Ch.6 Exam Questions Supply, Demand And Government Policies - Principles of Microeconomics ANZ Edition Test Bank by Joshua Gans. DOCX document preview.
CHAPTER 6 – Supply, demand and government policies
TRUE/FALSE
1. Market prices are an efficient and impersonal way to ration goods.
DIF: Easy TOP: Controls on prices
2. Taxes are employed by policy makers for two reasons. The first is to raise revenue. The second is to adjust market outcomes.
DIF: Easy TOP: Controls on prices
3. A price floor is a legal minimum on the price of a good or service.
DIF: Easy TOP: How price ceilings affect market outcomes
4. Suppose a price ceiling is placed on rice. The price ceiling is set below the equilibrium price. This will result in the quantity demanded of rice exceeding the quantity supplied.
DIF: Easy TOP: How price ceilings affect market outcomes
5. Suppose the market equilibrium price for cigarettes is $20 before the government introduced a $22 price floor. This price floor will not be binding as it is above market price.
DIF: Moderate TOP: How price floors affect market outcomes
6. Common rationing mechanisms under price ceilings include waiting in long lines and biases of the sellers.
DIF: Easy TOP: How price ceilings affect market outcomes
7. Suppose the local government decides to implement rent controls. The housing shortage in the short run is likely to be less severe than the housing shortage in the long run.
DIF: Moderate TOP: Case Study: Rent control in the short run and long run
8. A binding price floor causes a surplus.
DIF: Easy TOP: How price floors affect market outcomes
9. A binding price floor in a competitive market will result in persistent shortages of a product.
DIF: Easy TOP: How price floors affect market outcomes
10. Suppose a price floor on alcohol is set above the equilibrium price. This will increase the supply of alcohol, leading to an increase in sales of alcohol.
DIF: Moderate TOP: How price floors affect market outcomes
11. Suppose that the equilibrium wage rate in an industry is $10 per hour. The government then sets a minimum wage of $12 per hour. The result will be a surplus of labour supply.
DIF: Easy TOP: How price floors affect market outcomes
12. Rent control reduces the incentive for landlords to properly maintain their properties.
DIF: Easy TOP: Case Study: Rent control in the short run and long run
13. Opponents of the minimum wage note that a high minimum wage creates unemployment, causes teenagers to drop out of school and prevents some unskilled workers from getting the on-the-job training that they need.
DIF: Moderate TOP: Evaluating price controls
14. Price controls are an effective way of allocating resources in an economy. For this reason there is widespread support for price controls among economists.
DIF: Easy TOP: Evaluating price controls
15. Price controls often help those in need.
DIF: Easy TOP: Evaluating price controls
16. Rent subsidies and wage subsidies are better than price controls at helping the poor because they have no costs associated with them.
DIF: Moderate TOP: Evaluating price controls
17. If sellers of a product are required to pay a tax, the supply curve for the product will shift left by exactly the size of the tax.
DIF: Moderate TOP: How taxes on buyers affect market outcomes
18. The effect of a tax on a product is always to reduce the total size of its market.
DIF: Easy TOP: How taxes on buyers affect market outcomes
19. If a tax is imposed on the buyer of a product, the tax incidence will fall entirely on the buyer.
DIF: Easy TOP: How taxes on buyers affect market outcomes
20. If a tax is levied on a market, sellers will receive more for their goods and buyers will have to pay more for their purchases.
DIF: Easy TOP: How taxes on buyers affect market outcomes
21. A tax on sellers shifts the supply curve upward by exactly the size of the tax.
DIF: Easy TOP: How taxes on sellers affect market outcomes
22. A tax on sellers will cause the equilibrium market price to rise, but the equilibrium quality sold will fall.
DIF: Easy TOP: How taxes on sellers affect market outcomes
23. The incidence of a tax is determined by whether the tax is imposed on the seller or the buyer.
DIF: Easy TOP: Elasticity and tax incidence
24. Lawmakers can decide whether the buyer or the seller must send a tax to the government, but they cannot legislate the true burden of a tax.
DIF: Moderate TOP: Elasticity and tax incidence
25. Who pays the majority of a tax levied on a product depends on whether the tax is placed on the buyer or the seller.
DIF: Easy TOP: Elasticity and tax incidence
26. Most of the burden of a luxury tax falls on the middle-class workers who supply luxury goods, rather than on the rich who buy them.
DIF: Difficult TOP: Elasticity and tax incidence
27. If demand is less elastic than supply, then the burden of a tax will fall more heavily upon sellers of a good.
DIF: Moderate TOP: Elasticity and tax incidence
28. The benefits of the First Home Owners Grant scheme fall primarily to the sellers of housing.
DIF: Easy TOP: How subsidies affect market outcomes
29. If supply is perfectly inelastic, then a subsidy paid to buyers of a good can never increase the size of the market.
DIF: Difficult TOP: How subsidies affect market outcomes
30. A subsidy paid to suppliers of a good will grow a market.
DIF: Easy TOP: How subsidies affect market outcomes
31. Domestic producers of natural gas would welcome being a signatory to the world price regime if it is set above the equilibrium, as they can export the surplus.
DIF: Moderate TOP: How price ceilings affect market outcomes
MULTIPLE CHOICE
1. A price ceiling that is not binding:
A. | is a detriment to society |
B. | will cause a shortage |
C. | will cause a surplus |
D. | has no effect |
DIF: Easy TOP: How price ceilings affect market outcomes
Graph 6-1
2. In Graph 6-1, a price ceiling that is not binding is shown in:
A. | panel a |
B. | panel b |
C. | both panel a and panel b |
D. | neither panel a nor panel b |
DIF: Moderate TOP: How price ceilings affect market outcomes
3. In which panel(s) in Graph 6-1 would there be a shortage for a good at the market price?
A. | panel a |
B. | panel b |
C. | panel a and panel b |
D. | neither panel a nor panel b |
DIF: Moderate TOP: How price ceilings affect market outcomes
4. Price controls are:
A. | used to make markets less unfair |
B. | used to make markets more efficient |
C. | used to make markets more unfair |
D. | used to make markets less efficient |
DIF: Easy TOP: Controls on prices
5. Suppliers of a good are likely to favor a binding:
A. | price floor, as the quantity sold will be higher than in a competitive market |
B. | price floor, as the price received will be higher than in a competitive market |
C. | price ceiling, as the quantity demanded will be higher than in a competitive market |
D. | price ceiling, as the price received will be higher than in a competitive market |
DIF: Easy TOP: Controls on prices
6. If a price ceiling is binding:
A. | the equilibrium price is above the ceiling and there will be a shortage |
B. | the equilibrium price is above the ceiling and there will be a surplus |
C. | the equilibrium price is below the ceiling and there will be a shortage |
D. | the equilibrium price is below the ceiling and there will be a surplus |
DIF: Easy TOP: How price ceilings affect market outcomes
Graph 6-2
7. According to Graph 6-2, if the government imposes a binding price floor in this market at a price of $8.00, the result will be a:
A. | shortage of 20 units |
B. | shortage of 40 units |
C. | surplus of 30 units |
D. | surplus of 40 units |
DIF: Moderate TOP: How price floors affect market outcomes
8. According to Graph 6-2, a binding price ceiling would exist at:
A. | any price above $8.00 |
B. | any price below $6.00 |
C. | any price above $5.00 |
D. | any price below $8.00 |
DIF: Moderate TOP: How price ceilings affect market outcomes
9. Some developing countries have used price ceilings to keep rice cheap to assist the poor. At the ceiling price:
A. | the quantity demanded will be greater than the quantity supplied and a shortage will result |
B. | the quantity demanded will be greater than the quantity supplied and a surplus will result |
C. | the quantity demanded will be less than the quantity supplied and a shortage will result |
D. | the quantity demanded will be less than the quantity supplied and a surplus will result |
DIF: Moderate TOP: How price ceilings affect market outcomes
10. A hot summer’s day can lead to dramatic increases in the demand for electricity. Suppose the government decides a binding price ceiling is necessary so pensioners can continue to afford their power bills. The effect of this policy will be such that:
A. | the quantity of electricity supplied will be unchanged |
B. | electricity producers will increase supply, leading to a decrease in price |
C. | electricity producers will supply less than demanded, leading to a shortage |
D. | demand will decrease, leading to a decrease in price |
DIF: Moderate TOP: How price ceilings affect market outcomes
11. After a natural disaster, a binding price ceiling on bottled water will lead to:
A. | a shortage of bottled water |
B. | an increase in supply of bottled water |
C. | supplied surplus of bottled water |
D. | bottled water to be distributed more equitably |
DIF: Easy TOP: How price ceilings affect market outcomes
12. Which of the following is an example of a price-ceiling?
A. | a minimum wage |
B. | a sales tax |
C. | none of the above |
D. | a rent control |
DIF: Moderate TOP: How price ceilings affect market outcomes
13. Suppose the equilibrium price of bananas is $5 and a price ceiling of $7 is implemented. This will result in:
A. | a shortage, as the price ceiling is above the equilibrium price |
B. | a surplus, as the price ceiling is above the equilibrium price |
C. | no change in the quantity of bananas sold |
D. | a surplus, as the price ceiling is below the equilibrium price |
DIF: Moderate TOP: How price ceilings affect market outcomes
14. Water shortages caused by droughts can be lessened by:
A. | allowing price to equate the demand and supply |
B. | restricting water usage of consumers |
C. | arresting anyone who wastes water |
D. | imposing tight price controls on water |
DIF: Moderate TOP: How price ceilings affect market outcomes
Graph 6-3
15. According to Graph 6-3, which panel(s) best represent(s) a binding rent control in the short run?
A. | panel a |
B. | panel b |
C. | neither panel |
D. | both panels |
DIF: Moderate TOP: Case study: Rent control in the short run and long run
16. According to Graph 6-3, which panel(s) best represent(s) a binding rent control in the long run?
A. | panel a |
B. | panel b |
C. | neither panel |
D. | both panels |
DIF: Moderate TOP: Case study: Rent control in the short run and long run
Graph 6-4
17. According to Graph 6-4, when the supply curve for gasoline shifts from S1 to S2:
A. | the 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 due to the price ceiling |
D. | a shortage will occur at the price ceiling of P2 |
DIF: Difficult TOP: How price ceilings affect market outcomes
18. According to Graph 6-4, when the supply curve shifts from S1 to S2:
A. | the new market quantity will be Q3 |
B. | the new market quantity will be less than Q3 |
C. | the new market quantity will be greater than Q3 |
D. | there will be a surplus at the new market price of P2 |
DIF: Moderate TOP: How price ceilings affect market outcomes
Graph 6-5
19. According to Graph 6-5, if the government imposes a binding price floor of $6.00 in this market, the result will be a:
A. | surplus of 15 |
B. | surplus of 35 |
C. | shortage of 30 |
D. | shortage of 50 |
DIF: Moderate TOP: How price floors affect market outcomes
20. According to Graph 6-5, a binding price floor would exist at a price of:
A. | $6.00 |
B. | $5.00 |
C. | $2.00 |
D. | none of the above |
DIF: Moderate TOP: How price floors affect market outcomes
21. Rent controls lead to:
A. | a shortage of housing in the short run and a surplus of housing in the long run |
B. | a surplus of housing in the short run and a surplus of housing in the long run |
C. | a small shortage of housing in the short run and a large shortage of housing in the long run |
D. | a large shortage of housing in the short run and a small shortage of housing in the long run |
DIF: Easy TOP: Case study: Rent control in the short run and long run
Graph 6-6
22. According to Graph 6-6, in panel b, at the actual price there will be:
A. | cheaper wheat for consumers |
B. | equilibrium in the market |
C. | a surplus of wheat |
D. | rationing of demand with long waiting lines |
DIF: Moderate TOP: How price floors affect market outcomes
23. According to Graph 6-6, in panel a, 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 |
DIF: Moderate TOP: How price floors affect market outcomes
24. Minimum wage laws dictate the:
A. | average price employers must pay for labour |
B. | highest price employers may pay for labour |
C. | lowest price employers may pay for labour |
D. | quality of labour which must be supplied |
DIF: Easy TOP: How price floors affect market outcomes
25. The justification for the minimum wage is to:
A. | increase the jobs available for workers |
B. | reduce the jobs available for unskilled workers |
C. | ensure all workers get an adequate standard of living |
D. | provide benefits to middle-class part-time workers |
DIF: Easy TOP: How price floors affect market outcomes
26. Which of the following is a correct statement about the labour market?
A. | workers determine the supply of labour and firms determine the demand for labour |
B. | workers determine the demand for labour and firms determine the supply of labour |
C. | workers determine the supply of labour and government determines the demand for labour |
D. | government determines the supply of labour and firms determine the supply of labour |
DIF: Moderate TOP: How price floors affect market outcomes
27. If the minimum wage is below the equilibrium wage:
A. | the quantity demanded of labour will be greater than the quantity supplied |
B. | the quantity demanded of labour will equal the quantity supplied |
C. | the quantity demanded of labour will be less than the quantity supplied |
D. | anyone who wants a job at the minimum wage can find one |
DIF: Moderate TOP: How price floors affect market outcomes
28. Workers with high levels of skill and experience are not affected by the minimum wage because:
A. | they belong to unions |
B. | they are not legally guaranteed the minimum wage |
C. | they generally earn wages less than the minimum wage |
D. | their equilibrium wages are well above the minimum wage |
DIF: Moderate TOP: Evaluating price controls
29. The minimum wage has its greatest adverse impact on the market for:
A. | the most experienced workers |
B. | the most skilled workers |
C. | engineers |
D. | teenage labour |
DIF: Moderate TOP: How price floors affect market outcomes
30. If the government lowered the minimum wage, but this had no effect on unemployment, one possible explanation could be:
A. | those who are already unemployed refuse to work for such a low wage |
B. | the equilibrium wage was already above the minimum wage |
C. | most of the unemployed are teenagers who don’t require high wages |
D. | the equilibrium wage was below the minimum wage |
DIF: Moderate TOP: How price floors affect market outcomes
31. A tax paid by buyers of a good or service:
A. | encourages market activity and decreases the price received by sellers |
B. | encourages market activity and increases the price paid by buyers |
C. | discourages market activity and decreases the price received by sellers |
D. | discourages market activity and increases the price received by sellers |
DIF: Moderate TOP: How taxes on sellers affect market outcomes
32. The term tax incidence refers to the:
A. | division of income tax between high-income and low-income earners |
B. | level of tax levied on a buyer of a good |
C. | division of the tax burden between buyers and sellers |
D. | division of tax between federal and local government |
DIF: Easy TOP: Taxes
33. The initial effect of a tax on the sellers of a good is on:
A. | the supply of that good |
B. | the demand for that good |
C. | both supply and demand |
D. | the price of the good |
DIF: Moderate TOP: How taxes on buyers affect market outcomes
34. The main reason policymakers use price controls is because:
A. | they are better at coordinating economic activity than the free market |
B. | they believe that in some cases the market outcome is not fair |
C. | they need a reason to justify their jobs |
D. | all of the above is true |
DIF: Easy TOP: Evaluating price controls
35. Which of the following is the most correct statement about price controls?
A. | Price controls always help those they are designed to help. |
B. | Price controls never help those they are designed to help. |
C. | Price controls often hurt those they are designed to help. |
D. | Price controls always hurt those they are designed to help. |
DIF: Easy TOP: Evaluating price controls
36. To fund new green energy research, suppose the government requires every buyer of a new car to pay a $100 tax. When compared to the pre-tax equilibrium, such a tax will:
A. | make buyers $100 worse off without affecting sellers |
B. | make buyers $100 worse off, but make sellers better off |
C. | increase the price sellers receive for cars |
D. | make both buyers and sellers worse off, but we cannot say by how much without more information |
DIF: Moderate TOP: How taxes on buyers affect market outcomes
Graph 6-7
37. According to Graph 6-7, the amount of the tax imposed in this market is:
A. | $1.00 |
B. | $1.50 |
C. | $2.50 |
D. | $3.00 |
DIF: Moderate TOP: How taxes on buyers affect market outcomes
38. According to Graph 6-7, the equilibrium price in the market before the tax is imposed is:
A. | $8.00 |
B. | $6.00 |
C. | $5.00 |
D. | $3.50 |
DIF: Easy TOP: How taxes on buyers affect market outcomes
39. According to Graph 6-7, the price buyers will pay after the tax is imposed is:
A. | $8.00 |
B. | $6.00 |
C. | $5.00 |
D. | $3.50 |
DIF: Difficult TOP: How taxes on buyers affect market outcomes
40. According to Graph 6-7, the price sellers receive after the tax is imposed is:
A. | $8.00 |
B. | $6.00 |
C. | $5.00 |
D. | $3.50 |
DIF: Difficult TOP: How taxes on buyers affect market outcomes
41. According to Graph 6-7, the amount of the tax that buyers would pay would be:
A. | $1.00 |
B. | $1.50 |
C. | $2.00 |
D. | $3.00 |
DIF: Difficult TOP: How taxes on buyers affect market outcomes
42. According to Graph 6-7, the amount of the tax that sellers would pay would be:
A. | $1.00 |
B. | $1.50 |
C. | $2.00 |
D. | $3.00 |
DIF: Difficult TOP: How taxes on buyers affect market outcomes
43. If sellers are required to pay a $0.70 tax on each cup of coffee, the supply of coffee will shift:
A. | right by $0.70 per cup |
B. | left by $0.70 per cup |
C. | up by $0.70 per cup |
D. | down by $0.70 per cup |
DIF: Moderate TOP: How taxes on sellers affect market outcomes
44. A subsidy on the sellers of coffee:
A. | increases the size of the coffee market |
B. | reduces the size of the coffee market |
C. | has no effect on the size of the coffee market |
D. | the benefit will accrue entirely to the sellers of coffee |
DIF: Moderate TOP: How subsidies affect market outcomes
45. A subsidy paid to the sellers of coffee will:
A. | increase the equilibrium price of coffee and reduce the equilibrium quantity |
B. | reduce the equilibrium price of coffee and increase the equilibrium quantity |
C. | increase the equilibrium price of coffee and increase the equilibrium quantity |
D. | reduce the equilibrium price of coffee and reduce the equilibrium quantity |
DIF: Moderate TOP: How subsidies affect market outcomes.
46. A tax on the sellers of coffee will cause the price the buyer pays:
A. | and the price the seller receives to rise |
B. | and the price the seller receives to fall |
C. | to rise and the price the seller receives to fall |
D. | to fall and the price the seller receives to rise |
DIF: Moderate TOP: How taxes on sellers affect market outcomes
47. Which is the most correct statement about the benefits of a subsidy on toothbrushes?
A. | buyers will receive most of the benefit of the subsidy |
B. | sellers will receive most of the benefit of the subsidy |
C. | buyers and sellers will share the benefits of the subsidy |
D. | the government enjoys the entire benefit of the subsidy |
DIF: Easy TOP: How subsidies affect market outcomes.
Graph 6-8
48. According to Graph 6-8, the equilibrium price in the market before the tax is imposed is:
A. | $1.00 |
B. | $3.50 |
C. | $5.00 |
D. | $6.00 |
DIF: Easy TOP: How taxes on sellers affect market outcomes
49. According to Graph 6-8, the price buyers will pay after the tax is imposed is:
A. | $1.00 |
B. | $3.50 |
C. | $5.00 |
D. | $6.00 |
DIF: Difficult TOP: How taxes on sellers affect market outcomes
50. According to Graph 6-8, the price sellers receive after the tax is imposed is:
A. | $1.00 |
B. | $3.50 |
C. | $5.00 |
D. | $6.00 |
DIF: Difficult TOP: How taxes on sellers affect market outcomes
51. According to Graph 6-8, the amount of the tax imposed in this market is:
A. | $1.00 |
B. | $1.50 |
C. | $2.50 |
D. | $3.50 |
DIF: Moderate TOP: How taxes on sellers affect market outcomes
52. According to Graph 6-8, the amount of the tax that buyers would pay would be:
A. | $1.00 |
B. | $1.50 |
C. | $2.50 |
D. | $3.00 |
DIF: Difficult TOP: How taxes on sellers affect market outcomes
53. According to Graph 6-8, the amount of the tax that sellers would pay would be:
A. | $1.00 |
B. | $1.50 |
C. | $2.50 |
D. | $3.00 |
DIF: Difficult TOP: How taxes on sellers affect market outcomes
54. A tax on the sellers of coffee:
A. | leads sellers to supply a smaller quantity at every price |
B. | leads buyers to demand a smaller quantity at every price |
C. | leads sellers to supply a larger quantity at every price |
D. | causes the supply curve to shift to the right |
DIF: Moderate TOP: How taxes on sellers affect market outcomes
55. If buyers of bananas are required to pay a $1.00 tax on each bunch of bananas purchased, then the demand curve for bananas will shift:
A. | right by $1.00 per bunch |
B. | left by $1.00 per bunch |
C. | up by $1.00 per bunch |
D. | down by $1.00 per bunch |
DIF: Moderate TOP: How taxes on buyers affect market outcomes
56. A tax on the sellers of popcorn will:
A. | reduce the equilibrium price of popcorn and increase the equilibrium quantity |
B. | reduce the equilibrium price of popcorn and reduce the equilibrium quantity |
C. | increase the equilibrium price of popcorn and increase the equilibrium quantity |
D. | increase the equilibrium price of popcorn and reduce the equilibrium quantity |
DIF: Moderate TOP: How taxes on sellers affect market outcomes
Graph 6-9
57. Refer to Graph 6-9. In which market will the majority of a tax be paid by the buyer?
A. | market a |
B. | market b |
C. | market c |
D. | all of the above |
DIF: Difficult TOP: Elasticity and tax incidence
Graph 6-10
58. In Graph 6-10, the equilibrium price before the tax is:
A. | P0 |
B. | P1 |
C. | P2 |
D. | none of the above |
DIF: Easy TOP: Tax implications
59. In Graph 6-10, the price that will be paid after the tax is:
A. | P0 |
B. | P1 |
C. | P2 |
D. | impossible to determine |
DIF: Moderate TOP: Tax implications
60. In Graph 6-10, the price sellers receive after the tax is:
A. | P0 |
B. | P1 |
C. | P2 |
D. | impossible to determine |
DIF: Moderate TOP: How taxes on buyers affect market outcomes: Tax implications
61. In Graph 6-10, the per-unit burden of the tax on buyers is:
A. | P2 minus P0 |
B. | P2 minus P1 |
C. | P1 minus P0 |
D. | Q1 minus Q0 |
DIF: Moderate TOP: Tax implications
62. In Graph 6-10, 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 |
DIF: Moderate TOP: Tax implications
63. Australia exports cattle to Indonesia. If Australia puts an export subsidy on cattle and the Australian supply of cattle is elastic while the demand for cattle in Indonesia is inelastic then:
A. | Australian sellers of cattle will enjoy most of the subsidy’s benefit |
B. | Indonesian buyers of cattle will enjoy most of the subsidy’s benefit |
C. | the benefit of the subsidy will be shared equally |
D. | it is impossible to determine how the burden of the tax will be shared |
DIF: Difficult TOP: Elasticity and tax incidence
64. Since July 1st 2000, Australian states and territories have paid a cash grant to first home buyers. Considering the supply of housing is less elastic than the demand for housing, the benefits of such a grant will:
A. | be enjoyed mostly by those buying a house |
B. | be enjoyed mostly by those selling a house |
C. | be enjoyed entirely by those buying a house |
D. | be enjoyed entirely by those selling a house |
DIF: Moderate TOP: Case Study: Who gets the benefits from the First Home Owners Grant scheme?
65. Payroll taxes are paid by employers therefore:
A. | the burden of these taxes is borne entirely by the employer |
B. | wages are not lower as a result of the tax |
C. | do not discourage firms from hiring labour |
D. | the burden of the tax is shared between workers and employers |
DIF: Easy TOP: Tax implications
SHORT ANSWER
1. Suppose the government imposes a binding price ceiling on interest rates in the mortgage lending market. What would benefit from such actions and who would bear the costs?
DIF: Difficult TOP: How price ceilings affect market outcomes
2. Some countries in the developing world use price controls on rice to make it easier for poor people to afford. Demonstrate the effect of a binding and non-binding price ceiling on the rice market using supply-demand diagrams.
DIF: Easy TOP: How price ceilings affect market outcomes
3. A coffee-producing country requires all its growers to sell to a single, government-owned marketing board. This marketing board sells the coffee on behalf of the growers into the world market. Suppose the marketing board puts a price ceiling of $3.00 on the coffee it buys from its growers while the market equilibrium price is $5.00. What effect will this have on coffee production in this country? Quantity is given in kg.
DIF: Moderate TOP: How price ceilings affect market outcomes
4. Using a demand-supply diagram, show how OPEC’s raising of oil prices in the 1970s combined with a government-imposed price ceiling on petrol created a shortage of petrol.
DIF: Moderate TOP: Case study: Lines at the petrol station
5. Rent controls create shortages in housing markets, however, the magnitude of these shortages differs between the long run and short run. What explains these differences?
DIF: Moderate TOP: Case study: Rent control in the short run and long run
6. Using the graph below, analyse the effect a $70 price floor would have on the market for tennis shoes. Would this be a binding price floor? Why would policymakers choose to impose a price floor?
DIF: Moderate TOP: How price floors affect market outcomes
7. Some countries use price floors for their domestic farmers to guarantee them a high return on their production. Suppose there is a price floor on wool that is binding. What will be the effect on the wool market? Identify who benefits from this policy and who bears the cost. Are there instances of this occurring in Australia’s history?
DIF: Difficult TOP: How price floors affect market outcomes
8. Many advocates of raising the minimum wage argue that the adverse effects of such a move, for example higher unemployment, are likely to be small. Suppose the minimum wage is binding. Under what conditions will an increase in the minimum wage lead to only a small increase in unemployment?
DIF: Difficult TOP: Evaluating price controls
Graph 6-11
9. Using Graph 6-11, 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?
f. 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?
DIF: Moderate TOP: How taxes on buyers affect market outcomes
Graph 6-12
10. Using Graph 6-12, 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?
DIF: Moderate TOP: Tax implications
11. How does elasticity affect the burden of a tax? Justify your answer using supply–demand diagrams.
DIF: Moderate TOP: Elasticity and tax incidence
12. Using a supply-demand diagram, show a labour 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.
DIF: Moderate TOP: How price floors affect market outcomes
13. Suppose that the government places a tax of $5 per tyre on the buyers of automobile tyres. Use a supply-demand diagram to show the effect of the tax on the tyre market and the incidence of taxation on buyers and sellers. Now suppose that the government switches to a tax of $5 per tyre on the sellers of automobile tyres. Use a second supply-demand diagram to show the effects of this tax on the tyre market and the incidence of taxation on buyers and sellers. Can you say anything about the relative effects of the two alternative taxes on the tyre market and on the incidence of taxation?
DIF: Difficult TOP: Control on prices
14. Australia has a higher tax on luxury cars compared to other cars. Is this an effective way to raise revenue for the government from the rich?
DIF: Moderate TOP: Elasticity and tax incidence
15. In part as an effort to discourage smoking, Australia has some of the highest levels of cigarette taxation in the world. Do you think a tax on cigarettes dramatically decreases the number of people smoking? Is taxing cigarettes an effective way to raise revenue for the government from smokers? (Hint: given that smoking is addictive, what does this imply about the elasticity of demand?)
DIF: Difficult TOP: Elasticity and tax incidence
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