Reference no: EM13125911

True or False

1. The price elasticities of supply and demand affect both the size of the deadweight loss from a tax and the tax incidence.

2. Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the supply of the product is more elastic than the demand for the product.

3. Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the good, other things equal, the larger is the deadweight loss of the tax.

4. A price ceiling is a legal minimum on the price at which a good or service can be sold.

5. A price ceiling set below the equilibrium price causes quantity demanded to exceed quantity supplied.

Market	Characteristic
A	Demand is very inelastic.
B	Demand is very elastic.
C	Supply is very inelastic.
D	Supply is very elastic.

 6. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will allow the government to minimize the deadweight loss(es) from the tax?

a.	market A only
b.	markets A and C only
c.	markets B and D only
d.	market C only 7.   Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will maximize the deadweight loss(es) from the tax? a. market B only b. markets A and C only c. markets B and D only d. market D only

8. The vertical distance between points A and B represents a tax in the market.

a) The imposition of the tax causes the quantity sold to increase or decrease by _____ units?

b) The imposition of the tax causes the price paid by buyers to increase or decrease by $_____

c) The imposition of the tax causes the price received by sellers to increase or decrease by $____

d) The amount of the tax on each unit of the good is $_________

e) The per-unit burden of the tax on buyers is $_________

f) The per-unit burden of the tax on sellers is $ _______

g) The amount of tax revenue received by the government is $ ________

h) The amount of deadweight loss as a result of the tax is $________

i) The loss of consumer surplus as a result of the tax is $_______

j) The loss of producer surplus as a result of the tax is $______

k) Consumer surplus without the tax is $ ______

l) Producer surplus without the tax is $______

m) Total surplus without the tax is $_______

9. The vertical distance between points A and B represents a tax in the market.

a) The equilibrium price before the tax is imposed is $______ and quantity is _______

b) The price that buyers effectively pay after the tax is imposed is $________

c) The price that sellers effectively receive after the tax is imposed is $_______

d) The per-unit burden of the tax on buyers is $________

e) The per-unit burden of the tax on sellers is $_______

f) The amount of tax revenue received by the government is equal to $__________

g) The amount of deadweight loss as a result of the tax is $__________

h) The tax results in a loss of consumer surplus that amounts to $_________

i) The tax results in a loss of producer surplus that amounts to $_________

10a. Refer to Figure above: Which of the following price controls would cause a shortage of 20 units of the good?

a.	a price ceiling of $4
b.	a price ceiling of $5
c.	a price floor of $7
d.	a price floor of $8

10b. Refer to Figure above: Which of the following price controls would cause a surplus of 20 units of the good?

a.	a price ceiling of $4
b.	a price ceiling of $5
c.	a price floor of $7
d.	a price floor of $8

10c. Refer to Figure above. Suppose a price ceiling of $5 is imposed on this market. As a result,

a.	the quantity of the good supplied decreases by 20 units.
b.	the demand curve shifts to the left so as to now pass through the point (quantity = 40, price = $5).
c.	buyers' total expenditure on the good decreases by $100.
d.	the price of the good continues to serve as the rationing mechanism.

10d. Refer to Figure above. Suppose a price floor of $7 is imposed on this market. As a result,

a.	buyers' total expenditure on the good decreases by $20.
b.	the supply curve shifts to the left so as to now pass through the point (quantity = 40, price = $7).
c.	the quantity of the good demanded decreases by 20 units.
d.	the price of the good continues to serve as the rationing mechanism.