Deck 6: Government Intervention

Question 1

Price controls:

A)are a regulation that sets a maximum or minimum legal price for a particular good.
B)prevent the market from reaching a new equilibrium when the market shifts.
C)divided into two categories-price ceilings and price floors.
D)All of these are true.

Answer 1

All of these are true.

Question 2

Price floors are:

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

Answer 2

a legal minimum price.

Question 3

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

A)the market's equilibrium is not maximizing total surplus.
B)governments changing the price in the market could increase consumer surplus and not harm producers.
C)market failures occur.
D)doing so will always create a better outcome.

Answer 3

market failures occur.

Question 4

Situations in which the assumption of efficient,competitive markets fails to hold are called:

A)market failures.
B)inelastic-response markets.
C)missing markets.
D)market interventions.

Question 5

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 compete for customers by having price wars.
C)several producers of a good search for the lowest-cost method of production.
D)many producers produce identical products,and only the consumers and producers are affected by the transactions.

Question 6

Positive analysis:

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

Question 7

Governments may choose to intervene in a market in an attempt to:

A)encourage the consumption of certain goods.
B)discourage the consumption of certain goods.
C)redistribute surplus.
D)All of these are true.

Question 8

Positive analysis:

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

Question 9

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

A)backfire.
B)create unintended side effects.
C)decrease total surplus.
D)All of these are true.

Question 10

In evaluating policy effectiveness,economists rely on:

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

Question 11

Governments may intervene in a market because:

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

Question 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 increase total surplus.
B)government intervention will decrease consumer and producer surplus.
C)government intervention will change prices and have no effect on surplus.
D)government intervention will make things better for everyone.

Question 13

If there is a sole producer of a good,and he faces no threat of competition,it is likely that:

A)government intervention could increase total surplus.
B)he is acting inefficiently.
C)he is charging an inefficiently high price.
D)All of these are true.

Question 14

Government attempts to stabilize prices can:

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

Question 15

The government imposing a minimum wage is an example of an attempt to:

A)correct a market failure.
B)redistribute surplus in a market.
C)encourage the consumption of inferior goods.
D)discourage the consumption of inferior goods.

Question 16

Government attempts to lower prices can:

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

Question 17

Market failures are:

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

Question 18

Price ceilings are:

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

Question 19

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 make it illegal to charge high prices for the good.
B)to subsidize the price of basic necessities.
C)to pay producers to make more of the good.
D)All of these are ways government can address the shortage of a basic necessity.

Question 20

Normative analysis:

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

Question 21

One way to allocate the scarce good created from an effective price ceiling is to:

A)offer it on a first-come,first-served basis.
B)ration a certain quantity per household.
C)give them to the friends and family of the producers.
D)All of these are examples of allocating using non-price methods.

Question 22

A tax on sellers:

A)causes equilibrium price to increase and equilibrium quantity to decrease.
B)cause equilibrium price and quantity to increase.
C)cause equilibrium price and quantity to decrease.
D)cause equilibrium price to decrease and equilibrium quantity to increase.

Question 23

One way to ensure all producers benefit from a price floor is:

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

Question 24

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 price floor on basic food necessities.
C)demanding neighboring countries provide free food to their citizens.
D)setting a minimum quantity each farmer must provide free of charge.

Question 25

An effective price ceiling:

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

Question 26

Because a price floor causes:

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

Question 27

An effective price floor:

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

Question 28

A tax on sellers has what effect on a market?

A)Supply shifts vertically upward by the amount of the tax.
B)Demand does not change.
C)Equilibrium price increases and equilibrium quantity decreases.
D)All of these are effects of a sellers' tax.

Question 29

Governments tend to set price ceilings:

A)to ensure everyone can afford certain goods.
B)to ensure producers make enough for everyone.
C)to ensure producers make enough profit to stay in the industry.
D)to prevent consumers from choosing the wrong goods.

Question 30

Because a price ceiling causes:

A)a shortage,rationing must occur.
B)a surplus,rationing must occur.
C)a shortage,a central planner must distribute the goods fairly.
D)a surplus,a central planner must distribute the goods fairly.

Question 31

A tax on sellers:

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

Question 32

An effective price ceiling:

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

Question 33

Taxes:

A)are the main way that governments raise revenue to pay for public programs.
B)are sometimes used to correct market failures.
C)never have unintended consequences.
D)All of these are true.

Question 34

An effective price floor:

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

Question 35

Any tax on a good can:

A)discourage consumption of the good.
B)discourage production of the good.
C)create a new source of public revenue.
D)All of these are true.

Question 36

An effective price ceiling:

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

Question 37

An unintended consequence of price ceilings is:

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

Question 38

An effective price floor:

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

Question 39

A prominent argument against the use of price ceilings is:

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

Question 40

An unintended consequence of price floors is:

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

Question 41

A tax on sellers:

A)causes equilibrium price to increase and equilibrium quantity to decrease.
B)has the same effect on a market as a tax on buyers of the same amount.
C)shifts the supply curve vertically upwards by the amount of the tax,but does not affect the demand curve.
D)All of these are true.

Question 42

If the producers bear a smaller tax incidence than the buyers in a market,which of the following must be true?

A)It must be a market for inferior goods.
B)It must be a market for luxury items.
C)Their supply curve must be more elastic than the buyers demand curve in this market.
D)Their supply curve must be less elastic than the buyers demand curve in this market.

Question 43

When a tax is imposed on a market:

A)the price the buyer pays is higher than the amount the seller receives.
B)the equilibrium price increases and the equilibrium quantity decreases.
C)less total transactions take place in the market.
D)All of these are true.

Question 44

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 wedge.
B)a tax differential.
C)the tax incidence.
D)the tax burden.

Question 45

If the demand curve is less elastic than the supply curve,then:

A)the buyers will bear a greater tax incidence.
B)the sellers will bear a greater tax incidence.
C)the buyers will bear a smaller tax burden than sellers.
D)the sellers will bear a greater tax burden than buyers.

Question 46

If the demand curve is more elastic than the supply curve,then:

A)the buyers will bear a greater tax incidence than sellers.
B)the sellers will bear a greater tax incidence than buyers.
C)tax incidence will be shared equally by buyer and seller.
D)None of these is true.

Question 47

If the producers bear a larger portion of tax incidence than the buyers,which of the following must be true?

A)They are not as business savvy as the buyers.
B)Their supply curve must be more inelastic than the buyers demand curve.
C)They face a very inelastic demand.
D)Their supply curve must be more elastic than the buyers demand curve.

Question 48

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 generated revenue that comes from taxes in markets.
D)the difference between the tax revenue generated and the value of deadweight loss caused by the imposition of the tax.

Question 49

A subsidy:

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

Question 50

A subsidy:

A)All of these statements are true.
B)is a requirement that the government pay an extra amount to producers or consumers of a good.
C)is used by governments to encourage the production and consumption of a particular good or service.
D)is used by governments as an alternative to price controls to benefit certain groups without generating a shortage or an excess supply.

Question 51

Policymakers who wish to punish businesses that pollute by taxing them:

A)forget that the buyers of their product will likely share the burden of that tax.
B)forget that they have no control over who actually bears the tax incidence.
C)forget that the buyers of their product may actually bear the greatest burden of the tax.
D)All of these statements are true.

Question 52

Does a tax on buyers affect the demand curve?

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

Question 53

Does a tax on sellers affect the demand curve?

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

Question 54

The relative tax burden borne by buyers and sellers is called the:

A)tax wedge.
B)tax incidence.
C)tax revenue.
D)real tax.

Question 55

Tax incidence:

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

Question 56

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 a smaller tax incidence than the buyers.
C)the sellers will bear an equal tax incidence as the buyers.
D)Any of these could be true.

Question 57

When a tax is placed on buyers:

A)the resulting price paid by consumers is the same as if the tax were placed on sellers.
B)the resulting price received by sellers is the same as if the tax were placed on sellers.
C)the equilibrium quantity will unequivocally decrease.
D)All of these are true.

Question 58

A tax wedge:

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

Question 59

Does a tax on sellers affect the supply curve?

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

Question 60

When a tax is placed on sellers:

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

Question 61

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 more elastic over time
B)Long run because demand becomes less elastic over time
C)Short run because demand becomes more elastic over time
D)Short run because demand becomes less elastic over time

Question 62

Is it possible for sellers to benefit more than consumers from a subsidy to buyers?

A)Yes,if the sellers need it more.
B)Yes,if the supply curve is relatively less inelastic than the demand curve.
C)Yes,if the supply curve is relatively more inelastic than the demand curve.
D)Producers can never benefit more than buyers from a subsidy to buyers.

Question 63

Does a subsidy to sellers affect the demand curve?

A)Yes,it shifts demand up by the amount of the subsidy.
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)No,the quantity demanded will decrease,but the demand curve does not move.

Question 64

In general,price controls have a:

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

Question 65

Who benefits from a subsidy to buyers?

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

Question 66

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 to buyers,since they deserve the benefit more than the producers.
D)a subsidy on either buyers or sellers,since they will both have the same effect on the market.

Question 67

Who actually benefits from a subsidy to sellers?

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

Question 68

Does a subsidy to sellers affect the supply curve?

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

Question 69

Does a subsidy to buyers affect the demand curve?

A)Yes,it shifts demand up by the amount of the subsidy.
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)No,the quantity demanded will decrease,but the demand curve does not move.

Question 70

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 decrease 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 increase 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

Question 71

Consumers may benefit more than sellers from a subsidy to sellers if:

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

Question 72

Does a subsidy to buyers affect the supply curve?

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

Question 73

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 elastic supply and demand curves
B)In the market with inelastic 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