Name: 
 

Chapter 7


Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 
 
Figure 6-2
chapter7_files/i0020000.jpg
 

1. 
Refer to Figure 6-2. If the government imposes a binding price ceiling of $8.00 in this market, the result would be a
a.
surplus of 20.
b.
surplus of 40.
c.
shortage of 20.
d.
shortage of 40.
 

2. 
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.
 
 
Figure 6-3
chapter7_files/i0050000.jpg
 

3. 
Refer to Figure 6-3. In panel (b), 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.
 

4. 
A binding price ceiling will make it necessary to
a.
supply more of the product.
b.
develop a way of rationing the product, because there will be a shortage.
c.
develop a better marketing plan, because there will be a surplus.
d.
increase demand for the product.
 

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. 
Economists generally hold that rent control is
a.
an efficient and equitable way to help the poor.
b.
not efficient, but the best way to solve a serious social problem.
c.
a highly inefficient way to help the poor raise their standard of living.
d.
an efficient way to allocate housing, but not a good way to help the poor.
 

7. 
In the United States, when minimum wage laws are established, employers must
a.
pay the going (equilibrium) wage in the market.
b.
pay a wage equal to or higher than the minimum wage.
c.
hire a minimum number of employees which is set by the government.
d.
hire only those workers who will work for the established minimum wage.
 

8. 
Researchers have found that a 10 percent increase in the minimum wage will
a.
lower teen employment by 1 to 3 percent.
b.
lower teen employment by 4 to 5 percent.
c.
raise teen employment by 1 to 3 percent.
d.
raise teen employment by 4 to 5 percent.
 

9. 
If a tax is imposed on the buyer of a product the demand curve would shift
a.
downward by the amount of the tax.
b.
upward by the amount of the tax.
c.
downward by less than the amount of the tax.
d.
upward by more than the amount of the tax.
 
 
Figure 6-8
chapter7_files/i0130000.jpg
 

10. 
Refer to Figure 6-8. The equilibrium price in the market before the tax is imposed is
a.
$8.00.
b.
$6.00.
c.
$5.00.
d.
$3.00.
 

11. 
Refer to Figure 6-8. The amount of the tax imposed in this market is
a.
$1.00.
b.
$1.50.
c.
$2.50.
d.
$3.00.
 
 
Figure 6-9
chapter7_files/i0160000.jpg
 

12. 
Refer to Figure 6-9. The price sellers receive after the tax is imposed is
a.
$18.00.
b.
$14.00.
c.
$12.00.
d.
$8.00.
 

13. 
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.
 

14. 
If buyers are required to pay a $0.10 tax per bag on Hershey's kisses, the demand for kisses will shift
a.
up by $0.10 per bag.
b.
up by $0.05 per bag.
c.
down by $0.10 per bag.
d.
down by $0.05 per bag.
 

15. 
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
chapter7_files/i0210000.jpg
 

16. 
Refer to Figure 6-12. The price sellers receive after the tax is
a.
P0.
b.
P1.
c.
P2.
d.
impossible to determine.
 
 
Figure 6-13
chapter7_files/i0230000.jpg
 

17. 
Refer to Figure 6-13. The price sellers receive after the tax is
a.
$24.
b.
$14.
c.
$10.
d.
$8.
 

18. 
Refer to Figure 6-13. The per unit burden of the tax on buyers is
a.
$16.
b.
$14.
c.
$8.
d.
$6.
 

19. 
Suppose that a tax is placed on books. If the buyer pays the majority of the tax we know that the
a.
supply curve is more inelastic than the demand curve.
b.
demand curve is more inelastic than the supply curve.
c.
government has placed the tax on the seller.
d.
government has placed the tax on the buyer.
 

20. 
When analyzing the economic effects of government policies,
a.
supply and demand are useful tools of analysis.
b.
one finds that the effects are always those stated in the legislation.
c.
supply and demand are not useful, since they apply only to unregulated markets.
d.
one usually finds them to be the random outcome of economic shocks.
 

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 binding minimum wage in a competitive labor market creates unemployment.
 

Short Answer
 

23. 
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?

chapter7_files/i0320000.jpg
 

24. 
Using the graph shown, answer the following questions.
a.
What was the equilibrium price and quantity 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?

chapter7_files/i0330000.jpg
 

25. 
How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.
 



 
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