Question 1

"The tax on insulin in the Philippines is anywhere between 10 and 20 percent. If you are rich and living in the Philippines, this is not a problem, but if you are poor, then insulin becomes something that you cannot afford." If the government places the tax on sellers, what is the effect on the supply and demand curves?

Accepted Answer

The answer of "The tax on insulin in the Philippines...

Question 2

"The tax on insulin in the Philippines is anywhere between 10 and 20 percent. If you are rich and living in the Philippines, this is not a problem, but if you are poor, then insulin becomes something that you cannot afford." If the government places the tax on sellers, what is the most likely tax incidence?

Accepted Answer

When a tax is imposed on sellers, it often leads to an increase in the price of the product. In this case, the tax on insulin will cause the price of insulin to increase, making it harder for buyers to afford it. As a result, the vast majority of the tax burden will be shifted onto buyers, especially those who cannot afford to pay higher prices. Therefore, the most likely tax incidence is A, where the vast majority of the tax is paid by buyers.

Question 3

Why do rent ceilings lead to shortages and black markets?

Accepted Answer

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Question 4

Suppose the government imposes a price ceiling that is lower than the equilibrium price. Discuss the effect, if any, on the price and quantity if the government later removes the price ceiling.

Accepted Answer

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Question 5

Suppose that apartments rent for $1,300 a month in San Francisco, California and $850 a month in Los Angeles, California. If the state of California passes a state-wide rent ceiling for apartments of $1,100 a month, what occurs in the two cities?

Accepted Answer

The answer of Suppose that apartments rent for $1,300 a...

Question 6

The Volumetric Ethanol Excise Tax Credit (VEETC) is a tax credit for registered ethanol-gasoline blenders. Qualified blenders receive $0.51 for each gallon of pure ethanol they blend into gasoline. VEETC is an example of a

Accepted Answer

The Volumetric Ethanol Excise Tax Credit (VEETC) is a tax credit provided by the government to registered ethanol-gasoline blenders. This tax credit is essentially a subsidy that encourages the production and use of ethanol.

Question 7

The Volumetric Ethanol Excise Tax Credit (VEETC) is a tax credit (which acts like a subsidy) for registered ethanol-gasoline blenders. Qualified blenders receive $0.51 for each gallon of pure ethanol they blend into gasoline. What statement is TRUE?

Accepted Answer

With a subsidy, the blender's cost of production decreases which increases the supply of ethanol-gasoline blend. This shift in supply curve causes the price to decrease, resulting in a lower price for consumers. Therefore, the statement that the price paid by consumers will be lower than without a subsidy is true.

Question 8

The federal minimum wage in 2010 was $7.25. If this wage rate was less than the equilibrium wage, what is the effect?

Accepted Answer

The answer of The federal minimum wage in 2010 was...

Question 9

One of the best defenses we have against malaria these days comes from a fern-like weed called wormwood. Fluctuating supply and demand have pushed the plant's price from $155 per kilo one year, to over $1000 the next. There is a push to set a price ceiling for the plant. Which of the following would NOT occur if there was a price ceiling set below the equilibrium price on wormwood?

Accepted Answer

If a price ceiling was set below the equilibrium price on wormwood, there would be a shortage of wormwood (option B) and a black market for wormwood may be created (option C). However, the wormwood market would not be allocatively efficient because the price would be artificially low and not reflect the true supply and demand for the product, leading to inefficiency (option D). Option A is incorrect because allocative efficiency refers to resources being allocated to their most valuable uses, and an artificially low price due to a price ceiling does not ensure this.

Question 10

What are the major economic effects of rent ceilings?

Accepted Answer

The answer of What are the major economic effects of...

Question 11

Most of us are dependent on crude oil in some shape or way, whether it's to power our cars or to heat our homes in some parts of the country. More than 80 percent of the home heating oil used in the United States goes to the Northeast. It is suggested that there needs to be government regulation to make it illegal to charge a very high price for oil. This type of regulation would be a ________.

Accepted Answer

A government regulation that makes it illegal to charge a very high price for oil is an example of a price ceiling.

Question 12

What is the difference between a rent ceiling set below the equilibrium rent and a rent ceiling set above the equilibrium rent?

Accepted Answer

The answer of What is the difference between a rent...

Question 13

In the 1980s, one of the most common sights in the socialist countries, such as the former Soviet Union and North Korea, were long lines for bread, sugar, and other necessities. These countries had price ceilings on these necessities. Some of the socialist nations, such as the former Soviet Union, have moved to a market economy by lifting the price ceilings, while others, such as North Korea, have retained their price ceilings. What prediction do you make about the presence (or absence) of long lines today in the former Soviet Union and North Korea? Explain your answer.

Accepted Answer

The answer of In the 1980s, one of the most...

Question 14

In the housing market, if a rent ceiling of $600.00 is imposed when the equilibrium rent is $500.00, why will nothing change?

Accepted Answer

The answer of In the housing market, if a rent...

Question 15

What are the effects of a rent ceiling set below the equilibrium rent?

Accepted Answer

The answer of What are the effects of a rent...

Question 16

"The tax on insulin in the Philippines is anywhere between 10 and 20 percent. If you are rich and living in the Philippines, this is not a problem, but if you are poor, then insulin becomes something that you cannot afford." Why do buyers care so much about a tax on insulin, a vital daily medicine for those with diabetes?

Accepted Answer

Buyers care so much about a tax on insulin because they pay virtually the entire tax on insulin since the demand is almost perfectly inelastic. This means that when the price of insulin increases due to a tax, buyers are willing to pay the higher price because they need the medicine to survive. For poor buyers, the tax could make insulin unaffordable, which can have serious health consequences.

Question 17

In order for a price ceiling to have an effect on the market, must it be set above or below the equilibrium price? Why?

Accepted Answer

The answer of In order for a price ceiling to...

Question 18

The minimum wage in 2008 was $6.55 cents until July 2008 when it was raised to $7.25. If the minimum wage in June was below the equilibrium wage and the increased wage in July was above the equilibrium wage, then

Accepted Answer

The answer of The minimum wage in 2008 was $6.55...

Question 19

More than 80 percent of the home heating oil used in the United States goes to the Northeast. In Vermont, the vast majority of people there use oil to stay warm when it's cold outside. Richard Izor heats his home with oil and inquires, "I'd like to see them come in and put a ceiling on the oil price now before it gets any higher. Why they haven't done this is more than I can understand." Which of the following is NOT likely to occur if such a price ceiling was imposed?

Accepted Answer

A price ceiling would prevent the price of heating oil from rising above a certain level, so there would be no surplus of heating oil. In fact, a shortage could occur because suppliers may find it unprofitable to produce or import heating oil at the artificially low price. A black market could arise as consumers and suppliers try to circumvent the price ceiling, and inefficiencies could arise because the market is not allowed to function freely.

Question 20

Explain why in cities such as New York City that have rent ceiling laws, so many people who work in the city commute from outside the city.

Accepted Answer

The answer of Explain why in cities such as New...

Quiz 6: Government Actions in Markets