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ch-6
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1. Minimum-wage laws dictate
a. the exact wage that firms must pay workers.
b. a maximum wage that firms may pay workers.
c. a minimum wage that firms may pay workers.
d. both a minimum wage and a maximum wage that firms may pay workers.
____
2. A price ceiling is
a. often imposed on markets in which “cutthroat competition” would prevail without a price
ceiling.
b. a legal maximum on the price at which a good can be sold.
c. often imposed when sellers of a good are successful in their attempts to convince the
government that the market outcome is unfair without a price ceiling.
d. All of the above are correct.
____
3. If a price ceiling is not binding, then
a. the equilibrium price is above the price ceiling.
b. the equilibrium price is below the price ceiling.
c. it has no legal enforcement mechanism.
d. None of the above is correct because all price ceilings must be binding.
____
4. If a price ceiling is not binding, then
a. there will be a surplus in the market.
b. there will be a shortage in the market.
c. the market will be less efficient than it would be without the price ceiling.
d. there will be no effect on the market price or quantity sold.
____
5. A price ceiling will be binding only if it is set
a. equal to the equilibrium price.
b. above the equilibrium price.
c. below the equilibrium price.
d. either above or below the equilibrium price.
____
6. When a binding price ceiling is imposed on a market,
a. price no longer serves as a rationing device.
b. the quantity supplied at the price ceiling exceeds the quantity that would have been supplied
without the price ceiling.
c. all buyers benefit.
d. All of the above are correct.
Figure 6-1
Panel (a)
Panel (b)
price
price
S
S
price ceiling
price ceiling
D
quantity
D
quantity
____
7. Refer to Figure 6-1. A binding price ceiling is shown in
a. panel (a) only.
b. panel (b) only.
c. both panel (a) and panel (b).
d. neither panel (a) nor panel (b).
____
8. Refer to Figure 6-1. In which panel(s) of the figure would there be a shortage of the good at the price
ceiling?
a. panel (a) only
b. panel (b) only
c. both panel (a) and panel (b)
d. neither panel (a) nor panel (b)
____
9. Refer to Figure 6-1. The price ceiling shown in panel (a)
a. is not binding.
b. creates a surplus.
c. creates a shortage.
d. Both a) and b) are correct.
____ 10. Refer to Figure 6-1. The price ceiling shown in panel (b)
a. is not binding.
b. creates a surplus.
c. creates a shortage.
d. Both a) and b) are correct.
Figure 6-2
Price
6
Supply
5
4
3
2
Price ceiling
1
Demand
60
80
120
180
165
Quantity
____ 11. Refer to Figure 6-2. The price ceiling
a. is binding.
b. causes a shortage.
c. causes the quantity demanded to exceed the quantity supplied.
d. All of the above are correct.
____ 12. Refer to Figure 6-2. The price ceiling causes a
a. surplus of 40 units.
b. surplus of 85 units.
c. shortage of 45 units.
d. shortage of 85 units.
____ 13. If a price floor is not binding, then
a. there will be a surplus in the market.
b. there will be a shortage in the market.
c. there will be no effect on the market price or quantity sold.
d. the market will be less efficient than it would be without the price floor.
Figure 6-3
Panel (a)
Panel (b)
price of wheat
price of wheat
S
S
price floor
price floor
D
D
quantity
quantity
____ 14. Refer to Figure 6-3. A binding price floor is shown in
a. both panel (a) and panel (b).
b. panel (a) only.
c. panel (b) only.
d. neither panel (a) nor panel (b).
____ 15. Refer to Figure 6-3. In panel (a), there will be
a. a shortage of wheat.
b. equilibrium in the market.
c. a surplus of wheat.
d. lines of people waiting to buy wheat.
Figure 6-5
12 Price
Supply
10
8
6
4
Demand
2
60
70
120
180
Quantity
160
____ 16. Refer to Figure 6-5. If the horizontal line on the graph represents a price floor, then the price floor is
a. binding and creates a shortage of 40 units of the good.
b. binding and creates a surplus of 50 units of the good.
c. binding and creates a surplus of 90 units of the good.
d. not binding but creates a surplus of 40 units of the good.
Figure 6-12
price of gasoline
S2
P3
S1
P2
price ceiling
P1
D
Q3
Q1
quantity of gasoline
____ 17. Refer to Figure 6-12. When the price ceiling applies in this market, and the supply curve for gasoline
shifts from S1 to S2,
a. the market price will increase to P3.
b. a surplus will occur at the new market price of P2.
c. the market price will stay at P1.
d. a shortage will occur at the new market price of P2.
Table 6-3
The following table contains the demand schedule and supply schedule for a market for a particular good.
Suppose sellers of the good successfully lobby Congress to impose a price floor $2 above the equilibrium
price in this market.
Price
Quantity
Quantity
Demanded
Supplied
$0
15
0
$1
13
3
$2
11
6
$3
9
9
$4
7
12
$5
5
15
$6
3
18
____ 18. Refer to Table 6-3. How many units of the good are sold after the imposition of the price floor?
a. 5
b. 9
c. 10
d. 15
____ 19. A tax imposed on the sellers of a good will raise the
a. price paid by buyers and lower the equilibrium quantity.
b. price paid by buyers and raise the equilibrium quantity.
c. effective price received by sellers and lower the equilibrium quantity.
d. effective price received by sellers and raise the equilibrium quantity.
____ 20. If a tax is levied on the sellers of a product, then the demand curve will
a.
b.
c.
d.
shift down.
shift up.
become flatter.
not shift.
____ 21. If a tax is levied on the sellers of a product, then the supply curve will
a. shift up.
b. shift down.
c. become flatter.
d. not shift.
____ 22. If the government levies a $2 tax per DVD on buyers of DVDs, then the price received by sellers of DVDs
would
a. decrease by more than $2.
b. decrease by exactly $2.
c. decrease by less than $2.
d. increase by an indeterminate amount.
____ 23. When a tax is placed on the buyers of cell phones, the size of the cell phone market
a. and the effective price received by sellers both decrease.
b. decreases, but the effective price received by sellers increases.
c. increases, but the effective price received by sellers decreases.
d. and the effective price received by sellers both increase.
Figure 6-14
The vertical distance between points A and B represents the tax in the market.
price
S
24
A
16
10
B
D
70
100
quantity
____ 24. Refer to Figure 6-14. The price that buyers pay after the tax is imposed is
a. $8.
b. $10.
c. $16.
d. $24.
____ 25. Refer to Figure 6-14. The effective price that sellers receive after the tax is imposed is
a.
b.
c.
d.
$6.
$10.
$16.
$24.
____ 26. Refer to Figure 6-14. The amount of the tax per unit is
a. $6.
b. $8.
c. $14.
d. $18.
____ 27. Refer to Figure 6-14. The per-unit burden of the tax on buyers is
a. $6.
b. $8.
c. $14.
d. $24.
____ 28. Refer to Figure 6-14. The per-unit burden of the tax on sellers is
a. $6.
b. $8.
c. $10.
d. $14.
Figure 6-15
price
S
7
5
3
D
50
100
quantity
____ 29. Refer to Figure 6-15. Suppose a tax of $2 per unit is imposed on this market. How much will sellers
receive per unit after the tax is imposed?
a. $3
b. between $3 and $5
c. between $5 and $7
d. $7
Figure 6-17
Price
15
S2
12
S
8
9
1
6
Demand
3
40
80
105 120
160 Quantity
____ 30. Refer to Figure 6-17. What is the amount of the tax per unit?
a. $1
b. $2
c. $3
d. $4
____ 31. Refer to Figure 6-17. The price that buyers pay after the tax is imposed is
a. $8.00.
b. $9.00.
c. $10.50.
d. $12.00.
____ 32. Refer to Figure 6-17. Acme, Inc. is a seller of the good. Acme sells a unit of the good to a buyer and
then pays the tax on that unit to the government. Acme is left with how much money?
a. $8.00
b. $9.00
c. $10.50
d. $12.00
____ 33. Refer to Figure 6-17. How is the burden of the tax shared between buyers and sellers? Buyers bear
a. three-fourths of the burden, and sellers bear one-fourth of the burden.
b. two-thirds of the burden, and sellers bear one-third of the burden.
c. one-half of the burden, and sellers bear one-half of the burden.
d. one-fourth of the burden, and sellers bear three-fourths of the burden.
____ 34. Refer to Figure 6-17. In the after-tax equilibrium, how much revenue does the government collect from
the tax on this good?
a. $210
b. $345
c. $420
d. $480
____ 35. Tax incidence
a. depends on the legislated burden.
b. is entirely random.
c. depends on the elasticities of supply and demand.
d. falls entirely on buyers or entirely on sellers.
____ 36. The incidence of a tax falls more heavily on
a. consumers than producers if demand is more inelastic than supply.
b. producers than consumers if supply is more inelastic than demand.
c. consumers than producers if supply is more elastic than demand.
d. All of the above are correct.
Figure 6-25
Panel (a)
Panel (b)
price
price
S
S
D
quantity
D
quantity
Panel (c)
price
S
D
quantity
____ 37. Refer to Figure 6-25. In which market will the majority of the tax burden fall on buyers?
a. market (a)
b. market (b)
c. market (c)
d. All of the above are correct.
____ 38. Refer to Figure 6-25. In which market will the tax burden be most equally divided between buyers and
sellers?
a. market (a)
b. market (b)
c. market (c)
d. All of the above are correct.
ch-6
Answer Section
MULTIPLE CHOICE
1. ANS:
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15. ANS:
C
Analytic
Definitional
B
Analytic
Interpretive
B
Analytic
Interpretive
D
Analytic
Interpretive
C
Analytic
Interpretive
A
Analytic
Interpretive
B
Analytic
Interpretive
B
Analytic
Interpretive
A
Analytic
Interpretive
C
Analytic
Interpretive
D
Analytic
Interpretive
D
Analytic
Applicative
C
Analytic
Interpretive
C
Analytic
Interpretive
B
PTS: 1
DIF: 1
LOC: Supply and demand
REF: 6-0
TOP: Minimum wage
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price ceilings
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price ceilings
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price ceilings
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price ceilings
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price ceilings
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price ceilings
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price ceilings
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price ceilings
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price ceilings
PTS: 1
DIF: 1
LOC: Supply and demand
REF: 6-1
TOP: Price ceilings
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price ceilings
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price floors
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price floors
PTS: 1
REF: 6-1
DIF: 2
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30.
31.
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MSC:
ANS:
NAT:
Analytic
Interpretive
C
Analytic
Applicative
D
Analytic
Applicative
A
Analytic
Applicative
A
Analytic
Interpretive
D
Analytic
Interpretive
A
Analytic
Interpretive
C
Analytic
Interpretive
A
Analytic
Interpretive
D
Analytic
Applicative
B
Analytic
Applicative
C
Analytic
Applicative
B
Analytic
Applicative
A
Analytic
Applicative
B
Analytic
Analytical
D
Analytic
Applicative
D
Analytic
LOC: Supply and demand
TOP: Price floors
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price floors
PTS: 1
DIF: 3
LOC: Supply and demand
REF: 6-1
TOP: Price ceilings
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-1
TOP: Price floors
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Taxes | Supply
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Taxes | Supply
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Taxes | Supply
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Taxes | Demand
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Taxes | Demand
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Taxes
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Taxes
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Taxes
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Tax incidence
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Tax incidence
PTS: 1
DIF: 3
LOC: Supply and demand
REF: 6-2
TOP: Taxes
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Taxes
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Taxes
MSC:
32. ANS:
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33. ANS:
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34. ANS:
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35. ANS:
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36. ANS:
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37. ANS:
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38. ANS:
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Applicative
A
Analytic
Applicative
A
Analytic
Applicative
C
Analytic
Applicative
C
Analytic
Interpretive
D
Analytic
Interpretive
B
Analytic
Interpretive
C
Analytic
Interpretive
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Taxes
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Tax incidence
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Taxes | Tax revenue
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Tax incidence | Elasticity
PTS: 1
DIF: 3
LOC: Supply and demand
REF: 6-2
TOP: Tax incidence | Elasticity
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Tax incidence | Elasticity
PTS: 1
DIF: 2
LOC: Supply and demand
REF: 6-2
TOP: Tax incidence | Elasticity