cyber21

When a tax on a good or service is imposed on the producers of the good or service, the:

A) supply will decrease, but the incidence of the tax falls on the sellers only.

B) supply will decrease, but the incidence of the tax falls on both buyers and sellers.

C) demand will decrease, but the incidence of the tax falls on both buyers and sellers.

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When a tax is imposed on the producers of a good or service, they will reduce supply at any given level or market price, because they receive the market price minus the tax. However, the incidence of the tax, meaning how its cost is shared, falls on both the buyers and the sellers, depending upon the relative elasticities of supply and demand.

cyber21

The actual incidence of a tax imposed on buyers or sellers is most accurately defined as:

A) the amount of tax times the equilibrium quantity.

B) the proportion of the tax burden borne by buyers and sellers.

C) the party legally responsible for paying the tax.

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Tax revenue is the amount of a tax times the equilibrium quantity. Statutory tax incidence refers to who is legally responsible for paying a tax. Actual tax incidence represents the extent to which buyers bear the cost of the tax through a higher price paid and sellers bear the cost through a lower price received.

cyber21

Which of the following statements about a tax imposed on buyers or suppliers is most accurate?

A) If demand is less elastic than supply, consumers will bear a lower proportion of the tax than suppliers.

B) The proportion of the tax is borne equally by consumers and suppliers, regardless of supply and demand elasticity.

C) If demand is less elastic than supply, consumers will bear a higher proportion of the tax than suppliers.

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If demand is less elastic than supply, consumers will bear a higher proportion of the tax than suppliers. If supply is less elastic than demand, suppliers will bear a higher proportion of the tax than consumers.

cyber21

Which of the following is the most likely effect of a subsidy in the market for corn?

A) The supply curve for corn will shift to the right.

B) Marginal costs will be less than marginal benefit.

C) The equilibrium quantity of corn will decrease.

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A subsidy causes a shift rightward in the supply curve (increase in supply at a given price level) by the amount of the subsidy. The equilibrium quantity will increase and the price paid by buyers will decrease. Marginal cost will exceed marginal benefit and a deadweight loss will result from overproduction.

cyber21

An example of a price floor is:

A) a minimum price for milk.

B) a tax on ceramic tile.

C) rent control.

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A price floor is a minimum on the price that suppliers can charge. Such floors were once common in agricultural markets.

cyber21

Which of the following is the most likely effect of a quota on wheat?

A) The supply curve will shift downward.

B) Nothing if the quota is set above the equilibrium quantity.

C) Marginal costs will be greater than marginal benefit.

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A quota does not cause the supply curve to shift. The equilibrium quantity will decrease to the quota amount. Marginal cost will be less than marginal benefit, leading to a deadweight loss from underproduction.

cyber21

The imposition of a tax on producers but not on buyers in a market currently in equilibrium is most likely to increase:

A) price paid by buyers and reduce quantity demanded.

B) quantity supplied and price paid by buyers.

C) actual tax incidence on producers but not on buyers.

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The imposition of a tax on producers is likely to result in an upward shift in the supply curve, a reduction in the equilibrium quantity supplied and demanded, an increase in equilibrium price, and an increase in taxes paid by both suppliers and buyers. Actual tax incidence refers to taxes paid and not statutory taxes, thus actual tax incidence is likely to rise on both producers and buyers as market prices rise.

cyber21

Which of the following most accurately describes the impact of a price ceiling set below the equilibrium price for a good and a minimum wage set above the equilibrium wage, respectively?

A) Shortage; increased unemployment.

B) Shortage; decreased unemployment.

C) Surplus; increased unemployment.

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A ceiling that is below the equilibrium price for a good will result in a shortage characterized by a quantity demanded that is greater than the quantity supplied. A minimum wage leads to increased unemployment as firms tend to substitute capital for labor. Even though there are often a large number of unemployed low-skilled workers who may be willing to work at a wage lower than the minimum wage, firms cannot legally hire them.

cyber21

The effect of a price ceiling set above the equilibrium price is most accurately described by which of the following statements?

A) It will have no effect on equilibrium price and quantity.

B) Quantity demanded will exceed quantity supplied.

C) Quantity supplied will exceed quantity demanded.

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If a price ceiling is above the equilibrium price, it will have no effect on price or quantity.

cyber21

Which of the following is least likely to be the long-run effect of a price ceiling that is set below the equilibrium price?

A) Consumers have to wait to make purchases.

B) Sellers improve quality.

C) Sellers take bribes.

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Under price ceilings, sellers may reduce the quality of goods to a level that reflects the imposed ceiling price.