Chapter Six: Supply, Demand, And Government Policies

Front 1

Rent-control laws dictate

Back 1

the maximum rent that landlords may charge tenants

Front 2

Minimum-wage laws dictate

Back 2

a minimum wage that firms may pay workers

Front 3

Price controls are usually enacted

Back 3

when policymakers believe that the market price of a good or service is unfair to buyers or sellers

Front 4

A legal maximum on the price at which a good can be sold is called a

Back 4

ceiling

Front 5

If a price ceiling is not binding, then

Back 5

the equilibrium price is below the price ceiling

Front 6

If a non-binding price ceiling is imposed on a market, then the

Back 6

quantity sold in the market will stay the same

Front 7

A price ceiling will be binding only if it is set

Back 7

below the equilibrium price

Front 8

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,
a. smaller quantity of the good is bought and sold
b. smaller quantity of the good id demanded
c. larger quantity of the good is supplied
d. the price rises above the previous equilibrium

Back 8

a smaller quantity of the good is bought and sold

Front 9

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding to one that is binding?
a. improvements in production technology reduce the costs of producing laptop computers
b. the number of firms selling laptop computers decrease
c. consumers' income decreases, and laptop computers are a normal good
d. the number of consumers buying laptop computers decreases

Back 9

the number of firms selling laptop computers decrease

Front 10

If the government removes a binding price ceiling from a market, then the price paid by buyers will

Back 10

increase and the quantity sold in the market will increase

Front 11

A price ceiling is binding when it is set

Back 11

below the equilibrium price, causing a shortage

Front 12

A binding price ceiling

Back 12

causes a shortage and is set at a price below the equilibrium price

Front 13

A non-binding price ceiling

Back 13

is set at a price above the equilibrium price

Front 14

A shortage results when a

Back 14

binding price ceiling is imposed on a market

Front 15

Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,

Back 15

a shortage of treadmills will develop

Front 16

Refer to the figure above.
A binding price ceiling is shown in

Back 16

panel (b) only

Front 17

Refer to the figure above.
In which panel(s) of the figure would there be a shortage of the good at the price ceiling?

Back 17

panel (b) only

Front 18

Refer to the figure above.
The price ceiling shown in panel (a)

Back 18

is not binding

Front 19

Refer to the figure above.
The price ceiling shown in panel (b)

Back 19

creates a shortage

Front 20

Refer to the figure above.
The price ceiling

Back 20

is binding, causes a shortage, and causes the quantity demanded to exceed the quantity supplied

Front 21

Refer to the figure above.
The price ceiling

Back 21

makes it necessary for sellers to ration the good

Front 22

Refer to the figure above.
The price ceiling causes a

Back 22

shortage of 85 units

Front 23

Refer to the figure above.
The price ceiling causes quantity

Back 23

demanded to exceed quantity supplied by 85 units

Front 24

A legal minimum on the price at which a good can be sold is called a price

Back 24

floor

Front 25

If a price floor is not binding then

Back 25

the equilibrium price is above the price floor

Front 26

If a price floor is not binding then

Back 26

there will be no effect on the market price or quantity sold

Front 27

If a non-binding price floor is imposed on a market, then the

Back 27

quantity sold in the market will stay the same

Front 28

A binding price floor

Back 28

causes a surplus and is set at a price above the equilibrium price

Front 29

A non-binding price floor

Back 29

is set at a price below the equilibrium price

Front 30

A price floor will be binding only if it is set

Back 30

at a price above the equilibrium price

Front 31

Suppose the government has imposed a price floor on cellular phones. Which of the following events could transform the price floor from one that is binding to one that is not binding?
a. cellular phones become less popular
b. traditional land line phones become more expensive
c. the components used to produce cellular phones become less expensive
d. firms expect the price of cellular phones to fall in the future

Back 31

traditional land line phones become more expensive

Front 32

If the government removes a binding price floor from a market, then the price paid by buyers will

Back 32

decrease, and the quantity sold in the market will increase

Front 33

If the government removes a binding price floor from a market, then the price received by sellers will

Back 33

decrease, and the quantity sold in the market will increase

Front 34

A surplus results when a

Back 34

binding price floor is imposed on a market

Front 35

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the

Back 35

quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases

Front 36

Refer to the figure above.
A binding price floor is shown in

Back 36

panel (b) only

Front 37

Refer to the figure above.
A non-binding price floor is shown in

Back 37

panel (a) only

Front 38

Refer to the figure above.
In Panel (b), there will be

Back 38

surplus of wheat

Front 39

Refer to the figure above.
In Panel (a), there will be

Back 39

equilibrium in the market

Front 40

You have responsibility for economic policy in the country of Freedonia. Recently, the
neighboring country of Sylvania has cut off all exports of oranges to Freedonia. Harpo, who is
one of your advisors, suggests that you should impose a binding price ceiling in order to avoid a
shortage of oranges. Chico, another one of your advisors, argues that without a binding price
floor, a shortage will certainly develop. Zeppo, a third advisor, says that the best way to avoid a
shortage of oranges is to take no action at all. Which of your three advisors is most likely to
have studied economics?

Back 40

Zeppo

Front 41

Refer to the figure above.
Which of the following is not correct?
a. When the price is $10, quantity supplied equals quantity demanded
b. When the price is $6, there is a surplus of 8 units
c. When the price is $12, there is a surplus of 4 units
d. When the price is $16, quantity supplied exceeds quantity demanded by 12 units

Back 41

b. When the price is $6, there is a surplus of 8 units

Front 42

Refer to the figure above.
A government-imposed price of $6 in this market could be an example of a

Back 42

binding price ceiling and non-binding price floor

Front 43

Refer to the figure above.
A government-imposed price of $16 in this market could be an example of a

Back 43

non-binding price ceiling and binding price floor

Front 44

Refer to the figure above.
A government-imposed price of $12 in this market could be an example of a

Back 44

binding price floor that creates a surplus

Front 45

Refer to the figure above.
A government-imposed price of $6 in this market could be an example of a

Back 45

binding price ceiling that creates a shortage

Front 46

Refer to the figure above.
If the horizontal line on the graph represents a price ceiling, then the price ceiling is

Back 46

not binding and there will be no surplus or shortage of the good

Front 47

Refer to the figure above.
If the horizontal line on the graph represents a price floor, then the price floor is

Back 47

binding and creates a surplus of 90 units of the good

Front 48

Refer to the figure above.
Suppose the market is initially in equilibrium. Then the government imposes a price control, as represented by the horizontal line on the graph. If the price control is a price floor, then the price control

Back 48

causes the quantity demanded to decrease by 50 units, causes the quantity supplied to increase by 40 units, and results in some firms being more successful than others in selling their goods

Front 49

The goal of rent control is to

Back 49

help the poor by making housing more affordable

Front 50

Under rent control, tenants can expect

Back 50

lower rent and lower quality housing

Front 51

Rent control

Back 51

is an example of a price ceiling, leads to a shortage of apartments in the long run than in the short tun, and it leads to lower rents, and in the long run, to lower-quality housing

Front 52

Rent control policies tend to cause

Back 52

relatively smaller shortages in the short run than in the long run because supply and demand tend to be more inelastic in the short run than in the long run

Front 53

The minimum wage is an example of a

Back 53

price floor

Front 54

A minimum wage that is set below a market's equilibrium wage will result in an excess

Back 54

nothing

Front 55

A binding minmum wage

Back 55

alters both the quntity demanded and quantity supplied of labor

Front 56

A minimum wage that is set above a market's equilibrium wage will result in an excess

Back 56

supply of labor, that is, unemployment

Front 57

Refer to the figure above.
In this market, a minimum wage of $7.25 is

Back 57

binding and creates unemployment

Front 58

Refer to the figure above.
In this market, a minimum wage of $2.75 is

Back 58

non-binding and creates neither a labor shortage nor unemployment

Front 59

Refer to the figure above.
In this market, a minimum wage of $7.25 creates a labor

Back 59

surplus of 4,500 workers

Front 60

Refer to the figure above.
In this market, a minimum wage of $2.75 creates a labor

Back 60

neither a labor shortage nor surplus

Front 61

A tax on the sellers of coffee mugs

Back 61

decreases the size of the coffee mug market

Front 62

When a tax is placed on the sellers of a product, buyers pay

Back 62

more, and sellers receive less than they did before the tax

Front 63

A tax imposed on the sellers of a good will raise the

Back 63

price paid by buyers and lower the equilibrium quantity

Front 64

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would

Back 64

increase by less than $1,000

Front 65

If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would

Back 65

decrease by less than $500

Front 66

A $2.00 tax levied on the sellers of birdhouses will shift the supply curve

Back 66

upward by exactly $2.00

Front 67

A $0.10 tax levied on the sellers of chocolate bars will cause the

Back 67

supply curve for chocolate bars to shift up by $0.10

Front 68

A tax on the buyers of cereal will increase the price of cereal paid by buyers,

Back 68

decrease the effective price of cereal received by sellers, and decrease the equilibrium quantity of cereal

Front 69

A tax imposed on the buyers of a good will raise the

Back 69

price paid by buyers and lower the equilibrium quantity

Front 70

A tax imposed on the buyers of a good will lower the

Back 70

effective price received by sellers and lower the equilibrium quantity

Front 71

If the government levies a $2 tax per DVD on buyers of DVDs, then the price received by sellers of DVDs would

Back 71

decrease by less than $2.00

Front 72

A $0.50 tax levied on the buyers of pomegranate juice will shift the demand curve

Back 72

downward by exactly $0.50

Front 73

If the government wants to reduce smoking, it should impose a tax on

Back 73

either buyers or sellers of cigarettes

Front 74

If the government wants to reduce the burning of fossil fuels, it should impose a tax on

Back 74

either buyers or sellers of gasoline

Front 75

The term tax incidence refers to

Back 75

the distribution of the tax burden between buyers and sellers

Front 76

Refer to the figure above.
The price that buyers pay after the tax is imposed is

Back 76

$24.00

Front 77

Refer to the figure above.
The effective price that sellers receive after the tax is imposed is

Back 77

$10.00

Front 78

Refer to the figure above.
The amount of the tax per unit is

Back 78

$14.00

Front 79

Refer to the figure above.
The per-unit burden of the tax on buyers is

Back 79

$8.00

Front 80

Refer to the figure above.
The per-unit burden of the tax on sellers is

Back 80

$6.00

Front 81

Refer to the figure above.
Suppose a tax of $2.00 per unit is imposed on this market. What will be the new equilibrium quantity in this market?

Back 81

between 50 and 100 units

Front 82

Refer to the figure above.
Suppose a tax of $2.00 per unit is imposed on this market. How much will sellers receive per unit after the tax is imposed?

Back 82

between $3.00 and $5.00

Front 83

Refer to the figure above.
Suppose a tax of $2.00 per unit is imposed on this market. How much will buyers pay per unit after the tax is imposed?

Back 83

between $5.00 and $7.00

Front 84

Refer to the figure above.
Suppose a tax of $2.00 per unit is imposed on this market. Which of the following is correct?
a. 1/4 of the burden of the tax will fall on buyers, and 3/4 of the burden of the tax will fall on sellers
b. 1/3 of the burden of the tax will fall on buyers, and 2/3 of the burden of the tax will fall on sellers
c. 1/2 of the burden of the tax will fall on buyers, and 1/2 of the burden of the tax will fall on sellers
d. 2/3 of the burden of the tax will fall on buyers, and 1/3 of the burden of the tax will fall on sellers

Back 84

c. 1/2 of the burden of the tax will fall on buyers, and 1/2 of the burden of the tax will fall on sellers

Front 85

Refer to the figure above.
The equilibrium price in the market before the tax is imposed is

Back 85

$5.00

Front 86

Refer to the figure above.
As the figure is drawn, who sends the tax payment to the government?

Back 86

the sellers send the tax payment

Front 87

Refer to the figure above.
The price paid by buyers after the tax is imposed is

Back 87

$6.00

Front 88

Refer to the figure above.
The effective price sellers receive after the tax is imposed is

Back 88

$3.50

Front 89

Refer to the figure above.
The amount of the tax per unit is

Back 89

$2.50

Front 90

Refer to the figure above.
Buyers pay how much of the tax per unit?

Back 90

$1.00

Front 91

Refer to the figure above.
Sellers pay how much of the tax per unit?

Back 91

$1.50

Front 92

Refer to the figure above.
Suppose the same supply and demand curves apply, and a tax of the same amount per unit as shown here is imposed. Now, however, the buyers of the good, rather than the sellers, are required to pay the tax to the government. After the buyers pay the tax, relative to the case depicted in the figure, the burden on buyers will be

Back 92

the same, and the burden of sellers will be the same

Front 93

Refer to the figure above.
How much tax revenue does this tax generate for the government?

Back 93

$125.00

Front 94

Refer to the figure above.
Which of the following statements is correct?
a. the amount of the tax per unit is $6.00
b. the tax leaves the size of the market unchanged
c. the tax is levied on buyers of the good, rather than on sellers
d. all of the above are correct

Back 94

c. the tax is levied on buyers of the good, rather than on sellers

Front 95

Refer to the figure above.
What is the amount of the tax per unit?

Back 95

$8.00

Front 96

Refer to the figure above.
The price paid by buyers after the tax is imposed is

Back 96

$24.00

Front 97

Refer to the figure above.
The per unit burden of the tax on buyers of the good is

Back 97

$6.00

Front 98

Refer to the figure above.
Andrew is the buyer of the good. Taking the tax into account, how much does Andrew effectively pay to acquire one unit of the good?

Back 98

$24.00

Front 99

Refer to the figure above.
Suppose sellers, rather than buyers were required to pay this tax (in the same amount per unit as shown in the graph) Relative to the tax on buyers, the tax on sellers would result in

Back 99

buyers bearing the same share of the tax burden, sellers bearing the same share of the tax burden, and the same amount of tax revenue for the government

Front 100

Refer to the figure above.
In the after-tax equilibrium, government collects

Back 100

$1,680 in tax revenue; $1,260 represents a burden on buyers and $420 represents a burden on sellers