the triangle formed by the original price, the new price (including tax), and the decrease in quantity, which can be calculated using the formula for the area of a triangle. Given the information and typical calculations for consumer surplus loss due to a tax, the correct answer reflects the calculation based on the change in equilibrium caused by the tax.

Question 7

An ad valorem tax:&#10;A) is a fixed dollar amount that must be paid on each unit bought or sold.&#10;B) is a tax that is stated as a percentage of the good's price.&#10;C) is a tax that is stated as a percentage of the good's price, which increases as quantity bought increases.&#10;D) is a tax that is only paid by producers.

Accepted Answer

An ad valorem tax is a tax that is stated as a percentage of the price of the good or service being sold. For example, if the tax rate is 10% and the good is sold for $100, the tax would be $10 (10% of $100). The tax amount varies based on the price of the good or service being sold.

Question 8

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The price paid by buyers with the tax is:

A) $2.00.
B) $2.33.
C) $2.50.
D) $2.25.

Accepted Answer

To find the price paid by buyers with the tax, we first need to adjust the supply function to account for the tax. The tax effectively increases the cost to suppliers by $0.50 per gallon, so we adjust the supply equation by subtracting the tax from the price suppliers receive (P - 0.50). The new supply equation becomes QS = 4(P - 0.50) - 2. Simplifying this gives QS = 4P - 4. Setting the supply function equal to the demand function to find the equilibrium price with the tax, we get 10 - 2P = 4P - 4. Solving for P gives P = $2.33, which is the price before tax. The price paid by buyers includes the tax, so it remains $2.33 as the tax shifts the supply curve but does not change the final price paid by buyers directly in this calculation.

Question 9

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The price received by sellers with the tax is:

A) $2.33.
B) $1.50.
C) $1.75.
D) $1.83.

Accepted Answer

To find the price received by sellers with the tax, we first need to adjust the supply function to account for the tax. Since the tax is $0.50 per gallon, we subtract this from the price in the supply equation to reflect the price received by sellers. The adjusted supply equation becomes QS = 4(P - 0.50) - 2. To find the equilibrium price with the tax, we set the demand function equal to the adjusted supply function: 10 - 2P = 4(P - 0.50) - 2. Solving for P gives us the price before the tax is subtracted, which is $2.33. Subtracting the $0.50 tax from this price gives us $1.83, which is the price received by sellers with the tax.

Question 10

More of a tax is borne by firms:&#10;A) the more elastic is demand and the less elastic is supply.&#10;B) the less elastic is demand and the less elastic is supply.&#10;C) the more elastic is demand and the more elastic is supply.&#10;D) the less elastic is demand and the more elastic is supply.

Accepted Answer

When demand is more elastic and supply is less elastic, consumers are more sensitive to price changes, so firms cannot pass on much of the tax to consumers, bearing more of the tax burden themselves.

Question 11

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The aggregate surplus with the tax is:

A) $7.11 million.
B) $3.56 million.
C) $13.50 million.
D) $10.67 million.

Accepted Answer

The answer of Suppose the market demand function for ice...

Question 12

The incidence of a tax:&#10;A) falls entirely on suppliers if supply is perfectly elastic.&#10;B) falls entirely on suppliers if demand is perfectly inelastic.&#10;C) falls entirely on consumers if supply is perfectly elastic.&#10;D) falls entirely on consumers if demand is perfectly elastic.

Accepted Answer

The answer of The incidence of a tax:&#10;A) falls entirely...

Question 13

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The government revenue raised by the tax is:

A) $944,444.
B) $2.67 million.
C) $1.83 million.
D) $4.50 million.

Accepted Answer

The answer of Suppose the market demand function for ice...

Question 14

There is no deadweight loss from a tax:&#10;A) only if demand is perfectly elastic.&#10;B) only if supply is perfectly inelastic.&#10;C) if either demand or supply is perfectly elastic.&#10;D) if either demand or supply is perfectly inelastic.

Accepted Answer

The answer of There is no deadweight loss from a...

Question 15

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The deadweight loss due to the tax is:

A) $944,444.
B) $2.83 million.
C) $1.67 million.
D) $1.89 million.

Accepted Answer

The answer of Suppose the market demand function for ice...

Question 16

A specific tax:&#10;A) is a fixed dollar amount that must be paid on each unit bought or sold.&#10;B) is a tax that is stated as a percentage of the good's price.&#10;C) is a tax that is stated as a percentage of the good's price, which increases as quantity bought increases.&#10;D) is a tax that is only paid by producers.

Accepted Answer

The answer of A specific tax:&#10;A) is a fixed dollar...

Question 17

Suppose the market demand function for ice cream is Q^d = 10 - 2P and the market supply function for ice cream is Q^s = 4P - 2,both measured in millions of gallons of ice cream per year.Suppose the government imposes a $0.50 tax on each gallon of ice cream.The consumer surplus with the tax is:

A) $166,667.
B) $3.56 million.
C) $7.11 million.
D) $9 million.

Accepted Answer

The answer of Suppose the market demand function for ice...

Question 18

The federal gasoline tax is an example of:&#10;A) a specific tax.&#10;B) an ad valorem tax.&#10;C) a lump sum tax.&#10;D) an income tax.

Accepted Answer

The answer of The federal gasoline tax is an example...

Question 19

A sales tax is an example of:&#10;A) a specific tax.&#10;B) an ad valorem tax.&#10;C) a lump sum tax.&#10;D) an income tax.

Accepted Answer

The answer of A sales tax is an example of:&#10;A)...

Question 20

The incidence of a tax:&#10;A) indicates how much of the tax burden is borne by suppliers.&#10;B) indicates how much of the tax burden is borne by consumers.&#10;C) indicates how much of the tax burden is borne by various market participants.&#10;D) depends upon the shape of the supply curve only.

Accepted Answer

The answer of The incidence of a tax:&#10;A) indicates how...

Question 21

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal.How much would the government have to pay farmers?

A) $1.5 billion
B) $3 billion
C) $4.5 billion
D) $18 billion

Accepted Answer

The answer of The market demand function for wheat is...

Question 22

The deadweight loss from a tax:&#10;A) is zero when demand is perfectly elastic.&#10;B) is zero when supply is perfectly elastic.&#10;C) is zero when demand is perfectly inelastic.&#10;D) is never zero.

Accepted Answer

The answer of The deadweight loss from a tax:&#10;A) is...

Question 23

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.How much wheat goes to waste under the program?

A) 10 billion bushels per year
B) 4 billion bushels per year
C) 6 billion bushels per year
D) No wheat goes to waste.

Accepted Answer

The answer of The market demand function for wheat is...

Question 24

With a price floor:&#10;A) producer surplus will fall if profits fall.&#10;B) producer surplus will fall if profits rise.&#10;C) producer surplus will increases if profits fall.&#10;D) producer surplus always increases.

Accepted Answer

The answer of With a price floor:&#10;A) producer surplus will...

Question 25

A price floor:&#10;A) establishes a maximum price.&#10;B) establishes a minimum price.&#10;C) establishes a maximum quantity.&#10;D) establishes a minimum quantity.

Accepted Answer

The answer of A price floor:&#10;A) establishes a maximum price.&#10;B)...

Question 26

With a price floor:&#10;A) consumer surplus falls and producer surplus falls.&#10;B) consumer surplus increases and producer surplus falls.&#10;C) consumer surplus falls and producer surplus can increase or decrease.&#10;D) consumer surplus increases and producer surplus increases.

Accepted Answer

The answer of With a price floor:&#10;A) consumer surplus falls...

Question 27

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal.What is the size of the deadweight loss from the program?

A) $1.5 billion
B) $3 billion
C) $4.5 billion
D) $18 billion

Accepted Answer

The answer of The market demand function for wheat is...

Question 28

All of the following statements are true regarding voluntary production reduction programs EXCEPT:&#10;A) they offer firms incentives to reduce their production voluntarily.&#10;B) they include payments to producers who reduce production.&#10;C) they are an attempt to limit supply.&#10;D) they are an attempt to protect consumers from high prices.

Accepted Answer

The answer of All of the following statements are true...

Question 29

A voluntary production reduction program:&#10;A) offers firms incentives to reduce their production voluntarily.&#10;B) forces firms to reduce their production.&#10;C) offers firms incentives to increase their production voluntarily.&#10;D) forces firms to increase their production.

Accepted Answer

The answer of A voluntary production reduction program:&#10;A) offers firms...

Question 30

A subsidy:&#10;A) increases the amount that buyers pay for a good.&#10;B) reduces the amount that buyers pay for a good.&#10;C) reduces both the amount that buyers pay and the amount sellers receive for a good.&#10;D) increases both the amount that buyers pay and the amount sellers receive for a good.

Accepted Answer

The answer of A subsidy:&#10;A) increases the amount that buyers...

Question 31

A production quota program:&#10;A) places limitations on the quantity that individual consumers can purchase.&#10;B) is a way to raise prices without causing the overproduction that occurs under a price support program.&#10;C) is like a subsidy in that it reduces the price that buyers pay for a good.&#10;D) places minimums on the quantity that individual firms must produce.

Accepted Answer

The answer of A production quota program:&#10;A) places limitations on...

Question 32

With a price floor:&#10;A) producer surplus will increase if profits increase.&#10;B) producer surplus will increase is profits fall.&#10;C) producer surplus will decrease if profits increase.&#10;D) producer surplus always decreases.

Accepted Answer

The answer of With a price floor:&#10;A) producer surplus will...

Question 33

A production quota program:&#10;A) imposes limits on the quantity that individual firms can produce.&#10;B) is a way to reduce prices without causing the overconsumption that occurs under a price support program.&#10;C) places limitations on the quantity that individual consumers can purchase.&#10;D) is like a subsidy in that it reduces the price that buyers pay for a good.

Accepted Answer

The answer of A production quota program:&#10;A) imposes limits on...

Question 34

When the government implements a price support program:&#10;A) it may end up buying a lot of the good, for which it has little or no use.&#10;B) the goal is to increase the market price of the good.&#10;C) the deadweight loss created can be larger than that created by a price floor.&#10;D) All of these occur as a result of a price support program.

Accepted Answer

The answer of When the government implements a price support...

Question 35

All of the following are true regarding a production quota EXCEPT:&#10;A) a production quota imposes limits on the quantity that individual firms can produce.&#10;B) a production quota is a way to raise prices without causing the overproduction that occurs under a price support program.&#10;C) a production quota places limitations on supply.&#10;D) a production quota does not lead to a deadweight loss.

Accepted Answer

The answer of All of the following are true regarding...

Question 36

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price support program to achieve their goal.How much wheat must the government buy?

A) 10 billion bushels per year
B) 4 billion bushels per year
C) 6 billion bushels per year
D) None

Accepted Answer

The answer of The market demand function for wheat is...

Question 37

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal.What is the size of the producer surplus?

A) $8 billion
B) $4.5 billion
C) $12.5 billion
D) $6.5 billion

Accepted Answer

The answer of The market demand function for wheat is...

Question 38

Which of the following statements is NOT true regarding subsidies?&#10;A) Subsidies are like taxes in that they create deadweight loss.&#10;B) Subsidies are like taxes in that they reduce sales of the subsidized good.&#10;C) Subsidies are unlike taxes in that they increase sales of the subsidized good.&#10;D) Subsidies are unlike taxes in that they reduce the price that buyers pay for a good.

Accepted Answer

The answer of Which of the following statements is NOT...

Question 39

A subsidy:&#10;A) reduces the amount that buyers pay and increases the amount that sellers receive for a good.&#10;B) increases the amount that buyers pay and reduces the amount that sellers receive for a good.&#10;C) reduces both the amount that buyers pay and the amount sellers receive for a good.&#10;D) increases both the amount that buyers pay and the amount sellers receive for a good.

Accepted Answer

The answer of A subsidy:&#10;A) reduces the amount that buyers...

Question 40

A price support program:&#10;A) lowers the market price by making purchases of a good, thereby increasing demand.&#10;B) lowers the market price by making purchases of a good, thereby reducing demand.&#10;C) raises the market price by making purchases of a good, thereby increasing demand.&#10;D) raises the market price by making purchases of a good, thereby reducing demand.

Accepted Answer

The answer of A price support program:&#10;A) lowers the market...

Question 41

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal.What is the size of the consumer surplus?

A) $4 billion
B) $8 billion
C) $18 billion
D) $6 billion

Accepted Answer

The answer of The market demand function for wheat is...

Question 42

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the domestic market supply function is Q^s = 2.5P - 7.5.Suppose further that the world price for the good in question is $3.40 per unit.If the government places a $1.20 tariff on imported units of this good,how much revenue does the tariff generate?

A) $3,200
B) $3,600
C) $5,400
D) $3,000

Accepted Answer

The answer of Suppose the domestic market demand function in...

Question 43

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the domestic market supply function is Q^s = 2.5P - 7.5.Suppose further that the world price for the good in question is $3.40 per unit.If the government places a $1.20 tariff on imported units of this good,how much revenue does the tariff generate?

A) $3,200
B) $3,600
C) $5,400
D) $3,000

Accepted Answer

The answer of Suppose the domestic market demand function in...

Question 44

A tariff:&#10;A) is a tax on imports.&#10;B) is a tax on exports.&#10;C) directly limits the total quantity of a good that can be imported.&#10;D) directly limits the total quantity of a good that can be exported.

Accepted Answer

The answer of A tariff:&#10;A) is a tax on imports.&#10;B)...

Question 45

A quota:&#10;A) is a tax on imports.&#10;B) is a tax on exports.&#10;C) directly limits the total quantity of a good that can be imported.&#10;D) directly limits the total quantity of a good that can be exported.

Accepted Answer

The answer of A quota:&#10;A) is a tax on imports.&#10;B)...

Question 46

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the consumer surplus?

A) $4 billion
B) $8 billion
C) $10 billion
D) $6 billion

Accepted Answer

The answer of The market demand function for wheat is...

Question 47

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the aggregate surplus?

A) $4 billion
B) $8 billion
C) $10 billion
D) $12 billion

Accepted Answer

The answer of The market demand function for wheat is...

Question 48

If the import supply curve is horizontal at the world price:&#10;A) a tariff will lower domestic aggregate surplus.&#10;B) a tariff will increase domestic aggregate surplus.&#10;C) a tariff will not change domestic aggregate surplus.&#10;D) a quota will increase domestic aggregate surplus.

Accepted Answer

The answer of If the import supply curve is horizontal...

Question 49

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the domestic market supply function is Q^s = 2.5P - 7.5.Suppose further that the world price for the good in question is $3.40 per unit.If the government places a $1.20 tariff on imported units of this good,how much revenue does the tariff generate?

A) $3,200
B) $3,600
C) $5,400
D) $3,000

Accepted Answer

The answer of Suppose the domestic market demand function in...

Question 50

Discuss why the government would implement a program to lower the price of a good and the welfare effects of such a program.Give an example of good for which such a policy has been implemented and explain the purpose of the policy.

Accepted Answer

The answer of Discuss why the government would implement a...

Question 51

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the domestic market supply function is Q^s = 2.5P - 7.5.Suppose further that the world price for the good in question is $3.40 per unit.If the government places a $1.20 tariff on imported units of this good,how much revenue does the tariff generate?

A) $3,200
B) $3,600
C) $5,400
D) $3,000

Accepted Answer

The answer of Suppose the domestic market demand function in...

Question 52

If the import supply curve is upward-sloping:&#10;A) a tariff or quota can increase domestic aggregate surplus.&#10;B) a quota can increase domestic aggregate surplus, but a tariff cannot.&#10;C) a tariff can increase domestic aggregate surplus, but a quota cannot.&#10;D) neither a tariff nor a quota can increase domestic aggregate surplus.

Accepted Answer

The answer of If the import supply curve is upward-sloping:&#10;A)...

Question 53

Domestic aggregate surplus:&#10;A) is the sum of consumer surplus, deadweight loss and government revenue.&#10;B) is the sum of domestic producer surplus and government revenue.&#10;C) is the sum of domestic producer surplus and consumer surplus.&#10;D) is the sum of consumer surplus, domestic producer surplus and government revenue.

Accepted Answer

The answer of Domestic aggregate surplus:&#10;A) is the sum of...

Question 54

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the domestic market supply function is Q^s = 2.5P - 7.5.Suppose further that the world price for the good in question is $3.40 per unit.If the government places a $1.20 tariff on imported units of this good,how much revenue does the tariff generate?

A) $3,200
B) $3,600
C) $5,400
D) $3,000

Accepted Answer

The answer of Suppose the domestic market demand function in...

Question 55

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a price floor to achieve their goal.What is the size of the aggregate surplus?

A) $4 billion
B) $8 billion
C) $10 billion
D) $12 billion

Accepted Answer

The answer of The market demand function for wheat is...

Question 56

Suppose the government wants to increase the price of a specific agricultural product.Discuss the welfare effects of four possible policies: price floor,price support,production quota and voluntary production reduction.Which policy is least efficient? Discuss the differences in the benefits to farmers and the cost to the government.

Accepted Answer

The answer of Suppose the government wants to increase the...

Question 57

The market demand function for wheat is Q^d = 10 - 2P and the market supply function is Q^s = 4P - 2,both measured in billions of bushels per year.Suppose the government wants to increase the price of wheat to $3/bushel and they impose a voluntary production reduction program to achieve their goal.What is the size of the consumer surplus?

A) $4 billion
B) $8 billion
C) $18 billion
D) $6 billion

Accepted Answer

The answer of The market demand function for wheat is...

Question 58

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Q^d = 20 - 2.5P,and the domestic market supply function is Q^s = 2.5P - 7.5.Suppose further that the world price for the good in question is $3.40 per unit.If the government places a $1.20 tariff on imported units of this good,how much revenue does the tariff generate?

A) $3,200
B) $3,600
C) $5,400
D) $3,000

Accepted Answer

The answer of Suppose the domestic market demand function in...

Deck 15: Market Intervention