Quiz 4 Tax Price Floor Price Ceiling (Extra MCQs for Topic 2 and 3)

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Quiz 4 (Chapter 5 and 6) 1. Which of the following is NOT correct? A. Consumer surplus = Value to buyers – Amount paid by buyers B. Producer surplus = Amount received by sellers – Cost of sellers C. Total surplus = Value to buyers – Amount paid by buyers + Amount received by sellers – Costs of sellers D. Total surplus = Value to sellers – Costs of sellers 2. Total surplus in a market is: A. the total costs to sellers of providing the goods less the total value to buyers of the goods. B. always less than consumer surplus plus producer surplus. C. the total value to buyers of the goods less the costs to sellers of providing those goods. D. always greater than consumer surplus plus producer surplus. 3. If buyers are required to pay a $0.10 tax per bag on popcorn, the demand for popcorn will shift: A. up by $0.10 per bag. B. up by $0.05 per bag. C. down by $0.10 per bag. D. down by $0.05 per bag. 4. 4. If the government fixes the price of good X below its equilibrium level we should expect A) A surplus of good X to occur B) Suppliers to encourage government purchase of the good at the fixed price C) Suppliers to offer consumers nonprime incentives to purchase good X D) A black market for good X to arise 5. The imposition of an effective minimum wage above the equilibrium wage in the unskilled labour market will A) Increase the number of unskilled people employed, because of an increase in the quantity demanded B) Increase the number of unskilled people employed, because of an increase in the quantity supplied C) Decrease the number of unskilled people employed, because of a decrease in the quantity demanded D) Decrease the number of unskilled people employed, because of a decrease in the quantity supplied 6. The consumer surplus may be defined as the net benefit to a consumer arising from a) The difference between what the consumer currently pays for a product and its previous highest price b) The difference between what the consumer currently pays for a product and its previous lowest price c) The difference between what the consumer is prepared to pay for a product and the amount the consumer actually pays d) The difference between the retail price of a product and its second-hand value 7. Consumer and producer surplus can be used to measure the impact of changes in a particular market on a) Household savings and business profits b) Purchases and sale of goods in excess of current consumption requirements and stock replenishment levels c) The welfare of buyers and sellers d) None of the above 8. If the demand schedule for good Y is highly elastic (i.e. quantity demanded is highly responsive to price changes) producers will pay most of any excise tax placed on good Y a) Because consumers will tend to purchase substitute goods if the price of y increases b) Because producers of Y employ resources which they can easily shift to other uses c) Because the government requires that producers collect the excise tax d) Because consumers will not lower consumption of Y even if the price of good Y increases a lot 9. In general, given the elasticity of supply, the less elastic is demand A) The greater the burden of the incidence of the tax on both buyers and suppliers B) The less the burden of the incidence of the tax on both buyers and suppliers C) The greater the burden of the incidence if the tax on buyers, and the smaller the burden of the incidence on suppliers D) The less the burden of the incidence of the tax on buyers, and the greater the burden of the incidence on suppliers 10. A tax on the buyers of popcorn: Chapter 5 and 6 1

A. increases the size of the popcorn market. B. reduces the size of the popcorn market. C. has no effect on the size of the popcorn market. D. may increase, decrease, or have no effect on the size of the popcorn market. 11. A binding price ceiling in the computer market will cause: A. a surplus of computers. B. a shortage of computers. C. quantity demanded of computers to be equal to quantity supplied. D. an increase in the demand for computers. 12. .John buys good X, and would be willing to pay more than he now has to pay. Suppose that John has a change in his tastes such that he values good X more than before. If the market price is the same as before, then: A. John’s consumer surplus would be unaffected. B. John’s consumer surplus would increase. C. John’s consumer surplus would decrease. D. John would be wise to buy less of good X than before. 13. In most markets, consumer surplus: A. reflects economic wellbeing. B. reflects the total value that buyers place on goods or services. C. reflects the benefit to buyers mandated by government. D. All of the above are correct. 14. According to Graph above, the equilibrium price in the market before the tax is imposed is: A. $8.00. B. $6.00. C. $5.00. D. $3.50. 15 According to Graph above, the price buyers will pay after the tax is imposed is: A. $8.00. B. $6.00. C. $5.00. D. $3.50. 16. According to Graph above, the price sellers receive after the tax is imposed is: A. $8.00. B. $6.00. C. $5.00. D. $3.50. 17. According to Graph above, the amount of the tax imposed in this market is: A. $1.00. B. $1.50. C. $2.50. D. $3.00. 18. According to Graph above, the amount of the tax that buyers would pay would be: A. $1.00. B. $1.50. C. $2.00. Chapter 5 and 6 2

D. $3.00. 19. According to Graph above, the amount of the tax that sellers would pay would be: A. $1.00. B. $1.50. C. $2.00. D. $3.00. 20. A binding price ceiling will make it necessary to: A. supply more of the product. B. develop a way of rationing the product, because there will be a shortage. C. develop a better marketing plan, because there will be a surplus. D. increase demand for the product, because there will be a surplus. 21. A tax on the buyers of popcorn will: A. reduce the equilibrium price of popcorn, and increase the equilibrium quantity. B. increase the equilibrium price of popcorn, and reduce the equilibrium quantity. C. increase the equilibrium price of popcorn, and increase the equilibrium quantity. D. reduce the equilibrium price of popcorn, and reduce the equilibrium quantity. 22. A tax on the buyers of popcorn 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. 23. If Dale sells a shirt for $40, and his producer surplus from the sale is $23, his cost must have been: A. $63. B. $40. C. $23. D. $17. 24. Suppose that the elasticity of demand for soft drinks is 0.5 and that the elasticity of supply is 1.5. If the government applies a specific tax on soft drinks the tax will fall a) More heavily on consumers than on the producers b) More heavily on producers than on consumers c) Equally on producers and consumers d) On either consumers or producers, or both, but we cannot say how unless we are given more information about the costs of production for producers, and about the strength of consumers’ desire for soft drinks 25. Ken earns $5 million for playing cricket. His producer surplus is $4.5 million. His willingness to sell is: A. $5 million. B. $4.5 million. C. $0.5 million. D. $9.5 million. 26. John and Sally sell lemonade on the corner for $0.10 per glass. Their producer surplus is $0.06 per glass. Their willingness to sell is: A. $0.16. B. $0.10. C. $0.06. D. $0.04. 27. Which is the most correct statement about the burden of a tax imposed on buyers of popcorn? A. Buyers bear the entire burden of the tax. B. Sellers bear the entire burden of the tax. C. Buyers and sellers share the burden of the tax. D. The government bears the entire burden of the tax. 28. The initial impact of a tax on the sellers of a product is on: A. the supply of the product. B. the demand for the product. C. both the supply of the product and the demand for the product. D. the price of the product. Chapter 5 and 6 3

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29. A price ceiling occurs A) When the supply and demand curves intersect at a positive price and positive quantity B) At the vertical intercept of the demand curve. Consumers will buy none of the good at this or higher prices C) At the vertical intercept of the supply curve. No matter how little consumers demand the price will never fall below this ceiling D) Whenever the government imposes an upper limit on the price at which a good can be bought or sold 30. Suppose that the equilibrium before-tax price of wine is $50 a case, and that the elasticity of supply of wine is unitary. The equilibrium quantity at this price is a hundred cases a week. Then the government imposes a specific tax on wine of $10 a case. The new quantity bought and sold each week will be a) 80 cases b) 120 cases c) 100 cases d) Impossible to determine from the information given 31. The effectiveness of a price ceiling in reducing the quantity of a good produced depends on A) Whether or not the price ceiling is legal B) The elasticity of the supply curve C) The responsiveness of consumers D) The ability of the government to encourage black market trading 32. The division of the burden of taxes between buyers and sellers is referred to as A) A price ceiling B) A price floor C) A black market D) Tax incidence 33. If the demand for agricultural products is inelastic an increase in total output will cause A) Market price to rise and quantity demanded to fall B) A decrease in the income of farmers C) Government price supports to decrease D) An increase in quantity supplied, but no change in market price 34. Given the equilibrium price of the natural gas is $2.40, if a price ceiling of $1.44 is imposed A) The quantity demanded will be greater than the quantity supplied resulting in a glut of natural gas on the market B) The quantity supplied will be greater than the quantity demanded, resulting in a glut of natural gas on the market C) The quantity demanded will be greater than the quantity supplied, resulting in a shortage of natural gas D) The quantity supplied will be greater than the quantity demanded, resulting a shortage of natural gas 35. Effective price ceilings generate A) Spill over benefits B) Shortages C) Surpluses D) Spill over costs 36. If the tax on cigarettes is increased by $0.50 per packet we should expect a) The consumer to pay more of the tax the more elastic the demand for cigarettes b) The equilibrium price to be $0.50 higher if demand is perfectly elastic c) Government revenue from the tax to increase if cigarette demand is relatively inelastic d) The suppliers to pay all of the tax if demand is completely inelastic 37. In general, given the elasticity of demand, the less elastic is supply a) The greater the burden of the incidence of the tax on suppliers, and the smaller the burden of the incidence on buyers Chapter 5 and 6 4

b) The smaller the burden of the incidence of the tax on suppliers, and the greater the burden of the incidence on buyers c) The greater the burden of the incidence of the tax on both suppliers and buyers d) The smaller the burden of the incidence of the tax on both suppliers and buyers 38. Suppose that the demand for cigarettes is perfectly inelastic, whereas the elasticity of supply is one. The equilibrium price is $1 a packet and the equilibrium quantity is 1000 packets a week. Then the government imposes a tax of $0.20 per pack. The new equilibrium price will be a) $ 1.10 and the new equilibrium quantity will be 900 packets b) $ 1.20 and the new equilibrium quantity will be 800 packets c) $ 1.00 and the new equilibrium quantity will be 1000 packets d) $ 1.20 and the new equilibrium quantity will be 1000 packets 39. A tax of $2 per bag on the buyers of popcorn will cause the demand for popcorn to: a. shift upward by $2 per bag. b. Shift rightward by $2 per bag bc. Shift downward by $2 per bag d. Shift leftward by $2 per bad. 40. A tax on buyers is a. equilivant to a tax on sellers b. Likely to be harder on the poor than a tax on sellers c. harder to shift than a tax on sellers d. easier to shift than a tax n sellers. 41. A price floor below the equilibrium price causes: a. shortages b. Surpluses c. Excess supply d. None of the above 42. Economic efficiency means maximising: a. total economic wellbeing b. consumer surplus c. producer surplus d. total surplus 43. A subsidy typically has the effect of a) Increasing price and quantity demanded b) Reducing price and quantity demanded c) Increasing price and reducing quantity demanded d) Reducing price and increasing quantity demanded 44. The producer surplus may be defined as the net benefit of a producer arising from a) The difference between what a producer requires to supply a good and the amount the producers actually receives b) The difference between what a producer receives for the sale of product and the opportunity cost of keeping the product as stock c) The difference between what a producer receives for the sale of a product and its previous lowest price d) The difference between what a producer receives for the sale of a product and its previous highest price 45. At any output, the height of the demand curve measures a) The consumer surplus b) The difference between the buyer’s willingness to pay and the market price c) The total profit of the seller d) The value buyers place on one more unit of the good D P 8 4 46. Given the demand curve opposite, if the price of The good is $4 and the consumer is purchasing 5 units The value of the consumer surplus would be a) $10 b) $15 c) $20 d) $30 Q 5 Chapter 5 and 6 5

47. Suppose the government imposes an excise tax of $1 per gallon of gasoline. The amount of tax revenue Raised would be a) $3 mil b) $6 mil c) $9 mil d) $10 mil 48. The diagram opposite shows the apple market. Suppose a price ceiling of $5 per kg is enacted by The government. Suppose further that the government agrees to pay a subsidy to apple growers just sufficient to induce them to produce the quantity of apples chosen by consumers. The cost to the government of this subsidy program will be a) $1,000 b) $2,000 c) $3,500 d) $4,000 49. If a tax is imposed on a market with inelastic demand and elastic supply, a. buyers will bear most of the burden of the tax. b. sellers will bear most of the burden of the tax. c. the burden of the tax will be shared equally between buyers and sellers. d. it is impossible to determine how the burden of the tax will be shared. 50. Total surplus in a market is a. the total costs to sellers of providing the goods less the total value to buyers of the goods, as measured by their willingness to pay. b. always less than consumer surplus plus producer surplus. c. the total value to buyers of the goods, as measured by their willingness to pay, less the costs to sellers of providing those goods. d. always greater than consumer surplus plus producer surplus S D 6 9 Q S D $5 $7 300 500 51. The government’s tax revenue from an excise tax will be a. greater the more elastic are the demand for and supply of the taxed goods. b. greater the less elastic are the demand for and supply of the taxed goods. c. less if the tax is collected from buyers. d. less if the tax is collected from sellers. 52. When Judy was shopping for her present home, the asking price from the previous owner was $350,000. Judy decided that she would pay no more than $330,000. After a lengthy negotiation with the previous owner, Judy actually purchased the house for $300,000. She therefore enjoyed a consumer surplus of a. $20,000. b. $30,000. c. $50,000. d. $300,000. 53. Producing less than the market’s equilibrium quantity of ice creams means that: a. resources must have had a higher valued alternative use producing something else. b. consumer surplus will be higher than otherwise would be the case. c. producer surplus will be higher than otherwise would be the case. d. an additional ice cream would add more to society’s benefit that to its cost. 54. Which of the following is an example of a price floor? a. Rent control b. Minimum wage c. Subsidised pharmaceutical drugs d. Medicare 55. All else being equal, a binding price ceiling will cause greater shortages if: a. both supply and demand are inelastic b. both supply and demand are elastic c. supply is elastic, but demand is inelastic. d. Supply is inelastic, but demand is elastic. Chapter 5 and 6 6

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Quiz 4 Tax Price Floor Price Ceiling (Extra MCQs for Topic 2 and 3)

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