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Chapter 6



Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

1. 

A legal minimum price at which a good can be sold is a price
a.
cut.
b.
stabilization.
c.
ceiling.
d.
floor.
 

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.
 

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.
 

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.
 

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.
 

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.
 

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.
 

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.
 

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.
 
 
Figure 6-8
chapter6_files/i0110000.jpg
 

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.
 

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.
 
 
Figure 6-9
chapter6_files/i0140000.jpg
 

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.
 
 
Figure 6-10
chapter6_files/i0160000.jpg
 

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.
 

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.
 

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.
 

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.
 

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.
 

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.
 
 
Figure 6-12
chapter6_files/i0230000.jpg
 

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.
 

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.
 

True/False
Indicate whether the sentence or statement is true or false.
 

21. 

When free markets ration goods with prices it is both efficient and impersonal.
 

22. 

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

Short Answer
 

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.
 

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?

chapter6_files/i0310000.jpg
 

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?

chapter6_files/i0320000.jpg
 



 
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