Question 1

The difference in the price the buyer pays and the price the sellers keep in the presence of a tax is called:

Accepted Answer

A)  a tax wedge.
B)  a tax differential.
C)  the tax incidence.
D)  the tax burden.E) A) and D)
F) A) and B)

Question 2

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

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 3

Who benefits from a subsidy to buyers?

Accepted Answer

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.E) None of the above
F) All of the above

Question 4

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

Accepted Answer

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.E) None of the above
F) All of the above

Question 5

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

Accepted Answer

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.E) C) and D)
F) None of the above

Question 6

When a tax is imposed on a market:

Accepted Answer

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.E) B) and C)
F) A) and C)

Question 7

Taxes:

Accepted Answer

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.E) B) and D)
F) A) and B)

Question 8

Who actually benefits from a subsidy to sellers?

Accepted Answer

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.E) A) and B)
F) B) and C)

Question 9

Because a price floor causes:

Accepted Answer

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.E) A) and B)
F) A) and D)

Question 10

Does a tax on sellers affect the supply curve?

Accepted Answer

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.E) B) and D)
F) B) and C)

Question 11

In general,price controls have a:

Accepted Answer

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.E) A) and D)
F) B) and C)

Question 12

Price floors are:

Accepted Answer

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.E) B) and D)
F) A) and D)

Question 13

A tax on sellers:

Accepted Answer

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.E) All of the above
F) A) and C)

Question 14

An effective price ceiling:

Accepted Answer

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.E) B) and C)
F) B) and D)

Question 15

Does a subsidy to sellers affect the supply curve?

Accepted Answer

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.E) C) and D)
F) B) and C)

Question 16

Tax incidence is:

Accepted Answer

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.E) B) and D)
F) C) and D)

Question 17

In evaluating policy effectiveness,economists rely on:

Accepted Answer

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

Question 18

A tax on sellers:

Accepted Answer

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.E) C) and D)
F) B) and C)

Question 19

Would you expect a tax on cigarettes to be more effective over the long run or the short run?

Accepted Answer

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 timeE) All of the above
F) C) and D)

Question 20

Price ceilings are:

Accepted Answer

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.E) None of the above
F) A) and B)

Exam 6: Government Intervention

A tax on sellers:

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Does a subsidy to sellers affect the supply curve?

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

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

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In general,price controls have a:

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

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Who benefits from a subsidy to buyers?

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Who actually benefits from a subsidy to sellers?

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Because a price floor causes:

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Price floors are:

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A tax on sellers:

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An effective price ceiling:

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When a tax is imposed on a market:

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Would you expect a tax on cigarettes to be more effective over the long run or the short run?

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Does a tax on sellers affect the supply curve?

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Price ceilings are:

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Taxes:

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The difference in the price the buyer pays and the price the sellers keep in the presence of a tax is called:

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In evaluating policy effectiveness,economists rely on:

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Tax incidence is:

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