A Misc Quiz On Microeconomics

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A Misc Quiz On Microeconomics - Quiz

There are a lot of factors that affect the economy as it is and one of the major ones is demand, supply, and government policies that affect the industries in existence or block others from existing. What do you know about these factors and their impact on the economy? Take up this Misc quiz on microeconomics and get to find out!


Questions and Answers
  • 1. 

    If the equlibrium price of gasoline is $1.00 per gallon and the government places a price ceiling on gasoline of $1.50 per gallon, the result will be a shortage of gasoline

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    If the equilibrium price of gasoline is $1.00 per gallon and the government places a price ceiling on gasoline of $1.50 per gallon, the result will not be a shortage of gasoline. A price ceiling is a maximum price set by the government, and if it is set above the equilibrium price, it will not have any effect on the market. In this case, since the price ceiling of $1.50 is higher than the equilibrium price of $1.00, it will not cause a shortage.

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  • 2. 

    A price ceiling set below the equilibrium price causes a surplus

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    A price ceiling set below the equilibrium price does not cause a surplus. Instead, it leads to a shortage in the market. When the price ceiling is set below the equilibrium price, it creates excess demand as the quantity demanded exceeds the quantity supplied at that price. This results in a shortage, where consumers are unable to purchase the desired quantity of the good or service.

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  • 3. 

    A price floor set above the equilibrium price is a binding constraint

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    A price floor is a minimum price set by the government for a particular good or service. When the price floor is set above the equilibrium price, it creates a binding constraint because it legally prevents the market price from falling below that level. This means that sellers are not allowed to sell at a price lower than the price floor. As a result, a surplus is created because the quantity supplied exceeds the quantity demanded at the higher price. Therefore, the statement "A price floor set above the equilibrium price is a binding constraint" is true.

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  • 4. 

    The shortage of housing caused by a binding rent control is likely to be more severe in the long run when compared to the short run

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    Rent control is a policy that sets limits on how much landlords can charge for rent. In the short run, rent control may seem beneficial as it can help lower housing costs for tenants. However, in the long run, it can lead to a shortage of housing. This is because rent control reduces the incentive for landlords to maintain or invest in rental properties, leading to a decrease in the supply of housing units available for rent. As a result, the shortage of housing becomes more severe over time, making the statement true.

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  • 5. 

    The minimum wage helps all teenagers because they receive higher wages than they would otherwise

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The explanation for the given answer "False" is that the minimum wage does not necessarily help all teenagers. While it may provide higher wages for some teenagers, it can also lead to job loss or reduced work hours for others. Additionally, the minimum wage may result in higher prices for goods and services, which can negatively impact teenagers and their families. Therefore, the statement that the minimum wage helps all teenagers is not accurate.

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  • 6. 

    A 10 percent increase in the minimum wage causes a 10 percent reduction in teenage employment

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The statement is false because there is no direct correlation between a 10 percent increase in the minimum wage and a 10 percent reduction in teenage employment. While it is possible that an increase in the minimum wage could lead to a decrease in employment opportunities for teenagers, the magnitude of the reduction is unlikely to be exactly 10 percent. The impact of minimum wage changes on employment is a complex issue that depends on various factors such as the overall state of the economy and the specific labor market conditions.

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  • 7. 

    A price ceiling that is not a binding constraint today could cause a shortage in the future if demand were to increase and raise the eqilibrium price above the frixed price ceiling.

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    A price ceiling is a maximum price that can be charged for a good or service. If the price ceiling is not currently binding, it means that the equilibrium price is below the price ceiling and there is no shortage. However, if demand were to increase in the future, the equilibrium price would rise. If the equilibrium price rises above the fixed price ceiling, it would become a binding constraint and cause a shortage because suppliers would not be able to charge the higher equilibrium price. Therefore, the statement is true.

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  • 8. 

    A price floor in a market always creates a surplus in that market

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    A price floor is a minimum price set by the government in a market. It is designed to protect producers by ensuring they receive a certain level of income. However, a price floor can lead to a surplus in the market if it is set above the equilibrium price. This is because the higher price discourages consumers from buying as much, while producers are incentivized to supply more. Therefore, a price floor does not always create a surplus in a market; it depends on the specific circumstances and the relationship between the price floor and the equilibrium price.

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  • 9. 

    A $10 tax on baseball gloves will always raise the price that the buyers pay for baseball gloves by $10

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The given statement is false because a $10 tax on baseball gloves will not always raise the price that buyers pay by $10. The impact of the tax on the price paid by buyers depends on the elasticity of demand and supply for baseball gloves. If the demand is elastic and the supply is inelastic, the burden of the tax may be passed on to the buyers in the form of a price increase. However, if the demand is inelastic and the supply is elastic, the burden of the tax may be absorbed by the sellers, resulting in no or minimal price increase for the buyers. Therefore, the statement is not universally true.

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  • 10. 

    The ultimate burden of a tax lands more heavily on the side of the market that is less elastic

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    When a tax is imposed, the burden of the tax is ultimately borne by either the consumers or the producers in the market. The elasticity of demand and supply determines how the burden is distributed. If the demand or supply is more elastic, it means that the quantity demanded or supplied is more responsive to changes in price. In such cases, the burden of the tax falls more heavily on the side of the market that is less elastic. Therefore, the statement that the ultimate burden of a tax lands more heavily on the side of the market that is less elastic is true.

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  • 11. 

    When we use the model of supply and demand to analyze a tax collected form the buyers, we shift the demand curve upward by the size of the tax

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    When we use the model of supply and demand to analyze a tax collected from the buyers, we actually shift the demand curve downward by the size of the tax. This is because the tax increases the cost of the product for the buyers, leading to a decrease in the quantity demanded. Therefore, the correct answer is false.

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  • 12. 

    If medicine is a necessity, the burden of a tax on medicine will likely land more heavily on the buyers of medicine

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    The statement suggests that if a tax is imposed on medicine, the burden of the tax will be borne primarily by the buyers of medicine. This is because medicine is considered a necessity, meaning that people are likely to continue purchasing it even if the price increases due to the tax. As a result, the buyers will have to bear the additional cost of the tax, making the statement true.

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  • 13. 

    A tax creates a tax wedge between a buyer and a seller.  This causes the price paid by the buyer to rise, the price received by the seller to fall, and the quantity sold to fall

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    A tax creates a tax wedge between a buyer and a seller because it increases the price paid by the buyer and decreases the price received by the seller. This creates a gap between what the buyer pays and what the seller receives, which is known as the tax wedge. As a result of this tax wedge, the quantity sold also tends to decrease as buyers may be less willing to purchase at the higher price and sellers may be less willing to sell at the lower price. Therefore, the statement that a tax creates a tax wedge between a buyer and a seller, causing the price paid by the buyer to rise, the price received by the seller to fall, and the quantity sold to fall, is true.

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  • 14. 

    The government can choose to place the burden of a tax on the buyers in a market by collecting the tax from the buyers rather than the sellers

    • A.

      True

    • B.

      False

    Correct Answer
    B. False
    Explanation
    The statement is false because the burden of a tax cannot be determined solely by who physically pays the tax. The burden of a tax is determined by the elasticity of demand and supply in the market. If demand is more elastic than supply, then the burden of the tax will fall more on the sellers. Conversely, if supply is more elastic than demand, then the burden of the tax will fall more on the buyers. Therefore, simply collecting the tax from the buyers does not necessarily mean that the burden of the tax is placed on them.

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  • 15. 

    A tax collected from buyers has an equivilant impact to a same size tax collected from sellers

    • A.

      True

    • B.

      False

    Correct Answer
    A. True
    Explanation
    This statement is true because regardless of whether the tax is collected from buyers or sellers, the burden of the tax is ultimately passed on to the other party. When a tax is collected from buyers, they have to pay a higher price for the product, which reduces their purchasing power. On the other hand, when a tax is collected from sellers, they receive a lower price for their product, reducing their profits. In both cases, the tax has an equivalent impact on the overall transaction and the burden is shifted between buyers and sellers.

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  • 16. 

    For a price ceiling to be a binding constraint on the market, the government must set it

    • A.

      Above the equilibrium price

    • B.

      Below the equilibrium price

    • C.

      Precisely at the equilibrium price

    • D.

      At any price because all price ceilings are binding constraints

    Correct Answer
    B. Below the equilibrium price
    Explanation
    A price ceiling is a maximum price that can be charged for a good or service. In order for it to be a binding constraint on the market, it must be set below the equilibrium price. This means that the price ceiling is lower than the price at which the quantity demanded equals the quantity supplied. When the price ceiling is set below the equilibrium price, it creates a shortage in the market, as the quantity demanded exceeds the quantity supplied at the capped price.

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  • 17. 

    A  binding price ceiling creates

    • A.

      A shortage

    • B.

      A surplus

    • C.

      An equilibrium

    • D.

      A shortage or surplus depending on whether the price ceiling is set above or below the equlibrium price

    Correct Answer
    A. A shortage
    Explanation
    A binding price ceiling creates a shortage because it sets the maximum price that can be charged for a product or service below the equilibrium price. This leads to an excess demand for the product, as consumers are willing to pay more than the price ceiling allows. As a result, suppliers are unable to meet the demand, causing a shortage in the market.

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  • 18. 

    Suppose the equlibrium price for apartments is $500 per month and the government imposes ren controls of $250. Which of the following is unlikely to occur as a result of the rent controls?

    • A.

      There will be a shortage of housing

    • B.

      Landlords may discriminate among apartment renters

    • C.

      Landlords may be offered bribes to rent apartments

    • D.

      The quality of apartments will improve

    • E.

      There may be long lines of buyers waiting for apartments

    Correct Answer
    D. The quality of apartments will improve
    Explanation
    Rent controls typically lead to a decrease in the quality of apartments as landlords have less incentive to invest in maintenance and improvements. With rent controls in place, landlords may struggle to cover their costs and may not have the financial means to make necessary repairs or upgrades. Therefore, it is unlikely that the quality of apartments will improve as a result of rent controls.

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  • 19. 

    A price floor

    • A.

      Sets a legal maximum on the price at which a good can be sold

    • B.

      Set a legal minimum on the price at which a good can be sold

    • C.

      Always determines the price at which a good must be sold

    • D.

      Is not a binding constraint if it is set above the equilibrium price

    Correct Answer
    B. Set a legal minimum on the price at which a good can be sold
    Explanation
    A price floor is a government-imposed regulation that sets a minimum price at which a good or service can be sold. It prevents the price from falling below a certain level, ensuring that sellers receive a fair price for their products. This helps protect producers by guaranteeing them a minimum level of revenue. However, if the price floor is set above the equilibrium price (the price at which supply and demand are balanced), it becomes non-binding and has no effect on the market as the market price is already higher than the price floor.

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  • 20. 

    Which of the following statements about a binding price ceiling is true?

    • A.

      The surplus created by the price ceiling is greater in the short run than in the long run

    • B.

      The surplus created by the price ceiling is greater in the long run than in the short run

    • C.

      The shortage created by the price ceiling is greater in the short run than in the long run

    • D.

      The shortage created by the price ceiling is greater in the long run than in the short run

    Correct Answer
    D. The shortage created by the price ceiling is greater in the long run than in the short run
    Explanation
    A binding price ceiling is a government-imposed limit on the price of a good or service that is set below the equilibrium price. This creates a shortage, as the quantity demanded exceeds the quantity supplied at the lower price. In the short run, producers may not have enough time to adjust their production levels to meet the new lower price, resulting in a smaller shortage. However, in the long run, producers can adjust their production levels and potentially exit the market if the price ceiling persists. This leads to a larger shortage in the long run compared to the short run.

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  • 21. 

    Which side of the market is more likely to lobby government for a price floor?

    • A.

      Neither buyers nor sellers desire a price floor

    • B.

      Both buyers and sellers desire a price floor

    • C.

      The sellers

    • D.

      The buyers

    Correct Answer
    C. The sellers
    Explanation
    Sellers are more likely to lobby the government for a price floor. A price floor is a minimum price set by the government, and it benefits sellers by ensuring that their products cannot be sold below a certain price. This allows sellers to maintain higher profits and prevents prices from falling too low due to competition. Buyers, on the other hand, generally prefer lower prices and would not have an incentive to lobby for a price floor. Therefore, it is the sellers who are more likely to advocate for a price floor.

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  • 22. 

    Which of the following is an example of a price floor?

    • A.

      Rent controls

    • B.

      Restricting gasoline prices to $1.00 per gallon when the equilibrium price is $1.50 per gallon

    • C.

      The minimum wage

    • D.

      All of the above are price floors

    Correct Answer
    C. The minimum wage
    Explanation
    The minimum wage is an example of a price floor because it sets a minimum price that employers must pay their workers. This means that employers cannot pay their workers below a certain wage, even if the equilibrium wage in the market is lower. The minimum wage creates a floor for wages and can result in higher wages for workers, but it can also lead to unintended consequences such as job loss or reduced hours for workers.

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  • 23. 

    Which of the following statements is true if the government places a price ceiling on gasoline at $1.50 per gallon and the equilibrium price is $1.00 per gallon?

    • A.

      There will be a shortage of gasoline

    • B.

      There will be a surplus of gasoline

    • C.

      A significant increase in the supply of gasoline could cause the price ceiling to become a binding constraint

    • D.

      A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint

    Correct Answer
    D. A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint
    Explanation
    If there is a significant increase in the demand for gasoline, it means that more people want to buy gasoline at the given price ceiling of $1.50 per gallon. This would create a situation where the quantity demanded exceeds the quantity supplied, resulting in a shortage of gasoline. As a result, the price ceiling would become a binding constraint, as it would prevent the price from rising to its equilibrium level of $1.00 per gallon, leading to a shortage in the market.

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  • 24. 

    Studies show that a 10 percent increase in the minimum wage

    • A.

      Decreases teenage employment by about 10 to 15 percent

    • B.

      Increases teenage employment by about 10 to 15 percent

    • C.

      Decreases teenage employment by about 1 to 3 percent

    • D.

      Increases teenage employment by about 1 to 3 percent

    Correct Answer
    C. Decreases teenage employment by about 1 to 3 percent
    Explanation
    An increase in the minimum wage has been found to have a negative impact on teenage employment. Studies have shown that a 10 percent increase in the minimum wage leads to a decrease in teenage employment by about 1 to 3 percent. This suggests that when the minimum wage is raised, employers may be less willing to hire teenagers due to the increased labor costs.

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  • 25. 

    Within the supply-and-demand model, a tax collected from the buyers of a good shifts the

    • A.

      Demand curve upward by the size of the tax per unit

    • B.

      Demand curve downward by the size of the tax per unit

    • C.

      Supply curve upward by the size of the tax per unit

    • D.

      Supply curve downward by the size of the tax per unit

    Correct Answer
    B. Demand curve downward by the size of the tax per unit
    Explanation
    When a tax is collected from the buyers of a good, it increases the price that buyers have to pay for the good. This increase in price decreases the quantity demanded by buyers, leading to a downward shift of the demand curve. The size of the tax per unit determines the extent of the downward shift in the demand curve. Therefore, the correct answer is "demand curve downward by the size of the tax per unit".

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  • 26. 

    Within the supply-and-demand model, a tax collected from the sellers of a good shifts the

    • A.

      Demand curve upward by the size of the tax per unit

    • B.

      Demand curve downward by the size of the tax per unit

    • C.

      Supply curve upward by the size of the tax per unit

    • D.

      Supply curve downward by the size of the tax per unit

    Correct Answer
    C. Supply curve upward by the size of the tax per unit
    Explanation
    A tax collected from the sellers of a good shifts the supply curve upward by the size of the tax per unit. This is because when sellers have to pay a tax on each unit they sell, it increases their costs of production. As a result, they are willing to supply less of the good at every price level, leading to a shift in the supply curve. The upward shift represents a decrease in the quantity supplied at each price, as sellers pass on the burden of the tax to consumers by increasing the price of the good.

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  • 27. 

    Which of the following takes place when a tax is placed on a good?

    • A.

      An increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold

    • B.

      An increase in the price buyers pay, a decrease in the price sellers receive, and an increase in the quantity sold

    • C.

      A decrease in the price buyers pay, an increase in the price sellers receive, and a decrease in the quantity sold

    • D.

      A decrease in the price buyers pay, an increase in the price sellers receive, and an increase in the quantity sold

    Correct Answer
    A. An increase in the price buyers pay, a decrease in the price sellers receive, and a decrease in the quantity sold
    Explanation
    When a tax is placed on a good, the price that buyers pay for the good increases. This is because the tax is added to the original price of the good, making it more expensive for buyers. On the other hand, the price that sellers receive decreases because they have to deduct the tax amount from the price they receive for the good. This decrease in price can discourage sellers from producing and selling the good. Additionally, the tax can also lead to a decrease in the quantity sold because the higher price and lower price received by sellers can reduce the demand for the good.

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  • 28. 

    When a tax is collected from the buyers in a market,

    • A.

      The buyers bear the burden of the tax

    • B.

      The sellers bear the burden of the tax

    • C.

      The tax burden on the buyers and sellers is the same as an equivalent tax collected from he sellers

    • D.

      The tax burden falls most heavily on the buyers

    Correct Answer
    C. The tax burden on the buyers and sellers is the same as an equivalent tax collected from he sellers
    Explanation
    When a tax is collected from the buyers in a market, the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers. This means that regardless of whether the tax is collected from the buyers or sellers, the overall burden of the tax remains the same. The tax incidence is shared between the buyers and sellers in such a way that the amount of tax paid by the buyers is equal to the amount of tax paid by the sellers.

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  • 29. 

    A tax of $1.00 per gallon on gasoline

    • A.

      Increases the price the buyers pay by $1.00 per gallon

    • B.

      Decreases the price the sellers receive by $1.00 per gallon

    • C.

      Increases the price the buyers pay by precisely $.50 and reduces the price received by sellers by precisely $.50

    • D.

      Places a tax wedge of $1.00 between the price the buyers pay and the price the sellers receive

    Correct Answer
    D. Places a tax wedge of $1.00 between the price the buyers pay and the price the sellers receive
    Explanation
    A tax of $1.00 per gallon on gasoline places a tax wedge of $1.00 between the price the buyers pay and the price the sellers receive. This means that the buyers will have to pay an additional $1.00 per gallon due to the tax, while the sellers will receive $1.00 less per gallon after the tax is imposed. The tax creates a gap or wedge between the price paid by the buyers and the price received by the sellers.

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  • 30. 

    The burden of a tax falls more heavily on the sellers in a market when

    • A.

      A demand is inelastic and supply is elastic

    • B.

      Demand is elastic and supply is inelastic

    • C.

      Both supply and demand are elastic

    • D.

      Both supply and demand are inelastic

    Correct Answer
    B. Demand is elastic and supply is inelastic
    Explanation
    When demand is elastic and supply is inelastic, it means that consumers are very responsive to changes in price, while producers are not able to easily adjust their output. In this situation, if the government imposes a tax on the sellers, they will not be able to pass on the burden of the tax to the consumers through higher prices because the demand is elastic. As a result, the sellers will have to bear a larger portion of the tax burden themselves, leading to a heavier impact on them.

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  • 31. 

    A tax is placed on a good that is a necessity for consumers will likely generate a tax burden that

    • A.

      Falls more heavily on buyers

    • B.

      Falls more heavily on sellers

    • C.

      Is evenly distributed between buyers and sellers

    • D.

      Falls entirely on sellers

    Correct Answer
    A. Falls more heavily on buyers
    Explanation
    When a tax is placed on a good that is considered a necessity for consumers, it is likely that the burden of the tax will fall more heavily on the buyers. This is because buyers have a higher demand for the good and are less likely to be able to reduce their consumption of it in response to the tax. Sellers, on the other hand, may be able to pass on some of the tax burden to buyers by increasing the price of the good, but they may also face competition and pressure to keep prices low. Therefore, the tax burden is expected to be borne more by the buyers.

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  • 32. 

    The burden of a tax falls more heavily on the buyers in a market when

    • A.

      Demand is inelastic and supply is elastic

    • B.

      Demand is elastic and supply is inelastic

    • C.

      Both supply and demand are elastic

    • D.

      Both supply and demand are inelastic

    Correct Answer
    A. Demand is inelastic and supply is elastic
    Explanation
    When demand is inelastic and supply is elastic, it means that buyers are not very responsive to changes in price, while sellers can easily adjust their production levels. In this situation, if a tax is imposed, the sellers can shift the burden of the tax onto the buyers by increasing the price of the product. Since the buyers are not very sensitive to price changes, they are more likely to bear a larger portion of the tax burden. On the other hand, if demand is elastic and supply is inelastic, the burden of the tax would fall more heavily on the sellers as they would have less flexibility to increase prices without losing a significant number of buyers.

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  • 33. 

    Which of the following statements about the burden of a tax is correct?

    • A.

      The tax burden generated from a tax placed on a good consumers perceive to be a necessity will fall most heavily on the sellers of the good

    • B.

      The tax burden falls heavily on the side of the market (buyers or sellers) that is most willing to leave the market when price movements are unfavorable to them

    • C.

      The burden of a tax lands on the side of the market (buyers or sellers) from which it is collected

    • D.

      The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation

    Correct Answer
    D. The distribution of the burden of a tax is determined by the relative elasticities of supply and demand and is not determined by legislation
    Explanation
    The distribution of the burden of a tax is determined by the relative elasticities of supply and demand. This means that the burden of the tax will fall on the side of the market (buyers or sellers) that is less elastic, meaning they are less responsive to price changes. This is because the less elastic side of the market is less able to adjust their behavior in response to the tax, and therefore will bear a larger portion of the burden. Legislation does not determine the distribution of the burden, as it is based on market dynamics.

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  • 34. 

    For which of the following products would the burden of a tax likely fall more heavily on the sellers?

    • A.

      Food

    • B.

      Entertainment

    • C.

      Clothing

    • D.

      Housing

    Correct Answer
    B. Entertainment
    Explanation
    The burden of a tax is likely to fall more heavily on the sellers of entertainment products because the demand for entertainment is often elastic, meaning that consumers are more sensitive to price changes. If sellers were to increase the price of entertainment products to cover the tax, consumers may choose to reduce their consumption or seek alternative forms of entertainment. This would result in a greater impact on the sellers, as they would experience a larger decrease in sales and revenue compared to sellers of other products like food, clothing, or housing, where demand is typically less elastic.

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