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.

cyber21

If a price ceiling is above the equilibrium price in a given market, its effect will most likely be:

A) nothing.

B) a surplus.

C) a shortage.

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A ceiling is only effective if it is below the equilibrium price. If it is above the equilibrium price, then it should have no effect. If the ceiling is below the equilibrium price, it will produce a shortage. In such a case, suppliers do not produce as much as consumers wish to buy at the ceiling price.

cyber21

New legislation setting a price ceiling will most likely cause:

A) a market surplus.

B) a decrease in demand.

C) a market shortage.

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Price ceilings restrict the producer from increasing the selling price. The lower price will stimulate demand by consumers at this lower price. However, since producers will not be able to increase price there is little incentive for them to increase supply. Hence, production and supply will be limited at the price ceiling leading to a market shortage.