Price Сontrols

1. Price controls are A) used to make markets more efficient. B) usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers. C) nearly always effective in eliminating inequities. D) established by firms with monopoly power. ANSWER: B 2. Price controls A) always produce an equitable outcome. B) always produce an efficient outcome. C) can generate inequities of their own. D) produce revenue for the government. ANSWER: C 3. Policymakers choose to enact price controls in a market because A) they believe the marketâs  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. ANSWER: A 4. Which of the following is a reason policymakers impose taxes? A) to attempt to make markets more efficient B) to influence market outcomes C) to raise revenue for public use D) All of the above are correct. E) Both b and c are correct. ANSWER: E 5. A legal maximum price at which a good can be sold is a price A) floor. B) stabilization. C) support. D) ceiling. ANSWER: D 6. A legal minimum price at which a good can be sold is a price A) cut. B) stabilization. C) ceiling. D) floor. ANSWER: D 7. A price ceiling A) is a legal maximum on the price at which a good can be sold. B) is a legal minimum on the price at which a good can be sold. C) occurs when the price in the market is temporarily above equilibrium. D) will usually result in a market surplus. ANSWER: A 8. A price floor A) is a legal minimum on the price at which a good can be sold. B) is a legal maximum on the price at which a good can be sold. C) will generally result in a market shortage. D) will benefit the consumer, but hurt the supplier. ANSWER: A 9. If a price ceiling is not binding, A) the equilibrium price is above the ceiling. B) the equilibrium price is below the ceiling. C) it has no legal enforcement mechanism. D) people must voluntarily agree to abide by it. ANSWER: B 10. Which of the following is NOT a mechanism of rationing used by landlords in cities with rent control? A) waiting lists. B) race. C) price. D) bribes. ANSWER: C 11. Under rent control, bribery is a mechanism to A) bring the total price of an apartment (including the bribe) closer to the equilibrium price. B) allocate housing to the poorest individuals in the market. C) force the total price of an apartment (including the bribe) to be less than the market price. D) allocate housing to the most deserving tenants. ANSWER: A 12. Under rent control, tenants can expect A) lower rent and higher quality housing. B) lower rent and lower quality housing. C) higher rent and higher quality housing. D) higher rent and lower quality housing. ANSWER: B 13. Which of the following is NOT a result of government imposed rent controls? A) fewer new apartments offered for rent. B) less maintenance provided by landlords. C) bribery. D) higher quality housing. ANSWER: D 14. The minimum wage is an example of A) a price ceiling. B) a price floor. C) a free-market process. D) an efficient labor allocation mechanism. ANSWER: B 15. The minimum wage was instituted in order to ensure workers A) a middle-class standard of living. B) employment. C) a minimally adequate standard of living. D) unemployment compensation. ANSWER: C 16. The minimum wage has its greatest impact on the market for A) female workers. B) white workers. C) black workers. D) teenage workers. ANSWER: D 17. The initial effect of a tax on the buyers of a good is on A) the supply of that good. B) the demand for that good. C) both the supply of the good and the demand for the good. D) the price of the good. ANSWER: B 18. A tax placed on kite buyers will shift A) supply upward, causing equilibrium price to rise and equilibrium quantity to fall. B) demand upward, causing both equilibrium price and quantity to rise. C) supply downward, causing equilibrium price to fall and equilibrium quantity to rise. D) demand downward, causing both equilibrium price and quantity to fall. ANSWER: D 19. If buyers are required to pay a $0.10 tax per bag on Hersheyâs  kisses, the demand for kisses will shift A) up by $0.10 per bag. B) up by $0.05 per bag. C) down by $0.10 per bag. D) down by $0.05 per bag. ANSWER: C 20. Buyers of a product will pay the majority of a tax placed on a product when A) supply is more elastic than demand. B) the demand in 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. ANSWER: A 21. If a tax is imposed on a market with elastic demand and inelastic supply, A) buyers will bear most of the burden of the tax. B) sellers will bear most of the burden of the tax. C) the burden of the tax will be shared equally between buyers and sellers. D) it is impossible to determine how the burden of the tax will be shared. ANSWER: B 22. In general, a tax burden falls more heavily on the side of the market that is A) perfectly elastic. B) more elastic. C) unit elastic. D) less elastic. ANSWER: D 23. The burden of a tax placed on a product A) depends on the supply and demand of that product. B) depends on how lawmakers decide the burden should be placed. C) usually falls more heavily on the buyer. D) usually falls more heavily on the seller. ANSWER: A 24. The burden of a luxury tax falls A) more on the rich than on the middle class. B) more on the poor than on the middle class. C) more on the middle class than on the rich. D) equally on the rich, the middle class, and the poor. ANSWER: C 25. When analyzing the economic effects of government policies, A) supply and demand are useful tools of analysis. B) one finds that the effects are always those stated in the legislation. C) supply and demand are not useful, since they apply only to unregulated markets. D) one usually finds them to be the random outcome of economic shocks. ANSWER: A