True/False
Indicate whether the
sentence or statement is true or false.
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1.
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If the equilibrium price of petrol is €1.00
per litre and the government places a price ceiling on petrol of €1.50 per litre, the result
will be a shortage of petrol.
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2.
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A price ceiling set below the equilibrium price
causes a surplus.
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3.
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A price floor set above the equilibrium price is a
binding constraint.
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4.
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The shortage of housing caused by a binding rent
control is likely to be more severe in the long run when compared to the short run.
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5.
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The minimum wage helps all teenagers because they
receive higher wages than they would otherwise.
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6.
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A 10 per cent increase in the minimum wage is more
likely to raise unemployment among teenage workers than among mid-career professional
workers
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7.
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A price ceiling that is not a binding constraint
today could cause a shortage in the future if demand were to increase and raise the equilibrium price
above the fixed price ceiling.
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8.
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A price floor in a market always creates a surplus
in that market.
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9.
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A €10 tax on football boots will always raise
the price that the buyers pay for football boots by €10.
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10.
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The ultimate burden of a tax falls most heavily on
the side of the market that is less elastic.
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11.
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If medicine is a necessity, the burden of a tax on
medicine will probably fall more heavily on the buyers of medicine.
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12.
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When we use the model of supply and demand to
analyse a tax collected from the buyers, we shift the demand curve upward by the size of the
tax.
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13.
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A tax collected from buyers has an equivalent
impact to a same size tax collected from sellers.
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14.
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A tax creates a tax wedge between a buyer and a
seller. This causes the price paid by the buyer to rise, the price received by the seller to fall,
and the quantity sold to fall.
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15.
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The government can choose to place the burden of a
tax on the buyers in a market by collecting the tax from the buyers rather than the
sellers.
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Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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16.
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For a price ceiling to be a binding constraint on
the market, the government must set it
a. | above the equilibrium price. | b. | below the equilibrium price. | c. | precisely at the equilibrium price. | d. | at any price because all price ceilings are binding
constraints. |
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17.
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A binding price ceiling creates
a. | a shortage or a surplus depending on whether the price
ceiling is set above or below the equilibrium price. | b. | a surplus. | c. | a
shortage. | d. | an equilibrium. |
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18.
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Suppose the equilibrium price for apartments is
€500 per month and the government imposes rent controls of €250. Which of the following
is unlikely to occur as a result of the rent controls?
a. | There may be long lines of buyers waiting for
apartments. | b. | Landlords may
discriminate among apartment renters. | c. | Landlords may be
offered bribes to rent apartments. | d. | There will be a
shortage of housing. | e. | The quality of
apartments will improve. |
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19.
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A price floor
a. | always determines the price at which a good must be
sold. | b. | sets a legal maximum on the price at which a good can be
sold. | c. | is not a binding constraint if it is set above the
equilibrium price. | d. | sets a legal
minimum on the price at which a good can be sold. |
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20.
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Which of the following statements about a binding
price ceiling is true?
a. | The shortage created by the price ceiling is greater in
the short run than in the long run. | b. | The surplus
created by the price ceiling is greater in the short run than in the long
run. | c. | The surplus created by the price ceiling is greater in
the long run than in the short run. | d. | The shortage
created by the price ceiling is greater in the long run than in the short
run. |
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21.
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Which side of the market is more likely to lobby
government for a price floor?
a. | the buyers | b. | Neither buyers nor sellers desire a price floor. | c. | the sellers | d. | Both buyers and
sellers desire a price floor. |
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22.
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The surplus caused by a binding price floor will be
greatest if
a. | demand is inelastic and supply is
elastic. | b. | supply is inelastic and demand is
elastic. | c. | both supply and demand are
elastic. | d. | both supply and demand are
inelastic. |
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23.
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Which of the following is an example of a price
floor?
a. | the minimum wage | b. | rent controls | c. | restricting petrol
prices to €1.00 per litre when the equilibrium price is €1.50 per
litre | d. | All of these answers are price
floors. |
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24.
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Which of the following statements is true if the
government places a price ceiling on petrol at €1.50 per litre and the equilibrium price is
€1.00 per litre?
a. | A significant increase in the demand for petrol could
cause the price ceiling to become a binding constraint. | b. | A significant increase in the supply of petrol could cause the price ceiling
to become a binding constraint. | c. | There will be a
shortage of petrol. | d. | There will be a
surplus of petrol. |
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25.
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Which of the following workers would be most likely
to find it more difficult to get a job after a rise in the minimum wage rate?
a. | A teenage worker with few
qualifications. | b. | A manual worker
with fifteen years of work experience. | c. | A professional
worker with a university degree. | d. | All three are
equally likely to find it difficult to get a job. |
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26.
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Within the supply and demand model, a tax collected
from the buyers of a good shifts the
a. | supply curve downward by the size of the tax per
unit. | b. | supply curve upward by the size of the tax per
unit. | c. | demand curve upward by the size of the tax per
unit. | d. | demand curve downward by the size of the tax per
unit. |
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27.
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Within the supply and demand model, a tax collected
from the sellers of a good shifts the
a. | demand curve downward by the size of the tax per
unit. | b. | supply curve downward by the size of the tax per
unit. | c. | demand curve upward by the size of the tax per
unit. | d. | supply curve upward by the size of the tax per
unit. |
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28.
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Which of the following takes place when a tax is
placed a good?
a. | a decrease in the price buyers pay, an increase in the
price sellers receive, and a decrease in the quantity sold | b. | an increase in the price buyers pay, a decrease in the price sellers receive,
and an increase in the quantity sold | c. | a decrease in the
price buyers pay, an increase in the price sellers receive, and an increase in the quantity
sold | d. | an increase in the price buyers pay, a decrease in the
price sellers receive, and a decrease in the quantity sold |
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29.
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When a tax is collected from the buyers in a
market,
a. | the tax burden falls most heavily on the
buyers. | b. | the buyers bear the burden of the
tax. | c. | the sellers bear the burden of the
tax. | d. | the tax burden on the buyers and sellers is the same as
an equivalent tax collected from the sellers. |
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30.
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A tax of €1.00 per litre on
petrol
a. | places a tax wedge of €1.00 between the price the
buyers pay and the price the sellers receive. | b. | decreases the
price the sellers receive by €1.00 per litre. | c. | increases the price the buyers pay by €1.00 per
litre. | d. | increases the price the buyers pay by precisely
€0.50 and reduces the price received by sellers by precisely
€0.50. |
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31.
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The burden of a tax falls more heavily on the
sellers in a market when
a. | both supply and demand are
elastic. | b. | both supply and demand are
inelastic. | c. | demand is
inelastic and supply is elastic. | d. | demand is elastic
and supply is inelastic. |
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32.
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A tax placed on a good that is a necessity for
consumers will likely generate a tax burden that
a. | falls more heavily on
sellers. | b. | falls entirely on sellers. | c. | falls more heavily on buyers. | d. | is evenly distributed between buyers and
sellers. |
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33.
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The burden of a tax falls more heavily on the
buyers in a market when
a. | both supply and demand are
inelastic. | b. | demand is elastic
and supply is inelastic. | c. | both supply and
demand are elastic. | d. | demand is
inelastic and supply is elastic. |
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34.
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Which of the following statements about the burden
of a tax is correct?
a. | The tax burden generated from a tax placed on a good
consumers perceive to be a necessity will fall most heavily on the sellers of the
good. | b. | The burden of a tax falls on the side of the market
(buyers or sellers) from which it is collected. | c. | The distribution
of the burden of a tax is determined by the relative elasticities of supply and demand and is not
determined by legislation. | d. | The tax burden
falls most heavily on the side of the market (buyers or sellers) that is most willing to leave the
market when price movements are unfavourable to them. |
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35.
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For which of the following products would the
burden of a tax likely fall more heavily on the sellers?
a. | clothing | b. | food | c. | housing | d. | entertainment |
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