Deck 15: Market Intervention

Question 1

The federal gasoline tax is an example of

A) A specific tax
B) An ad valorem tax
C) A lump sum tax
D) An income tax

Answer 1

A specific tax

Question 2

There is no deadweight loss from a tax when

A) Demand is perfectly inelastic
B) Supply is perfectly inelastic
C) Demand is perfectly elastic
D) A and B

Answer 2

A and B

Question 3

Suppose the market demand function for ice cream is and the market supply function for ice cream is ,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) $1.80
B) $1.20
C) $1.00
D) $0.48

Answer 3

$1.00

Question 4

Suppose the market demand function for ice cream is and the market supply function for ice cream is ,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) $3
B) $1.80
C) $2
D) $1.20

Question 5

Suppose the market demand function for ice cream is and the market supply function for ice cream is ,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 aggregate surplus due to the tax is

A) $0.16
B) $2.84
C) $1.16
D) $2.36

Question 6

An ad valorem tax

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

Question 7

More of a tax is borne by firms

A) The more elastic is demand and the less elastic is supply
B) The less elastic is demand and the less elastic is supply
C) The more elastic is demand and the more elastic is supply
D) The less elastic is demand and the more elastic is supply

Question 8

Suppose the market demand function for ice cream is and the market supply function for ice cream is ,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
B) $2.34
C) $2.50
D) $2.25

Question 9

The deadweight loss of taxation

A) Is the lost consumer surplus due to a gain in producer surplus from a tax
B) Is the lost producer surplus due to a gain in consumer surplus from a tax
C) Is the lost aggregate surplus due to a tax
D) Is the difference between consumer and producer surplus after a tax

Question 10

A specific tax

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

Question 11

A sales tax is an example of

A) A specific tax
B) An ad valorem tax
C) A lump sum tax
D) An income tax

Question 12

The incidence of a tax

A) Falls entirely on suppliers if supply is perfectly elastic
B) Falls entirely on suppliers if demand is perfectly inelastic
C) Falls entirely on consumers if supply is perfectly elastic
D) Falls entirely on consumers if demand is perfectly elastic

Question 13

Suppose the market demand function for ice cream is and the market supply function for ice cream is ,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
B) $1.50
C) $1.75
D) $1.84

Question 14

The incidence of a tax

A) Falls entirely on consumers if demand is perfectly elastic
B) Falls entirely on consumers if demand is perfectly inelastic
C) Is shared by suppliers and consumers if demand is perfectly elastic
D) Falls entirely on suppliers if demand is perfectly inelastic

Question 15

Suppose the market demand function for ice cream is and the market supply function for ice cream is ,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
B) $1.80
C) $2
D) $1.20

Question 16

Suppose the market demand function for ice cream is and the market supply function for ice cream is ,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) $6.20
B) $8.80
C) $2.68
D) $8.96

Question 17

Suppose the market demand function for ice cream is and the market supply function for ice cream is ,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) $0.16
B) $2.84
C) $1.16
D) $2.36

Question 18

The incidence of a tax

A) Falls entirely on consumers if supply is perfectly inelastic
B) Falls entirely on consumers if demand is perfectly elastic
C) Is shared by suppliers and consumers if demand is perfectly elastic
D) Falls entirely on suppliers if demand is perfectly elastic

Question 19

The incidence of a tax

A) Indicates how much of the tax burden is borne by suppliers
B) Indicates how much of the tax burden is borne by consumers
C) Indicates how much of the tax burden is borne by various market participants
D) Depends upon the shape of the supply curve only

Question 20

Suppose the market demand function for ice cream is and the market supply function for ice cream is ,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) $4.40
B) $5.40
C) $1.80
D) $4.92

Question 21

A price floor

A) Establishes a maximum price that sellers can charge
B) Establishes a minimum price that sellers can charge
C) Establishes maximum price that buyers can pay
D) Establishes a minimum price that buyers can pay

Question 22

A subsidy

A) Is a payment that decreases the amount that buyers pay for a good
B) Is a payment that increases the amount that buyers pay for a good
C) Is a payment that decreases the amount that sellers receive
D) Is a payment that decreases the amount that sellers sell for a good

Question 23

A production quota program

A) Imposes limits on the quantity that individual firms can produce
B) Is a way to raise prices without causing the overproduction that occurs under a price support program
C) Places limitations on supply
D) All of these

Question 24

With a price floor

A) Consumer surplus falls and producer surplus falls
B) Consumer surplus increases and producer surplus falls
C) Consumer surplus falls and producer can increase or decrease
D) Consumer surplus increases and producer surplus increases

Question 25

When the government implements a price support program

A) It may end up buying a lot of the good, for which it has little or no use
B) The goal is to increase the market price of the good
C) The deadweight loss created can be larger than that created by a price floor
D) All of these

Question 26

The market demand function for wheat is and the market supply function is ,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

Question 27

The deadweight loss from a tax

A) Is zero when demand is perfectly elastic
B) Is zero when supply is perfectly elastic
C) Is zero when demand is perfectly inelastic
D) Is unavoidable

Question 28

With a price floor

A) Producer surplus will fall if profits fall
B) Producer surplus will fall if profits rise
C) Producer surplus will increases if profits fall
D) Producer surplus always increases

Question 29

The market demand function for wheat is and the market supply function is ,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

Question 30

The market demand function for wheat is and the market supply function is ,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) None

Question 31

A production quota program

A) Imposes limits on the price that individual firms can charge
B) Is a way to raise prices without causing the overproduction that occurs under a price support program
C) Places limitations on demand
D) Is a way to lower prices without causing the overproduction that occurs under a price support program

Question 32

Subsidies

A) Are like taxes in that they create deadweight loss
B) Are like taxes in that they reduce sales of the subsidized good
C) Are likw taxes in that they increase sales of the subsidized good
D) Are like taxes in that they do not create deadweight loss

Question 33

The market demand function for wheat is and the market supply function is ,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) $4.5 billion
B) $13.1 billion
C) $10.5 billion
D) $6 billion

Question 34

A subsidy

A) Is a payment that increases the amount that buyers pay for a good
B) Is a payment that reduces the amount that buyers pay for a good
C) Is a payment that reduces the amount that sellers receive
D) A and C

Question 35

A voluntary production reduction program

A) Offers firms incentives to reduce their production voluntarily
B) Includes payments to producers to reduce production
C) Attempts to limit supply
D) All of these

Question 36

A voluntary production reduction program

A) Offers firms incentives to reduce their production voluntarily
B) Forces firms to reduce their production
C) Offers firms incentives to increase their production voluntarily
D) Forces firms to increase their production

Question 37

A price support program

A) Lowers the market price by making purchases of a good, thereby increasing demand
B) Lowers the market price by making purchases of a good, thereby reducing demand
C) Raises the market price by making purchases of a good, thereby increasing demand
D) Raises the market price by making purchases of a good, thereby reducing demand

Question 38

With a price floor

A) Producer surplus will increase if profits increase
B) Producer surplus will increase is profits fall
C) Producer surplus will decrease if profits increase
D) Producer surplus always decreases

Question 39

A production quota program

A) Imposes limits on the quantity that individual firms can produce
B) Is a way to decrease prices without causing the overproduction that occurs under a price support program
C) Places limitations on demand
D) Remove limits on the quantity that individual firms can produce

Question 40

The market demand function for wheat is and the market supply function is ,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

Question 41

The market demand function for wheat is and the market supply function is ,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 aggregate surplus?

A) $4 billion
B) $12.6 billion
C) $10 billion
D) $6 billion

Question 42

The market demand function for wheat is and the market supply function is ,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) $12.6 billion

Question 43

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.

Question 44

If the import supply curve is upward sloping

A) A tariff can increase domestic aggregate surplus
B) A quota can increase domestic aggregate surplus
C) A tariff will decrease domestic aggregate surplus
D) A and B

Question 45

The market demand function for wheat is and the market supply function is ,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

Question 46

If the import supply curve is horizontal at the world price

A) A tariff will lower domestic aggregate surplus
B) A tariff will increase domestic aggregate surplus
C) A tariff will not change domestic aggregate surplus
D) A quota will increase domestic aggregate surplus

Question 47

The market demand function for wheat is and the market supply function is ,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

Question 48

A tariff

A) Is a tax on imports
B) Is a tax on exports
C) Directly limits the total quantity of a good that can be imported
D) Directly limits the total quantity of a good that can be exported

Question 49

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.

Question 50

The market demand function for wheat is and the market supply function is ,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 producer surplus?

A) $4 billion
B) $6 billion
C) $10.5 billion
D) $8.6 billion

Question 51

A quota

A) Is a tax on imports
B) Is a tax on exports
C) Directly limits the total quantity of a good that can be imported
D) Directly limits the total quantity of a good that can be exported

Question 52

Domestic aggregate surplus

A) Is the sum of consumer surplus, deadweight loss and government revenue
B) Is the sum of domestic producer surplus and government revenue
C) Is the sum of domestic producer surplus and consumer surplus
D) Is the sum of consumer surplus, domestic producer surplus and government revenue