Macroeconomic and Microeconomics questions

Question
76. The impact of the minimum wage depends on the skill and experience of the worker.

77. Workers with high skills and much experience are not typically affected by the minimum wage.

78. The minimum wage has its greatest impact on the market for teenage labor.

79. The minimum wage is more often binding for teenagers than for other members of the labor force.

80. Studies by economists have found that a 10 percent increase in the minimum wage decreases teenage employment 10 percent.

81. A large majority of economists favor eliminating the minimum wage.

wage admit that it has some adverse effects, but they believe that these effects are small and that a higher minimum wage makes the poor better off.

83. If the equilibrium wage is $4 per hour and the minimum wage is $5.15 per hour, then a shortage of labor will exist.

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Figure 6-17

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84. Refer to Figure 6-17. A price ceiling set at $30 would result in a shortage of 20 units.

85. Refer to Figure 6-17. A price ceiling set at $70 would result in a shortage of 40 units.

86. Refer to Figure 6-17. A price floor set at $60 would result in a surplus of 20 units.

87. Refer to Figure 6-17. A price floor set at $40 would result in a surplus of 20 units.

88. Most economists are in favor of price controls as a way of allocating resources in the economy.

89. When policymakers set prices by legal decree, they obscure the signals that normally guide the allocation of society’s resources.

90. Price controls often hurt those they are trying to help.

91. Rent subsidies and wage subsidies are better than price controls at helping the poor because they have no costs associated with them.

92. The term tax incidence refers to how the burden of a tax is distributed among the various people who make up the economy.

93. A tax on sellers shifts the supply curve but not the demand curve.

94. A tax on sellers shifts the supply curve to the left.

95. A tax on sellers increases supply.

96. A tax on sellers and an increase in input prices affect the supply curve in the same way.

97. A tax of $1 on sellers shifts the supply curve upward by exactly $1.

98. A tax of $1 on sellers always increases the equilibrium price by $1.

99. A tax on sellers reduces the size of a market.

100.A tax on sellers increases the quantity of the good sold in the market.

101.If a tax is imposed on the sellers of a product, then the tax burden will fall entirely on the sellers.

102.A tax on sellers usually causes buyers to pay more the good and sellers to receive less for the good than they did before the tax was levied.

103.A tax on buyers shifts the demand curve and the supply curve.

104.A tax on buyers shifts the demand curve to the right.

105.A tax on buyers decreases demand.

106.A tax of $1 on buyers shifts the demand curve downward by exactly $1.

107.A tax of $1 on buyers always decreases the equilibrium price by $1.

108.A tax on buyers increases the size of a market.

109.A tax on buyers decreases the quantity of the good sold in the market.

110.If a tax is imposed on the buyers of a product, then the tax burden will fall entirely on the buyers.

111.A tax on buyers usually causes buyers to pay more the good and sellers to receive less for the good than they did before the tax was levied.

112.Whether a tax is levied on sellers or buyers, taxes discourage market activity.

113.Whether a tax is levied on sellers or buyers, taxes encourage market activity.

114.Whether a tax is levied on sellers or buyers, buyers and sellers usually share the burden of taxes.

115.Taxes levied on sellers and taxes levied on buyers are equivalent.

116.The wedge between the buyers’ price and the sellers’ price is the same, regardless of whether the tax is levied on buyers or sellers.

117.The tax incidence depends on whether the tax is levied on buyers or sellers.

118.Lawmakers can decide whether the buyers or the sellers must send a tax to the government, but they cannot legislate the true burden of a tax.

119.A tax on golf clubs will cause buyers of golf clubs to pay a higher price, sellers of golf clubs to receive a lower price, and fewer golf clubs to be sold.

120.FICA is an example of a payroll tax, which is a tax on the wages that firms pay their workers.

121.Since half of the FICA tax is paid by firms and the other half is paid by workers, the burden of the tax must fall equally on firms and workers.

122.Buyers and sellers always share the burden of a tax equally.

123.Buyers and sellers rarely share the burden of a tax equally.

124.Who bears the majority of a tax burden depends on whether the tax is placed on the buyers or the sellers.

125.Who bears the majority of a tax burden depends on the relative elasticity of supply and demand.

126.If the demand curve is very elastic and the supply curve is very inelastic in a market, then the sellers will bear a greater burden of a tax imposed on the market, even if the tax is imposed on the buyers.

127.If the demand curve is very inelastic and the supply curve is very elastic in a market, then the sellers will bear a greater burden of a tax imposed on the market, even if the tax is imposed on the buyers.

128.A tax burden falls more heavily on the side of the market that is less elastic.

on the side of the market that is more inelastic.

130.A tax on a market with elastic demand and elastic supply will shrink the market more than a tax on a market with inelastic demand and inelastic supply will shrink the market.

believe that the supply of labor is much more elastic than the demand.

132.Workers, rather than firms, bear most of the burden of the payroll tax.

133.Most of the burden of a luxury tax falls on the middle class workers who produce luxury goods rather than on the rich who buy them.

SHORT ANSWER

1. Using a supply and demand diagram, show a labor market with a binding minimum wage. Use the diagram to show those who are helped by the minimum wage and those who are hurt by the minimum wage.

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2.

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 for ten-speed bicycles. Would this be a binding price floor?

c.

Why would policymakers choose to impose a price ceiling or price floor?

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3. Using the graph shown, 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?

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4. Using the graph shown, 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?
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5. Using the graph shown, in which the vertical distance between points A and B represents the tax in the market, 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?

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

Sec00 – Supply, Demand, and Government Policies

MULTIPLE CHOICE

1. Which of the following is not correct?

a.

Economists have two roles: scientist and policy adviser.

b.

As scientists, economists develop and test theories to explain the world around them.

c.

Economic policies rarely have effects that their architects did not intend or anticipate.

d.

As policy advisers, economists use their theories to help change the world for the better.

2. Rent-control laws dictate

a.

the exact rent that landlords must charge tenants.

b.

a maximum rent that landlords may charge tenants.

c.

a minimum rent that landlords may charge tenants.

d.

a minimum rent and a maximum rent that landlords may charge tenants.

3. 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.

a minimum wage and a maximum wage that firms may pay workers.

4. Price controls are usually enacted

a.

as a means of raising revenue for public purposes.

b.

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

c.

when policymakers detect inefficiencies in a market.

d.

All of the above are correct.

5. The presence of a price control in a market for a good or service usually is an indication that

a.

an insufficient quantity of the good or service was being produced in that market to meet the public’s need.

b.

the usual forces of supply and demand were not able to establish an equilibrium price in that market.

c.

policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.

d.

policymakers correctly believed that, in that market, price controls would generate no inequities of their own.

6. Price controls

a.

always produce a fair outcome.

b.

always produce an efficient outcome.

c.

can generate inequities of their own.

d.

Both (a) and (b) are correct.

7. Policymakers use taxes

a.

to raise revenue for public purposes, but not to influence market outcomes.

b.

both to raise revenue for public purposes and to influence market outcomes.

c.

when they realize that price controls alone are insufficient to correct market inequities.

d.

only in those markets in which the burden of the tax falls clearly on the sellers.

Sec01 – Supply, Demand, and Government Policies – Controls on Prices

MULTIPLE CHOICE

1. In a competitive market free of government regulation,

a.

price adjusts until quantity demanded is greater than quantity supplied.

b.

price adjusts until quantity demanded is less than quantity supplied.

c.

price adjusts until quantity demanded equals quantity supplied.

d.

supply adjusts to meet demand at every price.

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

a.

floor.

b.

subsidy.

c.

support.

d.

ceiling.

3. 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.

4. Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?

a.

Policymakers have studied the effects of the price ceiling carefully, and they recognize that the price ceiling is advantageous for society as a whole.

b.

Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.

c.

Sellers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.

d.

Buyers and sellers of milk have agreed that the price ceiling is good for both of them and have therefore pressured policymakers into imposing the price ceiling.

5. 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.

More than one of the above is correct.

6. 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.

7. If a nonbinding price ceiling is imposed on a market, then

a.

the quantity sold in the market will decrease.

b.

the quantity sold in the market will stay the same.

c.

the price in the market will increase.

d.

the price in the market will decrease.

8. 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.

9. A price ceiling is binding when it is set

a.

above the equilibrium price, causing a shortage.

b.

above the equilibrium price, causing a surplus.

c.

below the equilibrium price, causing a shortage.

d.

below the equilibrium price, causing a surplus.

10. To say that a price ceiling is binding is to say that the price ceiling

a.

results in a surplus.

b.

is set above the equilibrium price.

c.

causes quantity demanded to exceed quantity supplied.

d.

All of the above are correct.

11. A shortage results when

a.

a nonbinding price ceiling is imposed on a market.

b.

a nonbinding price ceiling is removed from a market.

c.

a binding price ceiling is imposed on a market.

d.

a binding price ceiling is removed from a market.

12. The imposition of a binding price ceiling on a market causes quantity demanded to be

a.

greater than quantity supplied.

b.

less than quantity supplied.

c.

equal to quantity supplied.

d.

Both (a) and (b) are possible.

13. If a price ceiling is a binding constraint on a market, then

a.

the equilibrium price must be below the price ceiling.

b.

the quantity supplied must exceed the quantity demanded.

c.

sellers cannot sell all they want to sell at the price ceiling.

d.

buyers cannot buy all they want to buy at the price ceiling.

14. Which of the following observations would be consistent with the imposition of a binding price ceiling on a market?

a.

A smaller quantity of the good is bought and sold after the price ceiling becomes effective.

b.

A smaller quantity of the good is demanded after the price ceiling becomes effective.

c.

A larger quantity of the good is supplied after the price ceiling becomes effective.

d.

All of the above are correct.

15. If a binding price ceiling is imposed on the computer market, then

a.

the demand for computers will increase.

b.

the supply of computers will decrease.

c.

a shortage of computers will develop.

d.

All of the above are correct.

16. If a binding price ceiling is imposed on the computer market, then

a.

the quantity of computers demanded will increase.

b.

the quantity of computers supplied will decrease.

c.

a shortage of computers will develop.

d.

All of the above are correct.

17. Suppose the equilibrium price of a physical examination (“physical”) by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,

a.

the demand curve for physicals shifts to the right.

b.

the supply curve for physicals shifts to the left.

c.

the quantity demanded of physicals increases and the quantity supplied of physicals decreases.

d.

the number of physicals performed stays the same.

18. Suppose the government has imposed a price ceiling on televisions. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

a.

Firms expect the price of televisions to fall in the future.

b.

The number of firms selling televisions decreases.

c.

Consumers’ income decreases, and televisions are a normal good.

d.

The number of consumers buying televisions decreases.

19. Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?

a.

Cellular phones become more popular.

b.

Traditional land line phones become more expensive.

c.

The components used to produce cellular phones become more expensive.

d.

A technological advance makes cellular phone production less expensive.

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

a.

increase and the quantity sold in the market will increase.

b.

increase and the quantity sold in the market will decrease.

c.

decrease and the quantity sold in the market will increase.

d.

decrease and the quantity sold in the market will decrease.

21. If the government removes a binding price ceiling from a market, then the price received by sellers will

a.

decrease and the quantity sold in the market will decrease.

b.

decrease and the quantity sold in the market will increase.

c.

increase and the quantity sold in the market will decrease.

d.

increase and the quantity sold in the market will increase.

22. 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.

23. When a binding price ceiling is imposed on a market to benefit buyers,

a.

every buyer in the market benefits.

b.

every seller in the market benefits, too.

c.

every buyer who wants to buy the good will be able to do so, but only if they wait in long lines.

d.

some buyers will not be able to buy any amount of the good.

24. When a binding price ceiling is imposed on a market to benefit buyers,

a.

no buyers actually do benefit.

b.

some buyers benefit, but no buyers are harmed.

c.

some buyers benefit and some buyers are harmed.

d.

all buyers benefit.

25. In response to a shortage caused by the imposition of a binding price ceiling on a market,

a.

price will no longer be the mechanism that rations scarce resources.

b.

long lines of buyers may develop.

c.

sellers could ration the good or service according to their own personal biases.

d.

All of the above are correct.

26. As rationing mechanisms, prices

a.

and long lines are efficient.

b.

are efficient, but long lines are inefficient.

c.

are inefficient, but long lines are efficient.

d.

and long lines are inefficient.

27. As a rationing mechanism, discrimination according to seller bias is

a.

efficient and fair.

b.

efficient, but potentially unfair.

c.

inefficient, but fair.

d.

inefficient and potentially unfair.

28. Long lines

a.

and discrimination according to seller bias are both inefficient rationing mechanisms because they both waste buyers’ time.

b.

and discrimination according to seller bias are both inefficient rationing mechanisms because the good does not necessarily go to the buyer who values it most highly.

c.

are an inefficient rationing mechanism because they waste buyers’ time, and discrimination according to seller bias is an inefficient rationing mechanism because the good does not necessarily go to the buyer who values it most highly.

d.

are an inefficient rationing mechanism because the good does not necessarily go to the buyer who values it most highly, and discrimination according to seller bias is an inefficient rationing mechanism because it wastes buyers’ time.

29. In a free, competitive market, what is the rationing mechanism?

a.

seller bias

b.

buyer bias

c.

government law

d.

price

30. Which of the following would be the least likely result of a binding price ceiling imposed on the market for rental cars?

a.

an accumulation of dirt in the interior of rental cars

b.

poor engine maintenance in rental cars

c.

free gasoline given to people as an incentive to a rent a car

d.

slow replacement of old rental cars with new ones

31. When OPEC raised the price of crude oil in the 1970s, it caused the

a.

demand for gasoline to increase.

b.

demand for gasoline to decrease.

c.

supply of gasoline to increase.

d.

supply of gasoline to decrease.

32. When OPEC raised the price of crude oil in the 1970s, it caused the

a.

supply of gasoline to decrease.

b.

quantity of gasoline demanded to decrease.

c.

equilibrium price of gasoline to increase.

d.

All of the above are correct.

33. When OPEC raised the price of crude oil in the 1970s, it caused the

a.

United States’ nonbinding price floor on gasoline to become binding.

b.

United States’ binding price floor on gasoline to become nonbinding.

c.

United States’ nonbinding price ceiling on gasoline to become binding.

d.

United States’ binding price ceiling on gasoline to become nonbinding.

34. In the United States, before OPEC increased the price of crude oil in 1973, there was

a.

no price ceiling on gasoline.

b.

a nonbinding price ceiling on gasoline.

c.

a binding price ceiling on gasoline.

d.

a nonbinding price floor on gasoline.

35. Economists blame the long lines at gasoline stations in the U.S. in the 1970s on

a.

U.S. government regulations pertaining to the price of gasoline.

b.

the Organization of Petroleum Exporting Countries (OPEC).

c.

major oil companies operating in the U.S.

d.

consumers who bought gasoline frequently, even when their cars’ gasoline tanks were nearly full.

36. Other than OPEC, the shortage of gasoline in the U.S. in the 1970s could also be blamed on

a.

a sharp increase in the demand for gasoline that was brought on by the Vietnam War.

b.

the government’s policy of maintaining a price ceiling on gasoline.

c.

an indifference among U.S. consumers toward conservation.

d.

the lack of substitutes for crude oil.

37. In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that

a.

OPEC raised the price of crude oil in world markets.

b.

U.S. gasoline producers raised the price of gasoline.

c.

the U.S. government maintained a price ceiling on gasoline.

d.

Americans typically commuted long distances.

38. Rent control

a.

serves as an example of how a social problem can be alleviated or even solved by government policies.

b.

serves as an example of a price ceiling.

c.

is regarded by most economists as an efficient way of helping the poor.

d.

is the most efficient way to allocate scarce housing resources.

39. The goal of rent control is to

a.

facilitate controlled economic experiments in urban areas.

b.

help landlords by assuring them a low vacancy rate for their apartments.

c.

help the poor by assuring them an adequate supply of apartments.

d.

help the poor by making housing more affordable.

40. Economists generally believe that rent control is

a.

an efficient and fair way to help the poor.

b.

inefficient, but the best available means of solving 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.

41. One economist has argued that rent control is “the best way to destroy a city, other than bombing.” Why would an economist say this?

a.

He fears that low rents will cause low-income people to move into the city, reducing the quality of life for other people.

b.

He fears that rent control will benefit landlords at the expense of tenants, increasing inequality in the city.

c.

He fears that rent controls will cause a construction boom, which will make the city crowded and more polluted.

d.

He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

42. In the housing market, rent control causes

a.

quantity supplied and quantity demanded to fall.

b.

quantity supplied to fall and quantity demanded to rise.

c.

quantity supplied to rise and quantity demanded to fall.

d.

quantity supplied and quantity demanded to rise.

43. Which of the following is not a short-run effect of rent control on the housing market?

a.

reduced rents

b.

a large shortage

c.

a small increase in quantity demanded

d.

a small decrease in quantity supplied

44. Over time, housing shortages caused by rent control

a.

increase, because the demand for and supply of housing are less elastic in the long run.

b.

increase, because the demand for and supply of housing are more elastic in the long run.

c.

decrease, because the demand for and supply of housing are less elastic in the long run.

d.

decrease, because the demand for and supply of housing are more elastic in the long run.

45. Which of the following statements about the effects of rent control is correct?

a.

The short-run effect of rent control is a surplus of apartments, and the long-run effect of rent control is a shortage of apartments.

b.

The short-run effect of rent control is a relatively small shortage of apartments, and the long-run effect of rent control is a larger shortage of apartments.

c.

In the long run, rent control leads to a shortage of apartments and an improvement in the quality of available apartments.

d.

The effects of rent control are very noticeable to the public in the short run because the primary effects of rent control occur very quickly.

46. The long-run effects of rent controls are a good illustration of the principle that

a.

society faces a short-run tradeoff between unemployment and inflation.

b.

the cost of something is what you give up to get it.

c.

people respond to incentives.

d.

government can sometimes improve on market outcomes.

47. Which of the following is not a rationing mechanism used by landlords in cities with rent control?

a.

waiting lists

b.

race

c.

price

d.

bribes

48. Under rent control, bribery is a mechanism to

a.

bring the total price of an apartment (including the bribe) closer to the equilibrium price.

b.

allocate housing to the poorest individuals in the market.

c.

force the total price of an apartment (including the bribe) to be less than the market price.

d.

allocate housing to the most deserving tenants.

49. Under rent control, landlords cease to be responsive to tenants’ concerns about the quality of the housing because

a.

with rent control, the government guarantees landlords a minimum level of profit.

b.

they become resigned to the fact that many of their apartments are going to be vacant at any given time.

c.

with shortages and waiting lists, they have no incentive to maintain and improve their property.

d.

with rent control, it becomes the government’s responsibility to maintain rental housing.

50. Under rent control, tenants can expect

a.

lower rent and higher quality housing.

b.

lower rent and lower quality housing.

c.

higher rent and a shortage of rental housing.

d.

higher rent and a surplus of rental housing.