Multiple Questions (30-35 questions)

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.
ANSWER: c

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. both a minimum rent and a maximum rent that landlords may charge tenants.
ANSWER: b

3. 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 tax a good.
d. All of the above are correct.
ANSWER: b

4. Price controls
a. always produce a fair outcome.
b. always produce an efficient outcome.
c. can generate inequities of their own.
d. All of the above are correct.
ANSWER: c

5. 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.
ANSWER: c

6. 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.
ANSWER: b

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

a. quantity sold in the market will decrease.
b. quantity sold in the market will stay the same.
c. price in the market will increase.
d. price in the market will decrease.
ANSWER: b

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. a smaller quantity of the good is bought and sold.
b. a smaller quantity of the good is demanded.
c. a larger quantity of the good is supplied.
d. the price rises above the previous equilibrium.
ANSWER: a

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

a. no buyers actually benefit.
b. some buyers benefit, but no buyers are harmed.
c. some buyers benefit, and some buyers are harmed.
d. all buyers benefit.
ANSWER: c

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.
ANSWER: c

11. The imposition of a binding price ceiling on a market causes

a. quantity demanded to be greater than quantity supplied.
b. quantity demanded to be less than quantity supplied.
c. quantity demanded to be equal to quantity supplied.
d. the price of the good to be greater than its equilibrium price.
ANSWER: a

12. 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, the
a. demand curve for physicals shifts to the right.
b. supply curve for physicals shifts to the left.
c. quantity demanded of physicals increases, and the quantity supplied of physicals decreases.
d. number of physicals performed stays the same.
ANSWER: c

13. Figure 6-1

Panel (a) Panel (b)

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)
ANSWER: b

14. Figure 6-2

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.
ANSWER: d

15. A legal minimum on the price at which a good can be sold is called a
a. price subsidy.
b. price floor.
c. tax.
d. price ceiling.
ANSWER: b

16. Which of the following is the most likely explanation for the imposition of a price floor on the market
for corn?
a. Policymakers have studied the effects of the price floor carefully, and they recognize that the
price floor is advantageous for society as a whole.
b. Buyers and sellers of corn have agreed that the price floor is good for both of them and have
therefore pressured policy makers into imposing the price floor.
c. Buyers of corn, recognizing that the price floor is good for them, have pressured policymakers
into imposing the price floor.
d. Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers
into imposing the price floor.
ANSWER: d

17. 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.
ANSWER: c

18. If the government removes a tax on a good, then the quantity of the good sold will
a. increase.
b. decrease.
c. not change.
d. All of the above are possible.
ANSWER: a

19. A tax on the sellers of coffee mugs

a. increases the size of the coffee mug market.
b. decreases the size of the coffee mug market.
c. has no effect on the size of the coffee mug market.
d. may increase, decrease, or have no effect on the size of the coffee mug market.
ANSWER: b

20. A tax on the sellers of coffee will increase the price of coffee paid by buyers,
a. increase the effective price of coffee received by sellers, and increase the equilibrium quantity
of coffee.
 b. increase the effective price of coffee received by sellers, and decrease the equilibrium quantity
of coffee.
c. decrease the effective price of coffee received by sellers, and increase the equilibrium quantity
of coffee.
d. decrease the effective price of coffee received by sellers, and decrease the equilibrium
quantity of coffee.
ANSWER: d

21. If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of
boats would
a. increase by more than $1,000.
b. increase by exactly $1,000.
c. increase by less than $1,000.
d. decrease by an indeterminate amount.
ANSWER: c

22. When a tax is levied on sellers of tea,

a. the well-being of both sellers and buyers of tea is unaffected.
b. sellers of tea are made worse off, and the well-being of buyers is unaffected.
c. sellers of tea are made worse off, and buyers of tea are made better off.
d. both sellers and buyers of tea are made worse off.
ANSWER: d

Figure 6-33
The diagram shows the effect of a tax as measured by the distance between J and K.

23. Refer to Figure 6-33. Based upon the diagram,

a. the incidence of the tax falls more heavily on buyers.
b. the incidence of the tax falls more heavily on sellers.
c. the incidence of the tax is shared equally by both buyers and sellers.
 d. the incidence of the tax cannot be determined based upon the information in the diagram.
ANSWER: b

24. Refer to Figure 6-33. Based upon the diagram,

a. more of the incidence of the tax is on buyers, since the demand curve is more elastic than the
supply curve.
b. more of the incidence of the tax is on sellers, since the demand curve is less elastic than is the
supply curve .
c. more of the incidence of the tax is on sellers, since supply is more inelastic than demand.
d. more of the incidence of the tax is on buyers, since supply is more inelastic than demand.
ANSWER: c

Figure 6-30
Panel (a) Panel (b)

Panel (c)
25. Refer to Figure 6-30. In which market will the majority of the tax burden fall on sellers?
a. the market shown in panel (a).
b. the market shown in panel (b).
c. the market shown in panel (c).
d. All of the above are correct.
ANSWER: a

26. Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively
elastic. When cigarettes are taxed, we would expect
a. most of the burden of the tax to fall on sellers of cigarettes, regardless of whether buyers or
sellers of cigarettes are required to pay the tax to the government.
b. most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or
sellers of cigarettes are required to pay the tax to the government.
c. the distribution of the tax burden between buyers and sellers of cigarettes to depend on
whether buyers or sellers of cigarettes are required to pay the tax to the government.
d. a large percentage of smokers to quit smoking in response to the tax.
ANSWER: b

27. Which of the following statements is correct?

a. A tax levied on buyers will never be partially paid by sellers.
b. Who actually pays a tax depends on the price elasticities of supply and demand.
c. Government can decide who actually pays a tax.
d. A tax levied on sellers always will be passed on completely to buyers.
ANSWER: b

28. Which of the following is correct? A tax burden

a. falls more heavily on the side of the market that is more elastic.
b. falls more heavily on the side of the market that is less elastic.
c. falls more heavily on the side of the market that is closest to unit elastic.
d. is distributed independently of the relative elasticities of supply and demand.
ANSWER: b
29. The demand for salt is inelastic, and the supply of salt is elastic. The demand for caviar is elastic, and
the supply of caviar is inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt, and a
tax of $1 per pound is levied on the buyers of caviar. We would expect that most of the burden of these
taxes will fall on
a. sellers of salt and the buyers of caviar.
b. sellers of salt and the sellers of caviar.
c. buyers of salt and the sellers of caviar.
d. buyers of salt and the buyers of caviar.
ANSWER: c

30. Suppose that a tax is placed on books. If the sellers pay the majority of the tax, then we know that the
a. demand is more inelastic than the supply.
b. supply is more inelastic than the demand.
c. government has required that buyers remit the tax payments.
d. government has required that sellers remit the tax payments.
ANSWER: b