Deck 6: Supply, Demand and Government Policies

Question 1

A binding price floor in a competitive market will result in persistent shortages of a product.

Answer 1

False

Question 2

Price controls are an effective way of allocating resources in an economy. For this reason there is widespread support for price controls among economists.

Answer 2

False

Question 3

Taxes are employed by policy makers for two reasons. The first is to raise revenue. The second is to adjust market outcomes.

Answer 3

True

Question 4

Suppose that the equilibrium wage rate in an industry is $10 per hour. The government then sets a minimum wage of $12 per hour. The result will be a surplus of labour supply.

Question 5

If a tax is imposed on the buyer of a product, the tax incidence will fall entirely on the buyer.

Question 6

Rent control reduces the incentive for landlords to properly maintain their properties.

Question 7

Market prices are an efficient and impersonal way to ration goods.

Question 8

A price floor is a legal minimum on the price of a good or service.

Question 9

Suppose a price floor on alcohol is set above the equilibrium price. This will increase the supply of alcohol, leading to an increase in sales of alcohol.

Question 10

Suppose the market equilibrium price for cigarettes is $20 before the government introduced a $22 price floor. This price floor will not be binding as it is above market price.

Question 11

If sellers of a product are required to pay a tax, the supply curve for the product will shift left by exactly the size of the tax.

Question 12

The effect of a tax on a product is always to reduce the total size of its market.

Question 13

Suppose a price ceiling is placed on rice. The price ceiling is set below the equilibrium price. This will result in the quantity demanded of rice exceeding the quantity supplied.

Question 14

Rent subsidies and wage subsidies are better than price controls at helping the poor because they have no costs associated with them.

Question 15

Common rationing mechanisms under price ceilings include waiting in long lines and biases of the sellers.

Question 16

Price controls often help those in need.

Question 17

Suppose the local government decides to implement rent controls. The housing shortage in the short run is likely to be less severe than the housing shortage in the long run.

Question 18

A binding price floor causes a surplus.

Question 19

Opponents of the minimum wage note that a high minimum wage creates unemployment, causes teenagers to drop out of school and prevents some unskilled workers from getting the on-the-job training that they need.

Question 20

If a tax is levied on a market, sellers will receive more for their goods and buyers will have to pay more for their purchases.

Question 21

Graph 6-2

According to Graph 6-2, if the government imposes a binding price floor in this market at a price of $8.00, the result will be a:

A) shortage of 20 units
B) shortage of 40 units
C) surplus of 30 units
D) surplus of 40 units

Question 22

Graph 6-1

In Graph 6-1, a price ceiling that is not binding is shown in:

A) panel a
B) panel b
C) both panel a and panel b
D) neither panel a nor panel b

Question 23

Most of the burden of a luxury tax falls on the middle-class workers who supply luxury goods, rather than on the rich who buy them.

Question 24

The benefits of the First Home Owners Grant scheme fall primarily to the sellers of housing.

Question 25

If supply is perfectly inelastic, then a subsidy paid to buyers of a good can never increase the size of the market.

Question 26

A tax on sellers will cause the equilibrium market price to rise, but the equilibrium quality sold will fall.

Question 27

Price controls are:

A) used to make markets less unfair
B) used to make markets more efficient
C) used to make markets more unfair
D) used to make markets less efficient

Question 28

Graph 6-2

According to Graph 6-2, a binding price ceiling would exist at:

A) any price above $8.00
B) any price below $6.00
C) any price above $5.00
D) any price below $8.00

Question 29

Graph 6-1

In which panel(s) in Graph 6-1 would there be a shortage for a good at the market price?

A) panel a
B) panel b
C) panel a and panel b
D) neither panel a nor panel b

Question 30

The incidence of a tax is determined by whether the tax is imposed on the seller or the buyer.

Question 31

Who pays the majority of a tax levied on a product depends on whether the tax is placed on the buyer or the seller.

Question 32

If demand is less elastic than supply, then the burden of a tax will fall more heavily upon sellers of a good.

Question 33

Suppliers of a good are likely to favor a binding:

A) price floor, as the quantity sold will be higher than in a competitive market
B) price floor, as the price received will be higher than in a competitive market
C) price ceiling, as the quantity demanded will be higher than in a competitive market
D) price ceiling, as the price received will be higher than in a competitive market

Question 34

If a price ceiling is binding:

A) the equilibrium price is above the ceiling and there will be a shortage
B) the equilibrium price is above the ceiling and there will be a surplus
C) the equilibrium price is below the ceiling and there will be a shortage
D) the equilibrium price is below the ceiling and there will be a surplus

Question 35

A subsidy paid to suppliers of a good will grow a market.

Question 36

Domestic producers of natural gas would welcome being a signatory to the world price regime if it is set above the equilibrium, as they can export the surplus.

Question 37

Some developing countries have used price ceilings to keep rice cheap to assist the poor. At the ceiling price:

A) the quantity demanded will be greater than the quantity supplied and a shortage will result
B) the quantity demanded will be greater than the quantity supplied and a surplus will result
C) the quantity demanded will be less than the quantity supplied and a shortage will result
D) the quantity demanded will be less than the quantity supplied and a surplus will result

Question 38

Lawmakers can decide whether the buyer or the seller must send a tax to the government, but they cannot legislate the true burden of a tax.

Question 39

A tax on sellers shifts the supply curve upward by exactly the size of the tax.

Question 40

A price ceiling that is not binding:

A) is a detriment to society
B) will cause a shortage
C) will cause a surplus
D) has no effect

Question 41

If the minimum wage is below the equilibrium wage:

A) the quantity demanded of labour will be greater than the quantity supplied
B) the quantity demanded of labour will equal the quantity supplied
C) the quantity demanded of labour will be less than the quantity supplied
D) anyone who wants a job at the minimum wage can find one

Question 42

Rent controls lead to:

A) a shortage of housing in the short run and a surplus of housing in the long run
B) a surplus of housing in the short run and a surplus of housing in the long run
C) a small shortage of housing in the short run and a large shortage of housing in the long run
D) a large shortage of housing in the short run and a small shortage of housing in the long run

Question 43

Graph 6-3

According to Graph 6-3, which panel(s) best represent(s) a binding rent control in the long run?

A) panel a
B) panel b
C) neither panel
D) both panels

Question 44

Graph 6-5

According to Graph 6-5, if the government imposes a binding price floor of $6.00 in this market, the result will be a:

A) surplus of 15
B) surplus of 35
C) shortage of 30
D) shortage of 50

Question 45

Graph 6-6

According to Graph 6-6, in panel a, at the actual price there will be:

A) a shortage of wheat
B) equilibrium in the market
C) a surplus of wheat
D) an excess demand for wheat

Question 46

Minimum wage laws dictate the:

A) average price employers must pay for labour
B) highest price employers may pay for labour
C) lowest price employers may pay for labour
D) quality of labour which must be supplied

Question 47

Which of the following is an example of a price-ceiling?

A) a minimum wage
B) a sales tax
C) none of the above
D) a rent control

Question 48

Graph 6-4

According to Graph 6-4, when the supply curve shifts from S₁ to S₂:

A) the new market quantity will be Q₃
B) the new market quantity will be less than Q₃
C) the new market quantity will be greater than Q₃
D) there will be a surplus at the new market price of P₂

Question 49

Which of the following is a correct statement about the labour market?

A) workers determine the supply of labour and firms determine the demand for labour
B) workers determine the demand for labour and firms determine the supply of labour
C) workers determine the supply of labour and government determines the demand for labour
D) government determines the supply of labour and firms determine the supply of labour

Question 50

The justification for the minimum wage is to:

A) increase the jobs available for workers
B) reduce the jobs available for unskilled workers
C) ensure all workers get an adequate standard of living
D) provide benefits to middle-class part-time workers

Question 51

Suppose the equilibrium price of bananas is $5 and a price ceiling of $7 is implemented. This will result in:

A) a shortage, as the price ceiling is above the equilibrium price
B) a surplus, as the price ceiling is above the equilibrium price
C) no change in the quantity of bananas sold
D) a surplus, as the price ceiling is below the equilibrium price

Question 52

The minimum wage has its greatest adverse impact on the market for:

A) the most experienced workers
B) the most skilled workers
C) engineers
D) teenage labour

Question 53

A hot summer's day can lead to dramatic increases in the demand for electricity. Suppose the government decides a binding price ceiling is necessary so pensioners can continue to afford their power bills. The effect of this policy will be such that:

A) the quantity of electricity supplied will be unchanged
B) electricity producers will increase supply, leading to a decrease in price
C) electricity producers will supply less than demanded, leading to a shortage
D) demand will decrease, leading to a decrease in price

Question 54

Graph 6-5

According to Graph 6-5, a binding price floor would exist at a price of:

A) $6.00
B) $5.00
C) $2.00
D) none of the above

Question 55

Graph 6-3

According to Graph 6-3, which panel(s) best represent(s) a binding rent control in the short run?

A) panel a
B) panel b
C) neither panel
D) both panels

Question 56

Water shortages caused by droughts can be lessened by:

A) allowing price to equate the demand and supply
B) restricting water usage of consumers
C) arresting anyone who wastes water
D) imposing tight price controls on water

Question 57

After a natural disaster, a binding price ceiling on bottled water will lead to:

A) a shortage of bottled water
B) an increase in supply of bottled water
C) supplied surplus of bottled water
D) bottled water to be distributed more equitably

Question 58

Graph 6-6

According to Graph 6-6, in panel b, at the actual price there will be:

A) cheaper wheat for consumers
B) equilibrium in the market
C) a surplus of wheat
D) rationing of demand with long waiting lines

Question 59

Workers with high levels of skill and experience are not affected by the minimum wage because:

A) they belong to unions
B) they are not legally guaranteed the minimum wage
C) they generally earn wages less than the minimum wage
D) their equilibrium wages are well above the minimum wage

Question 60

Graph 6-4

According to Graph 6-4, when the supply curve for gasoline shifts from S₁ to S₂:

A) the price will increase to P₃
B) a surplus will occur at the new market price of P₂
C) the market price will stay at P₁ due to the price ceiling
D) a shortage will occur at the price ceiling of P₂

Question 61

Graph 6-8

According to Graph 6-8, the price buyers will pay after the tax is imposed is:

A) $1.00
B) $3.50
C) $5.00
D) $6.00

Question 62

The term tax incidence refers to the:

A) division of income tax between high-income and low-income earners
B) level of tax levied on a buyer of a good
C) division of the tax burden between buyers and sellers
D) division of tax between federal and local government

Question 63

If the government lowered the minimum wage, but this had no effect on unemployment, one possible explanation could be:

A) those who are already unemployed refuse to work for such a low wage
B) the equilibrium wage was already above the minimum wage
C) most of the unemployed are teenagers who don't require high wages
D) the equilibrium wage was below the minimum wage

Question 64

Which of the following is the most correct statement about price controls?

A) Price controls always help those they are designed to help.
B) Price controls never help those they are designed to help.
C) Price controls often hurt those they are designed to help.
D) Price controls always hurt those they are designed to help.

Question 65

Graph 6-8

According to Graph 6-8, the equilibrium price in the market before the tax is imposed is:

A) $1.00
B) $3.50
C) $5.00
D) $6.00

Question 66

Graph 6-7

According to Graph 6-7, the price buyers will pay after the tax is imposed is:

A) $8.00
B) $6.00
C) $5.00
D) $3.50

Question 67

To fund new green energy research, suppose the government requires every buyer of a new car to pay a $100 tax. When compared to the pre-tax equilibrium, such a tax will:

A) make buyers $100 worse off without affecting sellers
B) make buyers $100 worse off, but make sellers better off
C) increase the price sellers receive for cars
D) make both buyers and sellers worse off, but we cannot say by how much without more information

Question 68

A subsidy on the sellers of coffee:

A) increases the size of the coffee market
B) reduces the size of the coffee market
C) has no effect on the size of the coffee market
D) the benefit will accrue entirely to the sellers of coffee

Question 69

Graph 6-7

According to Graph 6-7, the price sellers receive after the tax is imposed is:

A) $8.00
B) $6.00
C) $5.00
D) $3.50

Question 70

If sellers are required to pay a $0.70 tax on each cup of coffee, the supply of coffee will shift:

A) right by $0.70 per cup
B) left by $0.70 per cup
C) up by $0.70 per cup
D) down by $0.70 per cup

Question 71

Graph 6-7

According to Graph 6-7, the equilibrium price in the market before the tax is imposed is:

A) $8.00
B) $6.00
C) $5.00
D) $3.50

Question 72

A tax on the sellers of coffee will cause the price the buyer pays:

A) and the price the seller receives to rise
B) and the price the seller receives to fall
C) to rise and the price the seller receives to fall
D) to fall and the price the seller receives to rise

Question 73

A tax paid by buyers of a good or service:

A) encourages market activity and decreases the price received by sellers
B) encourages market activity and increases the price paid by buyers
C) discourages market activity and decreases the price received by sellers
D) discourages market activity and increases the price received by sellers

Question 74

Which is the most correct statement about the benefits of a subsidy on toothbrushes?

A) buyers will receive most of the benefit of the subsidy
B) sellers will receive most of the benefit of the subsidy
C) buyers and sellers will share the benefits of the subsidy
D) the government enjoys the entire benefit of the subsidy

Question 75

A subsidy paid to the sellers of coffee will:

A) increase the equilibrium price of coffee and reduce the equilibrium quantity
B) reduce the equilibrium price of coffee and increase the equilibrium quantity
C) increase the equilibrium price of coffee and increase the equilibrium quantity
D) reduce the equilibrium price of coffee and reduce the equilibrium quantity

Question 76

The initial effect of a tax on the sellers of a good is on:

A) the supply of that good
B) the demand for that good
C) both supply and demand
D) the price of the good

Question 77

Graph 6-7

According to Graph 6-7, the amount of the tax that sellers would pay would be:

A) $1.00
B) $1.50
C) $2.00
D) $3.00

Question 78

The main reason policymakers use price controls is because:

A) they are better at coordinating economic activity than the free market
B) they believe that in some cases the market outcome is not fair
C) they need a reason to justify their jobs
D) all of the above is true

Question 79

Graph 6-7

According to Graph 6-7, the amount of the tax that buyers would pay would be:

A) $1.00
B) $1.50
C) $2.00
D) $3.00

Question 80

Graph 6-7

According to Graph 6-7, the amount of the tax imposed in this market is:

A) $1.00
B) $1.50
C) $2.50
D) $3.00