Download Problem Set 5

University of Bahrain
College of Business Administration
Department of Economics and Finance
Econ 140 - Microeconomics
Problem Set 5 (Chapter 6)
AlShawa
1. Which of the following is a result of an effective rent ceiling?
I. equity in the housing market
II. efficient allocation of resources
III. a shortage of housing units.
a.
b.
c.
d.
I and II.
I and III.
II only.
III only.
2. Which of the following is a potential result of an effective price ceiling on a good?
a. A shortage.
b. Use of non-price factors such as discrimination to allocate the price-controlled good to
consumers.
c. Deterioration in the quality of the good.
d. All of the above are potential impacts of an effective price ceiling.
3. Suppose that the supply of labour is perfectly elastic. Then a labour-saving invention, such
as automatic teller machines in the banking industry, results in a
a. a decrease in employment and no change in the wage rate.
b. a decrease in the wage rate and no change in employment.
c. a decrease in both the wage rate and employment.
d. an increase in both the wage rate and employment.
4. The primary goal of policy makers who support minimum wage law is to
a. increase employment levels among low income workers.
b. increase the earnings of low income workers.
c. reduce profits of big corporations.
d. give small businesses an equal chance in the marketplace with larger businesses.
5. Suppose that the equilibrium wage in the labour market is $6.25. Further, suppose the
government raises the minimum wage to $6 an hour from its present level of $5.15. The
government’s action of increasing the minimum wage will result in
a. a decrease in unemployment.
b. an increase in unemployment.
c. a shortage of labour.
d. neither a shortage nor a surplus of labour in the labour market.
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6. In the above figure, if there is no minimum wage, the equilibrium employment is ____; if
the government imposed a minimum wage of $8 per hour, employment is ____.
a. 4,000 hours; 2,000 hours
b. 3,000 hours; 4,000 hours
c. 3,000 hours; 2,000 hours
d. 4,000 hours; 3,000 hours
7. In the above figure, if the government imposed a minimum wage of $8 per hour in this
labour market, the increase in the hourly wage for those who keep their jobs is
a. $2 per hour.
b. $4 per hour.
c. $6 per hour.
d. $8 per hour.
8. The figure above shows the demand for and supply of labour. If the minimum wage is set at
$4 per hour, how many hours do workers work?
a. 12,000 hours.
b. 9,000 hours.
c. 6,000 hours.
d. None of the above answers is correct.
9. The supply of oil is more elastic than the demand for oil. If oil is taxed $10 per barrel, how
will the tax be divided between the buyer and seller?
a. The seller will pay more of the tax than the buyer.
b. The buyer will pay more of the tax than the seller.
c. The seller and buyer will split the tax evenly.
d. The seller will pay the entire tax.
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10. In the above figure, the government has imposed a tax on sellers of pizza. The amount of
the tax
a. is $10.
b. is $30.
c. is $40.
d. cannot be determined without more information.
11. In the above figure, the government has imposed a tax on sellers of pizza. The tax increases
a. the price paid by buyers by $20.
b. the amount received by sellers by $30.
c. the after-tax price by $40.
d. the quantity of pizza sold from 40 million per year to 60 million per year.
12. In the above figure, the government has imposed a tax on sellers of pizza. From this tax, the
government will receive total tax revenues equal to
a. $2,400 million.
b. $800 million.
c. $600 million.
d. $200 million.
13. A tax is imposed on the sale of a product. As long as neither the supply nor the demand is
perfectly elastic or inelastic,
a. there will be no change in the price paid by the consumer.
b. the price paid by the consumer will increase by the full amount of the tax.
c. the price paid by the consumer will increase by less than the amount of the tax.
d. the price paid by the consumer will increase by more than the amount of the tax.
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Hamburgers
French Fries
Pizza
Ice Cream
Price Elasticity of Supply
1.2
1.7
2.0
1.5
Price Elasticity of Demand
1.8
1.4
1.2
1.6
You are in the business of producing and selling hamburgers, French fries, pizza, and ice cream.
The government plans to impose a tax on one of these products. Based on the elasticities in the
above table, answer questions 14-17.
14. As a profit-minded business person who seeks to avoid taxes whenever possible, which
good would you most prefer to have taxed?
a. Hamburgers
b. Pizza
c. French Fries
d. Ice Cream
15. As a profit-minded business person who seeks to avoid taxes whenever possible, which
good would you least like to have taxed?
a. Hamburgers
b. Pizza
c. French Fries
d. Ice Cream
16. On which of these goods would your customers least like a tax?
a. Hamburgers
b. Pizza
c. French Fries
d. Ice Cream
17. On which of these goods would your customers most prefer a tax?
a. Hamburgers
b. Pizza
c. French Fries
d. Ice Cream
18. A sales tax imposed on sellers shifts the supply curve leftward for the taxed good because
a. it is paid by the seller to the government and is, therefore, like a cost of production.
b. it is actually shifted entirely onto the buyer who can afford only a smaller supply.
c. the higher price causes entry into the market.
d. the tax causes the demand curve to shift leftward.
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19. As long as the supply curve for a good is upward sloping and the demand curve is
downward sloping, a sales tax imposed on sellers shifts the supply curve
a. leftward and definitely increase the equilibrium price.
b. leftward and possibly increase the equilibrium price.
c. rightward and possibly increase the equilibrium quantity.
d. rightward and definitely decrease the equilibrium quantity.
20. If a tax is imposed on buyers in a market in which supply is perfectly inelastic, the
a. buyer pays the entire tax.
b. seller pays the entire tax.
c. buyer and the seller both pay a portion of the tax.
d. neither the buyer nor the seller pays the tax.