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Chapter 6 Supply, Demand, and Government Policies

Test B
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When policymakers choose to enact price controls in a market, they do so because a. they believe the markets outcome to be unfair. b. enacting price controls will directly increase tax revenues. c. they are required by law to improve market conditions. d. they believe that the market system is inefficient and their actions will improve efficiency. A !W"#$ a. they believe the markets outcome to be unfair. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &
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A government2imposed maximum price at which a good can be sold is called a price a. floor. b. ceiling. c. support. d. equilibrium. A !W"#$ b. ceiling. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &
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,f a price ceiling is not binding, it will a. cause a surplus in the market. b. cause a shortage in the market. c. cause the market price to fluctuate. d. have no effect on the market price. A !W"#$ d. have no effect on the market price. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &
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,f a binding price ceiling is imposed in the market for gasoline, a. there will be a surplus of gasoline in the market. b. the price of gasoline will be legally forced toward equilibrium price. c. there will be a shortage of gasoline in the market. d. market forces will guarantee that the price will be at equilibrium. A !W"#$ c. there will be a shortage of gasoline in the market. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &

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74 +hapter 78!upply, *emand, and 9overnment 'olicies

According to the graph shown, a binding price ceiling would exist at a price of a. ;1<.==. b. ;17.==. c. ;14.==. d. ;11.==. A !W"#$ d. ;11.==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 1 9#A'6 >-#(A%$ ( , !%#?+%,- $ 1 #A *-($
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According to the graph shown, if the government imposes a binding price floor of ;1<.== in this market, the result would be a a. surplus of 1==. b. surplus of 1==. c. shortage of 1==. d. shortage of 1==. A !W"#$ b. surplus of 1==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 1 9#A'6 >-#(A%$ ( , !%#?+%,- $ 1 #A *-($
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A common example of a price ceiling is a. farm price supports. b. the minimum wage. c. rent control. d. income taxes. A !W"#$ c. rent control. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &
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'rice controls such as price ceilings and price floors a. are desirable because they make markets more efficient as well as equitable. b. cause surpluses and shortages to persist since price cannot adAust to the market equilibrium price. c. can be enacted to restore a market to equilibrium. d. are imposed because they can make the poor in the economy better off without causing adverse effects. A !W"#$ b. cause surpluses and shortages to persist since price cannot adAust to the market equilibrium price. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ & NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUI ES! "OUR STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!

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B

,f the government establishes a legal price floor for a good, the result will be a a. shortage of the good, but only if the floor is equal to the equilibrium price. b. surplus of the good, but only if the floor is above the equilibrium price. c. surplus of the good, but only if the floor is below the equilibrium price. d. shortage of the good, but only if the floor is above the equilibrium price. A !W"#$ b. surplus of the good, but only if the floor is above the equilibrium price. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &
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When minimum wage laws are established, employers must a. pay the going CequilibriumD wage in the market. b. pay a wage equal to, or higher than, the minimum wage. c. hire a minimum number of employees, which is set by the government. d. hire only those workers who will work for the established minimum wage.. A !W"#$ b. pay a wage equal to, or higher than, the minimum wage. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ & NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUI STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!
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ES! "OUR

%ax incidence deals with a. the level of taxable income. b. who bears the burden of a tax. c. the level of taxation on sales. d. the dollar amount of incidental taxes. A !W"#$ b. who bears the burden of a tax. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &

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According to the graph, the price buyers will pay after the tax is imposed is a. ;17.==. b. ;14.==. c. ;11.==. d. ;1=.==. A !W"#$ a. ;17.==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 3 9#A'6 >-#(A%$ ( , !%#?+%,- $ 4 #A *-($
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According to the graph, the price sellers receive after the tax is imposed is a. ;17.==. b. ;14.==. c. ;11.==. d. ;1=.==. A !W"#$ d. ;1=.==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 3 9#A'6 >-#(A%$ ( , !%#?+%,- $ 4 #A *-($
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According to the graph, the amount of the tax imposed in this market is a. ;1.==. b. ;4.==. c. ;7.==. d. ;<.==. A !W"#$ c. ;7.==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 3 9#A'6 >-#(A%$ ( , !%#?+%,- $ 4 #A *-($
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According to the graph, the amount of the tax that buyers would pay would be a. ;1.==. b. ;1.==. c. ;4.==. d. ;7.==. A !W"#$ b. ;1.==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 3 9#A'6 >-#(A%$ ( , !%#?+%,- $ 4 #A *-($
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According to the graph, the amount of the tax that sellers would pay would be a. ;1.==. b. ;1.==. c. ;4.==. d. ;7.==. A !W"#$ c. ;4.==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 3 9#A'6 >-#(A%$ ( , !%#?+%,- $ 4 #A *-($
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A tax placed on the buyers of a product will a. reduce the equilibrium price and increase the equilibrium quantity of that product. b. reduce the equilibrium price and equilibrium quantity of that product. c. increase the equilibrium price and equilibrium quantity of that product. d. increase the equilibrium price and reduce the equilibrium quantity of that product. A !W"#$ d. increase the equilibrium price and reduce the equilibrium quantity of that product. %&'"$ ( )"&1$ + !"+%,- $ 1 -./"+%,0"$ 3 #A *-($ &
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When a tax is imposed on the buyers of a product, the burden of the tax falls a. entirely on the buyers. b. entirely on the sellers. c. entirely on the government. d. on both the buyers and the sellers. A !W"#$ d. on both the buyers and the sellers. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 3 #A *-($ &

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1B

A tax placed on the sellers of a product has an initial impact on a. the supply of the product. b. the demand for the product. c. both the product supply and demand. d. %axes do not impact demand and supply. A !W"#$ a. the supply of the product. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 3 #A *-(
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'ayroll taxes cause wages received by workers to a. fall and wages paid by firms to rise. b. fall and wages paid by firms to fall. c. rise and wage paid by firms to fall. d. rise and wage paid by firms to rise. A !W"#$ a. fall and wages paid by firms to rise. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 4 #A *-($ &
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,n the final analysis, tax incidence is determined by a. the siEe of the tax imposed. b. the forces of supply and demand. c. trial and error. d. the policymakers who wrote the tax law. A !W"#$ b. the forces of supply and demand. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 4 #A *-($ &
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.uyers of a product will pay most of the burden of a tax if a. supply is more elastic than demand. b. the demand is more elastic than supply. c. the tax is placed on the seller of the product. d. the tax is placed on the buyer of the product. A !W"#$ a. supply is more elastic than demand. %&'"$ ( )"&1$ + !"+%,- $ 1 -./"+%,0"$ : #A *-($ &
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A tax placed on the sellers of a product will shift the a. supply curve to the right. b. supply curve to the left. c. demand curve to the left. d. demand curve to the right. A !W"#$ b. supply curve to the left. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 3 #A *-( NOTE: THE FOLLOWING QUESTION IS REPEATED FROM THE ON-LINE QUI STUDENTS MA" HA#E ALREAD" SEEN THIS QUESTION AND ITS ANSWER!
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ES! "OUR

Which of the following statements is correctF a. ,t is relatively easy to legislate the burden of a tax. b. ,f supply is relatively elastic, sellers will bear more of the incidence of a tax. c. A tax will have the same incidence whether it is placed on the buyer or the seller. d. ,f government makes buyers pay a tax on a good, the buyers are made worse off while the sellers are made better off. A !W"#$ c. A tax will have the same incidence whether it is placed on the buyer or the seller. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 3 #A *-(

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1:

According to the graph, the tax in this market was -#,9, AGG& imposed on a. buyers. b. sellers. c. both buyers and sellers. d. &ou cant determine the answer by looking at the graph. A !W"#$ b. sellers. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 3 #A *-(

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A !W"#$ a. they believe the markets outcome to be unfair. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &
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A !W"#$ b. ceiling. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &


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A !W"#$ d. have no effect on the market price. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &
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A !W"#$ c. there will be a shortage of gasoline in the market. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &
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A !W"#$ d. ;11.==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 1 9#A'6 >-#(A%$ ( , !%#?+%,- $ 1 #A *-($
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A !W"#$ b. surplus of 1==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 1 9#A'6 >-#(A%$ ( , !%#?+%,- $ 1 #A *-($
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A !W"#$ c. rent control. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &


<

A !W"#$ b. cause surpluses and shortages to persist since price cannot adAust to the market equilibrium price. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &
B

A !W"#$ b. surplus of the good, but only if the floor is above the equilibrium price. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &
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A !W"#$ b. pay a wage equal to, or higher than, the minimum wage. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &
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A !W"#$ b. who bears the burden of a tax. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 1 #A *-($ &
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A !W"#$ a. ;17.==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 3 9#A'6 >-#(A%$ ( , !%#?+%,- $ 4 #A *-($
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A !W"#$ d. ;1=.==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 3 9#A'6 >-#(A%$ ( , !%#?+%,- $ 4 #A *-($
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A !W"#$ c. ;7.==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 3 9#A'6 >-#(A%$ ( , !%#?+%,- $ 4 #A *-($

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A !W"#$ b. ;1.==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 3 9#A'6 >-#(A%$ ( , !%#?+%,- $ 4 #A *-($
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A !W"#$ c. ;4.==. %&'"$ ( )"&1$ 9 !"+%,- $ 1 -./"+%,0"$ 3 9#A'6 >-#(A%$ ( , !%#?+%,- $ 4 #A *-($
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A !W"#$ d. increase the equilibrium price and reduce the equilibrium quantity of that product. %&'"$ ( )"&1$ + !"+%,- $ 1 -./"+%,0"$ 3 #A *-($ &
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A !W"#$ d. on both the buyers and the sellers. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 3 #A *-($ &
1B

A !W"#$ a. the supply of the product. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 3 #A *-(
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A !W"#$ a. fall and wages paid by firms to rise. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 4 #A *-($ &
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A !W"#$ b. the forces of supply and demand. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 4 #A *-($ &
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A !W"#$ a. supply is more elastic than demand. %&'"$ ( )"&1$ + !"+%,- $ 1 -./"+%,0"$ : #A *-($ &
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A !W"#$ b. supply curve to the left. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 3 #A *-(
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A !W"#$ c. A tax will have the same incidence whether it is placed on the buyer or the seller. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 3 #A *-(
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A !W"#$ b. sellers. %&'"$ ( )"&1$ * !"+%,- $ 1 -./"+%,0"$ 3 #A *-(