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Chapter 4 Review Questions

The document contains 30 multiple choice and essay questions about economics concepts related to supply and demand, price controls, consumer and producer surplus, and tax incidence. Specifically, it tests understanding of: - How price controls like price floors and ceilings impact markets - How to calculate consumer and producer surplus in supply/demand diagrams - How taxes affect market equilibrium and who bears the burden between consumers and producers - How to use supply/demand diagrams to show the impacts of taxes and calculate excess burden. The essay questions ask to use a supply/demand diagram of the gasoline market to: calculate the tax amount; who pays the tax; quantities; revenues; tax revenue; excess burden; and determine if the tax

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Diamante Gomez
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2K views5 pages

Chapter 4 Review Questions

The document contains 30 multiple choice and essay questions about economics concepts related to supply and demand, price controls, consumer and producer surplus, and tax incidence. Specifically, it tests understanding of: - How price controls like price floors and ceilings impact markets - How to calculate consumer and producer surplus in supply/demand diagrams - How taxes affect market equilibrium and who bears the burden between consumers and producers - How to use supply/demand diagrams to show the impacts of taxes and calculate excess burden. The essay questions ask to use a supply/demand diagram of the gasoline market to: calculate the tax amount; who pays the tax; quantities; revenues; tax revenue; excess burden; and determine if the tax

Uploaded by

Diamante Gomez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Review Questions Chapter 4

1) The price system


A) is the only way to allocate goods.
B) is inefficient.
C) automatically distributes scarce goods.
D) requires government help to allocate goods.
2) If the government imposes a maximum price that is above the equilibrium price,
A) the available supply will have to be rationed with a nonprice rationing mechanism.
B) this maximum price will have no economic impact.
C) demand will be greater than supply.
D) quantity demanded will be less than quantity supplied.
Refer to the information provided in Figure 4.1 below to answer the questions that follow.

Figure 4.1
3) Refer to Figure 4.1. At the world price of 30 cents per apple the United States imports ________ million apples per day.
A) 2
B) 4
C) 6
D) 10
4) A price ceiling is
A) a minimum price set by government that sellers must charge for a good.
B) the difference between the initial equilibrium price and the equilibrium price after a decrease in supply.
C) a maximum price set by government that sellers may charge for a good.
D) the minimum price that consumers are willing to pay for a good.
5) A price floor is
A) the difference between the initial equilibrium price and the equilibrium price after a decrease in supply.
B) a minimum price set by government that sellers must charge for a good.
C) the minimum price that consumers are willing to pay for a good.
D) a maximum price set by government that sellers may charge for a good.
6) If the price floor is set below the equilibrium price,
A) the floor will be ineffective.
B) there will be a surplus.
C) quantity demanded will be less than quantity supplied.
D) there will be a shortage.
7) If the price ceiling is set above the equilibrium price,
A) there will be a surplus.

B) demand will be less than supply.


C) there will be a shortage.
D) quantity demanded will equal quantity supplied.
8) Related to the Economics in Practice on p. 82: If a hurricane results in the supply of hotel rooms decreasing and the
equilibrium price for hotel rooms increases, the demand for hotel rooms ________ and total revenue from the sale of hotel
rooms ________.
A) may have increased, decreased, or stayed the same; will decrease
B) has decreased; will decrease
C) has decreased; may increase, decrease, or stay the same
D) may have increased, decreased, or stayed the same; may increase, decrease, or stay the same
9) Producer surplus is
A) the difference between the maximum a person is willing to pay and current market price.
B) the difference between current market price and full costs of production for the firm.
C) current market price.
D) the difference between willingness to sell and full costs of productions for the firm.
10) Consumer surplus is
A) current market price.
B) the difference between the maximum a person is willing to pay and current market price.
C) the difference between the maximum a person is willing to pay and full costs of productions for the firm.
D) the difference between current market price and full costs of production for the firm.
11) If the most someone is willing to pay for ticket to see their favorite team is $100 and the market price of the ticket is
$35, then this buyer will get consumer surplus of
A) 1 ticket.
B) $35. C) $65. D) $100.
Refer to the information provided in Figure 4.6 below to answer the questions that follow.
Equilibrium in this market occurs at the intersection of curves S and D.

Figure 4.6
12) In figure 4.6 at equilibrium, consumer surplus is area
A) G. B) E+F+G.
C) A. D) A+B+C.
13) In figure 4.6 at equilibrium, producer surplus is area
A) E+F+G.
B) A. C) G. D) A+B+C.
14) In figure 4.6 if price is P1, consumer surplus is area
A) A. B) G. C) A+B+E.
D) B+C+E+F+G.
15) In figure 4.6 if price is P1, producer surplus is area

A) B++E+G.

B) A.

C) G.

D) A+B+E.

16) In figure 4.6 if price is P1, the deadweight loss due to under production is area
A) F+G. B) E+G. C) A+C. D) C+F
17) In figure 4.6 if price goes from equilibrium to P1, consumer surplus changes by the area
A) E-C. B) B-F. C) C+E. D) E+F.
18) The total of consumer plus producer surplus is greatest
A) at the market equilibrium. B) when producer surplus is maximized.
C) when consumer surplus is maximized.
D) all of the above
19) When there is overproduction in a market,
A) market price is too low.
B) there is excess quantity demanded.
C) there is a deadweight loss.
D) the total of consumer and producer surplus is maximized.
20) The actual division of the burden of a tax between buyers and sellers in a market is called
A) tax bearer. B) tax parity.
C) tax liability. D) tax incidence.
Figure 4-8

Figure 4-8 shows the market for beer. The government plans to impose a unit tax in this market.
21) Refer to Figure 4-8. What is the size of the unit tax?
A) $2 B) $5 C) $7 D) $12
22) Refer to Figure 4-8. How much of the tax is paid by buyers?
A) $2 B) $5 C) $7 D) $12
23) Refer to Figure 4-8. The price buyers pay after the tax is
A) $7. B) $20. C) $22. D) $27.
24) Refer to Figure 4-8. As a result of the tax, is there a loss in consumer surplus?
A) No, because the producer pays the tax.
B) No, because consumers are charged a lower price to cover their tax burden.
C) Yes, because consumers paying a price above the economically efficient price.
D) No, because the market reaches a new equilibrium
25) Suppose the demand curve for a product is vertical and the supply curve is upward sloping. If a unit tax is imposed in

the market for this product,


A) sellers bear the entire burden of the tax.
B) buyers share the burden of the tax with government.
C) buyers bear the entire burden of the tax.
D) the tax burden will be shared equally between buyers and sellers.
26) Suppose the demand curve for a product is horizontal and the supply curve is upward sloping. If a unit tax is
imposed in the market for this product,
A) the tax burden will be shared by buyers and sellers.
B) buyers bear the entire burden of the tax.
C) sellers bear the entire burden of the tax.
D) the tax burden will be shared among the government, buyers and sellers.
Figure 4-9

27) Refer to Figure 4-9. Suppose the market is initially in equilibrium at price P0 and now the government imposes a tax
on every unit sold. Which of the following statements best describes the impact of the tax? For demand curve D0
A) the producer's share of the tax burden is the same whether the supply curve is S0 or S1.
B) the producer bears the entire burden of the tax if the supply curve is S0 and the consumer bears the entire burden of
the tax if the supply curve is S1.
C) the producer bears a greater share of the tax burden if the supply curve is S0.
D) the producer bears a greater share of the tax burden if the supply curve is S1.
Figure 4-10

28) Refer to Figure 4-10. Suppose the market is initially in equilibrium at price P0 and then the government imposes a
tax on every unit sold. Which of the following statements best describes the impact of the tax?
A) The consumer's share of the tax burden is the same whether the demand curve is D0 or D1.

B) The consumer will bear the entire burden of the tax if the demand curve is D1 and the producer will bear the entire
burden of the tax if the demand curve is D0.
C) The consumer will bear a smaller share of the tax burden if the demand curve is D1.
D) The consumer will bear a smaller share of the tax burden if the demand curve is D0.
29) When the government taxes a good or service, it
A) increases consumer surplus for the good or service.
B) increases producer surplus for the good or service.
C) eliminates the deadweight loss associated with the good or service.
D) affects the market equilibrium for that good or service.
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
Figure 4-12

30) Refer to Figure 4-12. The figure above represents demand and supply in the market for gasoline. Use the diagram
to answer the following questions.
a. How much is the government tax on each gallon of gasoline?
b. What portion of the unit tax is paid by consumers?
c. What portion of the unit tax is paid by producers?
d. What is the quantity sold after the imposition of the tax?
e. What is the after-tax revenue per gallon received by producers?
f. What is the total tax revenue collected by the government?
g. What is the value of the excess burden of the tax?
h. Is this gasoline tax efficient?

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