Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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| 1. | A
legal minimum price at which a good can be sold is a price a. | cut. | b. | stabilization. | c. | ceiling. | d. | floor. | | |
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| 2. | A
price floor a. | is a legal
minimum on the price at which a good can be sold. | b. | is a legal
maximum on the price at which a good can be sold. | c. | will generally
result in a market shortage. | d. | will benefit the consumer, but hurt the
supplier. | | |
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| 3. | A
binding price floor in a market sets price a. | above equilibrium price and causes a
shortage. | b. | above equilibrium price and causes a
surplus. | c. | below equilibrium price and causes a
surplus. | d. | below equilibrium price and causes a
shortage. | | |
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| 4. | When
binding price ceilings are imposed in a market a. | price no longer serves as a rationing
device. | b. | the market will be cleared of any shortages or surpluses that
existed previously. | c. | buyers and sellers both benefit
equally. | d. | the government is attempting to improve market
efficiency. | | |
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| 5. | Over
time, housing shortages caused by rent control a. | increase, because the demand and supply curves for housing are
more elastic in the long run. | b. | increase, because the demand and supply curves for housing are
more inelastic in the long run. | c. | decrease, because the demand and supply curves for housing are
more inelastic in the long run. | d. | change very little since price is not allowed to
adjust. | | |
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| 6. | In
the housing market, rent controls cause quantity supplied to a. | fall and
quantity demanded to fall. | b. | fall and quantity demanded to rise. | c. | rise and
quantity demanded to fall. | d. | rise and quantity demanded to rise. | | |
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| 7. | Price
controls imposed by policymakers a. | often hurt those they are trying to
help. | b. | are designed to provide more stability in the
market. | c. | allow the market to equate quantity demanded and quantity
supplied. | d. | may improve market efficiency, but may cause greater
inequity. | | |
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| 8. | One
disadvantage of government subsidies over price controls is that subsidies a. | cause
disequilibrium in the market in which they are imposed. | b. | raise
taxes. | c. | cause lower prices to suppliers. | d. | cause
unemployment. | | |
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| 9. | The
earned income tax credit is an example of a. | supply and demand. | b. | a policy
designed to increase efficiency. | c. | a wage subsidy. | d. | a price
control. | | |
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Figure 6-8
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| 10. | Refer
to Figure 6-8. The price buyers will pay after the tax is imposed is a. | $8.00. | b. | $6.00. | c. | $5.00. | d. | $3.00. | | |
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| 11. | Refer
to Figure 6-8. The price sellers receive after the tax is imposed is a. | $8.00. | b. | $6.00. | c. | $5.00. | d. | $3.00. | | |
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Figure 6-9
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| 12. | Refer
to Figure 6-9. The amount of the tax that buyers would pay would be a. | $10.00. | b. | $6.00. | c. | $4.00. | d. | $2.00. | | |
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Figure 6-10
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| 13. | Refer
to Figure 6-10. The equilibrium price in the market after the tax is imposed is a. | $1.00. | b. | $3.50. | c. | $5.00. | d. | $6.00. | | |
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| 14. | Refer
to Figure 6-10. The amount of the tax imposed in this market is a. | $1.00. | b. | $1.50. | c. | $2.50. | d. | $3.50. | | |
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| 15. | A tax
on the sellers of cell phones will a. | reduce the size of the cell phone
market. | b. | increase the size of the cell phone
market. | c. | affect the price of cell phones, but not the size of the
market. | d. | not have a predictable effect on the size of the cell phone
market. | | |
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| 16. | A tax
on the sellers of jewelry will cause the price the buyers pay a. | and the
effective price the sellers receive to rise. | b. | and the
effective price the sellers receive to fall. | c. | to rise, and the
effective price the sellers receive to fall. | d. | to fall, and the
price the sellers receive to rise. | | |
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| 17. | When
a tax is placed on the sellers of lemonade a. | the sellers pay the entire tax. | b. | the buyers pay
the entire tax. | c. | buyers and sellers share the burden of the
tax. | d. | the burden of
the tax will be always be equally divided between the buyer and the seller. | | |
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| 18. | A key
result of a payroll tax is that it a. | becomes a tax on poor people. | b. | becomes a tax on
corporations. | c. | places a wedge between the wage that firms pay and the wage
that workers receive. | d. | does not affect equilibrium in labor
markets. | | |
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Figure 6-12
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| 19. | Refer
to Figure 6-12. The per unit burden of the tax on the sellers is a. | P2 minus P0. | b. | P2 minus P1. | c. | P1 minus P0. | d. | Q1 minus Q0. | | |
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| 20. | Which
of the following is the most correct statement about tax burdens? a. | A tax burden
falls most heavily on the side of the market that is more elastic. | b. | A tax burden
falls most heavily on the side of the market that is more inelastic. | c. | A tax burden
falls most heavily on the side of the market that is closer to unit
elastic. | d. | A tax burden is distributed independently of relative
elasticities of supply and demand. | | |
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True/False
Indicate whether the sentence or statement is true
or false.
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| 21. | When
free markets ration goods with prices it is both efficient and impersonal.
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| 22. | A tax
on sellers shifts the supply curve upward by exactly the size of the tax.
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Short Answer
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| | 23. | Using
a supply-demand diagram, show a labor market with a binding minimum wage. Now, use the diagram to
show those who are helped by the minimum wage, and those who are hurt by the minimum
wage.
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| | 24. | a. | Using the graph shown, analyze the effect a $300 price ceiling
would have on the market for ten-speed bicycles. Would this be a binding price
ceiling? | b. | Using the graph
shown, analyze the effect a $700 price floor would have on this market. Would this be a binding price
floor? | c. | Why would
policymakers choose to impose a price ceiling or price floor? | | |
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| | 25. | Using
the graph shown, answer the following questions.
a. | What was the equilibrium price in this market before the
tax? | b. | What is the
amount of the tax? | c. | How much of the tax will the buyers
pay? | d. | How much of the
tax will the sellers pay? | e. | How much will the buyer pay for the product after the tax is
imposed? | f. | How much will
the seller receive after the tax is imposed? | g. | As a result of the tax, what has happened to the level of
market activity? | | |
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