Deck 6: Supply, Demand and Government Policies

Question 1

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

Answer 1

True

Question 2

If a price ceiling is non-binding, it will have no effect on the market.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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 5

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

Question 6

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

Question 7

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 8

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

Question 9

A binding price ceiling allows consumers to buy all the goods they demand at a lower price.

Question 10

If the government sets the minimum price which a good can be traded, this is defined as a price floor.

Question 11

Price controls often help those in need.

Question 12

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 13

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

Question 14

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 15

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 16

The minimum wage creates the most benefits for teenage workers as their wages are typically much lower than adult workers.

Question 17

The consequences of economic policies are often predicted or intended by their advocates.

Question 18

A binding price floor causes a surplus.

Question 19

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 20

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

Question 21

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

Question 22

Tax incidence ultimately depends on the legislated burden.

Question 23

When analysing government policies, supply and demand are not very useful tools.

Question 24

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

Question 25

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 26

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

Question 27

Economists use the term tax incidence to refer to the proportion of tax paid by sellers relative to buyers.

Question 28

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

Question 29

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

Question 30

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 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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 36

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

Question 37

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 38

When sellers are legally required to pay a tax, the burden of the tax falls solely on the sellers.

Question 39

A tax on golf clubs will cause the equilibrium market price of golf clubs to increase and the equilibrium quantity sold to decrease.

Question 40

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 41

NARRBEGIN: 6-1
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 42

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

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

Question 43

NARRBEGIN: 6-2
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 44

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 45

If a price ceiling is leading to a shortage then:

A)supply must be greater than demand
B)the equilibrium price must be below the price ceiling
C)the equilibrium price must be above the price ceiling
D)market forces will restore the price to equilibrium

Question 46

A legal minimum price at which a good can be sold is a price:

A)floor
B)stabilisation
C)ceiling
D)cut

Question 47

NARRBEGIN: 6-1
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 48

If a price ceiling results in a shortage of the good, which of the following will NOT ration the demand:

A)queuing mechanisms that get people to wait in long lines
B)discrimination by the seller
C)an increase in the price of the good
D)none of the above

Question 49

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 50

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 51

Price controls are:

A)usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers
B)used to make markets more efficient
C)nearly always effective in eliminating inequities
D)established by firms with monopoly power

Question 52

The world price for fuel is a price ceiling mechanism.

Question 53

NARRBEGIN: 6-2
Graph 6-2
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 54

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 55

A binding price floor on wheat will:

A)force otherwise profitable farmers out of business
B)result in a shortage of wheat
C)result in a surplus of wheat
D)act as an efficient and impersonal rationing mechanism

Question 56

A legal maximum price at which a good can be sold is a price:

A)floor
B)stabilisation
C)support
D)ceiling

Question 57

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 58

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)the demand for bananas to exceed the supply of bananas

Question 59

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 60

NARRBEGIN: 6-2
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 61

NARRBEGIN: 6-5
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 62

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 63

NARRBEGIN: 6-4
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 64

NARRBEGIN: 6-6
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 65

A binding price ceiling causes:

A)excess supply
B)a shortage
C)a surplus
D)equilibrium price to rise

Question 66

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 67

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 68

NARRBEGIN: 6-3
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 69

NARRBEGIN: 6-6
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 70

Which of the following is NOT a mechanism of rationing used by landlords in cities with rent control?

A)waiting lists
B)race
C)price
D)bribes

Question 71

Water shortages caused by droughts can be lessened by:

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

Question 72

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 73

When OPEC raised the price of crude oil in the 1970s, this lead to long lines at the petrol station because:

A)a price ceiling was preventing prices from rising until supply and demand were in equilibrium
B)a cut in oil supply resulted in there being less petrol
C)the demand for petrol increased
D)the demand for petrol decreased

Question 74

The minimum wage is an example of:

A)a price ceiling
B)a free-market process
C)a price floor
D)an efficient labour allocation mechanism

Question 75

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 76

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 77

NARRBEGIN: 6-3
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 78

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 79

NARRBEGIN: 6-5
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 80

NARRBEGIN: 6-4
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