Question 1

Using the graph below, analyse the effect a $70 price floor would have on the market for tennis shoes.Would this be a binding price floor? Why would policymakers choose to impose a price floor?

Accepted Answer

The answer of Using the graph below, analyse the effect...

Question 2

Since July 1st 2000, Australian states and territories have paid a cash grant to first home buyers.Considering the supply of housing is less elastic than the demand for housing, the benefits of such a grant will:

Accepted Answer

When the supply of housing is less elastic than the demand, a cash grant to first home buyers increases the demand for housing without a corresponding increase in supply. This leads to higher prices, benefiting sellers more than buyers.

Question 3

Does a tax encourage increased market activity? How does a tax affect the amount paid by buyers and the amount received by sellers as a result of a tax on a good?

Accepted Answer

The answer of Does a tax encourage increased market activity?...

Question 4

Australia exports cattle to Indonesia.If Australia puts an export subsidy on cattle and the Australian supply of cattle is elastic while the demand for cattle in Indonesia is inelastic then:

Accepted Answer

When supply is elastic and demand is inelastic, the majority of the benefit from a subsidy goes to the side of the market that is less elastic, which in this case is the Indonesian buyers.

Question 5

What are common arguments offered for and against the minimum wage?

Accepted Answer

The answer of What are common arguments offered for and...

Question 6

A coffee-producing country requires all its growers to sell to a single, government-owned marketing board.This marketing board sells the coffee on behalf of the growers into the world market.Suppose the marketing board puts a price ceiling of $3.00 on the coffee it buys from its growers while the market equilibrium price is $5.00.What effect will this have on coffee production in this country? Quantity is given in kg.

Accepted Answer

The answer of A coffee-producing country requires all its growers...

Question 7

Some countries use price floors for their domestic farmers to guarantee them a high return on their production.Suppose there is a price floor on wool that is binding.What will be the effect on the wool market? Identify who benefits from this policy and who bears the cost.Are there instances of this occurring in Australia's history?

Accepted Answer

The answer of Some countries use price floors for their...

Question 8

Russia has put on export tax on timber harvested from its Siberian forests into China.Given that Russian exporters are legally liable for the tax but Chinese buyers are not, is it true the incidence of tax falls entirely on the Russian exporters?

Accepted Answer

The answer of Russia has put on export tax on...

Question 9

Most labour economists believe that the supply of labour is less elastic than demand.This means:

Accepted Answer

When the supply of labor is less elastic than demand, it means workers are less responsive to changes in wages than employers are to changes in the cost of labor. Therefore, most of the payroll tax burden falls on workers because they are less likely to reduce their labor supply in response to the tax, leading to them bearing a larger share of the tax burden.

Question 10

Using a demand-supply diagram, show how OPEC's raising of oil prices in the 1970s combined with a government-imposed price ceiling on petrol created a shortage of petrol.

Accepted Answer

The answer of Using a demand-supply diagram, show how OPEC's...

Question 11

Graph 6-10 
-In Graph 6-10, the per-unit burden of the tax on buyers is:

Accepted Answer

The per-unit burden of the tax on buyers is the difference between the price paid by buyers before the tax (P₁) and the price they pay after the tax (P₂). Therefore, the correct answer is B, P₂ minus P₁.

Question 12

Graph 6-10 
-In Graph 6-10, the per-unit burden of the tax on the sellers is:

Accepted Answer

The answer of Graph 6-10 
-In Graph 6-10, the per-unit...

Question 13

When analysing the economic effects of government policies:

Accepted Answer

Supply and demand are fundamental principles of economics that apply to both regulated and unregulated markets. They are useful tools for analyzing the effects of government policies on the market. However, the effects may not always be as stated in the legislation, as other factors such as consumer behavior, production costs, and competition may also play a role. Random economic shocks can also affect the outcomes of government policies, but they are not the only determinant.

Question 14

Some countries in the developing world use price controls on rice to make it easier for poor people to afford.Demonstrate the effect of a binding and non-binding price ceiling on the rice market using supply-demand diagrams.

Accepted Answer

The answer of Some countries in the developing world use...

Question 15

In the aftermath of hurricane Sandy the price of portable electricity generators in New York dramatically increased, in some cases by three to four-hundred percent.Such increases in price are referred to as "price gouging" and often lead to calls for price ceilings to be placed on essential goods in the wake of natural disasters.What are the likely effects of such a policy?

Accepted Answer

The answer of In the aftermath of hurricane Sandy the...

Question 16

Rent controls create shortages in housing markets, however, the magnitude of these shortages differs between the long run and short run.What explains these differences?

Accepted Answer

The answer of Rent controls create shortages in housing markets,...

Question 17

If the demand for coffee and the supply of coffee are both elastic then:

Accepted Answer

When both the demand for and supply of a good are elastic, it is difficult to determine how the burden of a tax will be shared between buyers and sellers. This is because both buyers and sellers are very responsive to changes in price, so if the price of coffee were to increase due to a tax, buyers may choose to switch to a substitute (like tea), while sellers may choose to switch to producing a different good (like tea leaves). Both factors would affect the market equilibrium and the ultimate distribution of the tax burden.

Question 18

Suppose the government imposes a binding price ceiling on interest rates in the mortgage lending market.What would benefit from such actions and who would bear the costs?

Accepted Answer

The answer of Suppose the government imposes a binding price...

Question 19

Many advocates of raising the minimum wage argue that the adverse effects of such a move, for example higher unemployment, are likely to be small.Suppose the minimum wage is binding.Under what conditions will an increase in the minimum wage lead to only a small increase in unemployment?

Accepted Answer

The answer of Many advocates of raising the minimum wage...

Question 20

Payroll taxes are paid by employers therefore:

Accepted Answer

The burden of payroll taxes is generally shared between workers and employers, as employers may choose to offset the cost of the tax by reducing wages, which would ultimately affect the workers. However, the extent of this burden sharing may vary depending on the labor market conditions and the elasticity of labor demand. Payroll taxes may also have some impact on employment decisions, as the cost of labor increases for employers, but it is not necessarily the case that they always discourage firms from hiring labor.

Quiz 6: Supply, Demand and Government Policies