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1.When studying how some event or policy affects a market, elasticity provides
information on the
a. government expenditures associated with the policy.
b. costs and benefits of the effect.
c. allocative efficiency of the effect.
d. direction and magnitude of the effect.
2. A 10 percent increase in gasoline prices reduces gasoline consumption by about
a. 6 percent after one year and 2.5 percent after five years.
b. 2.5 percent after one year and 6 percent after five years.
c. 10 percent after one year and 20 percent after five years.
d. 0 percent after one year and 1 percent after five years.
3. Which of the following statements about the consumers responses to rising gasoline
prices is correct?
a. About 10 percent of the long-run reduction in quantity demanded arises because
people drive less and about 90 percent arises because they switch to more fuel-
efficient cars.
b. About 90 percent of the long-run reduction in quantity demanded arises because
people drive less and about 10 percent arises because they switch to more fuel-
efficient cars.
c. About half of the long-run reduction in quantity demanded arises because people
drive less and about half arises because they switch to more fuel-efficient cars.
d. Because gasoline is a necessity, consumers do not decrease their quantity
demanded in either the short run or the long run.
4. If the price of milk rises, when is the price elasticity of demand likely to be the lowest?
a. immediately after the price increase
b. one month after the price increase
c. three months after the price increase
d. one year after the price increase
5. Suppose that Juan Carlos is filling out a survey that he received in the mail. The
survey asks him what he would do if the price of his favorite toothpaste increased.
Juan Carlos reports that he would switch to a different brand. The survey asks what
he would do if the price of all toothpastes increased. Juan Carlos reports that he
must use toothpaste, so he would have to adjust his spending elsewhere. These
examples illustrate the importance of
a. changes in total revenue in determining the price elasticity of demand.
b. a necessity versus a luxury in determining the price elasticity of demand.
c. the definition of a market in determining the price elasticity of demand.
d. the time horizon in determining the price elasticity of demand.


6. Suppose there is a 6 percent increase in the price of good X and a resulting 6 percent
decrease in the quantity of X demanded. Price elasticity of demand for X is
a. 0.
b. 1.
c. 6.
d. 36.
7. For a particular good, a 5 percent increase in price causes a 15 percent decrease in
quantity demanded. Which of the following statements is most likely applicable to
this good?
a. There are many substitutes for this good.
b. The good is a necessity.
c. The market for the good is broadly defined.
d. The relevant time horizon is short.
8. The difference between slope and elasticity is that slope
a. is a ratio of two changes, and elasticity is a ratio of two percentage changes.
b. is a ratio of two percentage changes, and elasticity is a ratio of two changes.
c. measures changes in quantity demanded more accurately than elasticity.
d. none of the above; there is no difference between slope and elasticity.
9. Which of the following statements is correct?
a. The demand for natural gas is more elastic over a short period of time than over
a long period of time.
b. The demand for smoke alarms is more elastic than the demand for Persian rugs.
c. The demand for bourbon whiskey is more elastic than the demand for alcoholic
beverages in general.
d. All of the above are correct.
10. Which of the following is likely to have the most price inelastic demand?
a. mint-flavored toothpaste
b. toothpaste
c. Colgate mint-flavored toothpaste
d. a generic mint-flavored toothpaste
11. Which of the following is likely to have the most price inelastic demand?
a. athletic shoes
b. running shoes
c. Nike running shoes
d. Nike Shox running shoes
12. There are very few, if any, good substitutes for motor oil. Therefore, the
a. demand for motor oil would tend to be inelastic.
b. demand for motor oil would tend to be elastic.
c. demand for motor oil would tend to respond strongly to changes in prices of
other goods.
d. supply of motor oil would tend to respond strongly to changes in peoples tastes
for large cars relative to their tastes for small cars.
13. The midpoint method is used to compute elasticity because it
a. automatically computes a positive number instead of a negative number.
b. results in an elasticity that is the same as the slope of the demand curve.
c. gives the same answer regardless of the direction of change.
d. automatically rounds quantities to the nearest whole unit.
14. Studies indicate that the price elasticity of demand for cigarettes is about 0.4. A
government policy aimed at reducing smoking changed the price of a pack of
cigarettes from $2 to $6. According to the midpoint method, the government policy
should have reduced smoking by
a. 30%.
b. 40%.
c. 80%.
d. 250%.
15. When the price of used cds is $4, Daphne buys five per month. When the price is $3,
she buys nine per month. Daphne's demand for used cds is
a. elastic, and her demand curve would be relatively flat.
b. elastic, and her demand curve would be relatively steep.
c. inelastic, and her demand curve would be relatively flat.
d. inelastic, and her demand curve would be relatively steep.

Table 1
Price Quantity
$100 0
$80 10
$60 20
$40 30
$20 40
$0 50
16. Refer to Table 1. Using the midpoint method, if the price falls from $80 to $60, the
absolute value of the price elasticity of demand is
a. 20.
b. 10.
c. 2.33.
d. 0.43.
17. Refer to Table 1. Using the midpoint method, if the price falls from $60 to $40, the
absolute value of the price elasticity of demand is
a. 0.4.
b. 1.
c. 4.
d. 20.

18.Refer to Table 1. Using the midpoint method, if the price falls from $40 to $20, the
price elasticity of demand is
a. zero.
b. inelastic.
c. unit elastic.
d. elastic.
Figure 1

19. Refer to Figure 1. Between point A and point B, price elasticity of demand is equal
to
a. 0.33.
b. 0.67.
c. 1.5
d. 2.67.
20. Refer to Figure 5-1. Between point A and point B, the slope is equal to
a. -1/4, and the price elasticity of demand is equal to 2/3.
b. -1/4, and the price elasticity of demand is equal to 3/2.
c. -3/2, and the price elasticity of demand is equal to 1/4.
d. -2/3, and the price elasticity of demand is equal to 3/2.
21. Refer to Figure 5-1. Between point A and point B on the graph, demand is
a. perfectly elastic.
b. inelastic.
c. unit elastic.
d. elastic, but not perfectly elastic.
22. In which of these instances is demand said to be perfectly inelastic?
a. An increase in price of 2% causes a decrease in quantity demanded of 2%.
b. A decrease in price of 2% causes an increase in quantity demanded of 0%.
c. A decrease in price of 2% causes a decrease in total revenue of 0%.
d. An increase in price of 2% causes a decrease in quantity demanded of 1/2%.
23. If a 15% increase in price for a good results in a 20% decrease in quantity
demanded, the price elasticity of demand is
a. 0.75.
b. 1.25.
c. 1.33.
d. 1.60.
Figure 2

24. Refer to Figure 2. The demand curve representing the demand for a luxury good
with several close substitutes is
a. A.
b. B.
c. C.
d. D.
25. Refer to Figure 2. Mark says he would buy one Mt. Dew per day regardless of the
price. If this is true, then Mark's demand for Mt. Dew is represented by demand
curve
a. A.
b. B.
c. C.
d. D.
26. Consider luxury weekend hotel packages in Las Vegas. When the price is $250, the
quantity demanded is 2,000 packages per week. When the price is $280, the quantity
demanded is 1,700 packages per week. Using the midpoint method, the price
elasticity of demand is about
a. 1.43, and an increase in the price will cause hotels' total revenue to decrease.
b. 1.43, and an increase in the price will cause hotels' total revenue to increase.
c. 0.70, and an increase in the price will cause hotels' total revenue to decrease.
d. 0.70, and an increase in the price will cause hotels' total revenue to increase.


27.Suppose that 500 candy bars are demanded at a particular price. If the price of candy
bars rises from that price by 10 percent, the number of candy bars demanded falls to
480. Using the midpoint approach to calculate the price elasticity of demand, it
follows that the
a. demand for candy bars in this price range is unit elastic.
b. price increase will decrease the total revenue of candy bar sellers.
c. price elasticity of demand for candy bars in this price range is about 0.41.
d. price elasticity of demand for candy bars in this price range is about 0.24.
28. Which of the following could be the price elasticity of demand for a good for which a
decrease in price would increase revenue?
a. 0
b. 0.2
c. 1
d. 2.1
29. If the demand curve is linear and downward sloping, which of the following
statements is not correct?
a. Demand is more elastic on the lower part of the demand curve than on the upper
part.
b. Different pairs of points on the demand curve can result in different values of the
price elasticity of demand.
c. Different pairs of points on the demand curve result in identical values of the
slope of the demand curve.
d. Starting from a point on the upper part of the demand curve, an increase in price
leads to a decrease in total revenue.
30. Get Smart University is contemplating an increase in tuition to enhance revenue. If
GSU feels that raising tuition would enhance revenue, it is
a. ignoring the law of demand.
b. assuming that the demand for university education is elastic.
c. assuming that the demand for university education is inelastic.
d. assuming that the supply of university education is elastic.









Figure 3

31. Refer to Figure 3. Using the midpoint method, demand is unit elastic between
prices of
a. $18 and $24.
b. $24 and $30.
c. $24 and $36.
d. $30 and $36.
32. Refer to Figure 3. Using the midpoint method, between prices of $12 and $18, price
elasticity of demand is
a. 0.33.
b. 0.67.
c. 1.33.
d. 1.89.
33. Last year, Carolyn bought 6 pairs of earrings when her income was $40,000. This
year, her income is $52,000, and she purchased 7 pairs of earrings. Holding other
factors constant, it follows that Carolyns income elasticity of demand is about
a. 0.59, and Carolyn regards earrings as an inferior good.
b. 0.59, and Carolyn regards earrings as a normal good.
c. 1.7, and Carolyn regards earrings as an inferior good.
d. 1.7, and Carolyn regards earrings as a normal good.

34. Danita rescues dogs from her local animal shelter. When Danitas income rises by 7
percent, her quantity demanded of dog biscuits increases by 12 percent. For Danita,
the income elasticity of demand for dog biscuits is
a. negative, and dog biscuits are a normal good.
b. negative, and dog biscuits are an inferior good.
c. positive, and dog biscuits are an inferior good.
d. positive, and dog biscuits are a normal good.
35. The income elasticity of demand for caviar tends to be
a. high because caviar is relatively expensive.
b. low because caviar is packaged in small containers.
c. high because buyers generally feel that they can do without it.
d. low because it is almost always in short supply.
36.Suppose that when the price of good X falls from $10 to $8, the quantity demanded of
good Y rises from 20 units to 25 units. Using the midpoint method, the cross-price
elasticity of demand is
a. -1.0, and X and Y are complements.
b. -1.0, and X and Y are substitutes.
c. 1.0, and X and Y are complements.
d. 1.0, and X and Y are substitutes.
37. Sandra purchases 5 pounds of coffee and 10 gallons of milk per month when the price
of coffee is $10 per pound. She purchases 6 pounds of coffee and 12 gallons of milk
per month when the price of coffee is $8 per pound. Sandras cross-price elasticity
of demand for coffee and milk is
a. 0.82, and they are substitutes.
b. -0.82, and they are complements.
c. 1.22, and they are substitutes.
d. -1.22, and they are complements.
38. If the price elasticity of supply is 1.2, and a price increase led to a 5% increase in
quantity supplied, then the price increase is about
a. 0.24%.
b. 4.2%.
c. 6%.
d. 6.2%.
39. On a certain supply curve, one point is (quantity supplied = 200, price = $2.00) and
another point is (quantity supplied = 250, price = $2.50). Using the midpoint
method, the price elasticity of supply is about
a. 0.2.
b. 0.5.
c. 1.0.
d. 2.5.

40. In the long run, the quantity supplied of most goods
a. will increase in almost all cases, regardless of what happens to price.
b. cannot respond at all to a change in price.
c. can respond to a change in price, but the change is almost always
inconsequential.
d. can respond substantially to a change in price.

41. If a 25% change in price results in a 40% change in quantity supplied, then the price
elasticity of supply is about
a. 0.63, and supply is elastic.
b. 0.63, and supply is inelastic.
c. 1.60, and supply is elastic.
d. 1.60, and supply is inelastic.
42. Which of the following statements is valid when supply is perfectly elastic at a price
of $4?
a. The elasticity of supply approaches infinity.
b. The supply curve is vertical.
c. At a price below $4, quantity supplied is infinite.
d. At a price above $4, quantity supplied is zero.
43. A decrease in supply will cause the smallest increase in price when
a. both supply and demand are inelastic.
b. demand is elastic and supply is inelastic.
c. both supply and demand are elastic.
d. demand is inelastic and supply is elastic.
44. Good news for farming can be bad news for farmers because the
a. supply curve for an individual farmer is usually perfectly elastic.
b. supply curve for an individual farmer is usually perfectly inelastic.
c. demand for basic foodstuffs is usually inelastic, meaning that factors that shift
supply to the right decrease total revenues to sellers.
d. demand for basic foodstuffs is usually elastic, meaning that factors that shift
supply to the right increase total revenues to sellers.
45. Under which of the following conditions would the interdiction of illegal drugs
result in a decrease in the quantity of drugs sold and in a decrease in total spending
on illegal drugs by drug users?
a. The interdiction has the effect of shifting the demand curve for illegal drugs to
the right.
b. The price elasticity of demand for illegal drugs is 1.3.
c. The price elasticity of supply for illegal drugs is 0.8.
d. As a result of the interdiction, the price of illegal drugs increases by 20 percent
and the quantity of illegal drugs sold decreases by 16 percent.

46.Which of the following is not a function of prices in a market system?
a. Prices have the crucial job of balancing supply and demand.
b. Prices send signals to buyers and sellers to help them make rational economic
decisions.
c. Prices coordinate economic activity.
d. Prices ensure an equal distribution of goods and services among consumers.
47.Which of the following is the most likely explanation for the imposition of a price
ceiling on the market for milk?
a. Policymakers have studied the effects of the price ceiling carefully, and they
recognize that the price ceiling is advantageous for society as a whole.
b. Buyers of milk, recognizing that the price ceiling is good for them, have
pressured policymakers into imposing the price ceiling.
c. Sellers of milk, recognizing that the price ceiling is good for them, have
pressured policymakers into imposing the price ceiling.
d. Buyers and sellers of milk have agreed that the price ceiling is good for both of
them and have therefore pressured policymakers into imposing the price ceiling.
48. Suppose the government has imposed a price ceiling on laptop computers. Which of
the following events could transform the price ceiling from one that is not binding
into one that is binding?
a. Improvements in production technology reduce the costs of producing laptop
computers.
b. The number of firms selling laptop computers decreases.
c. Consumers' income decreases, and laptop computers are a normal good.
d. The number of consumers buying laptop computers decreases.
49. A binding price ceiling
(i) causes a surplus.
(ii) causes a shortage.
(iii) is set at a price above the equilibrium price.
(iv) is set at a price below the equilibrium price.
a. (ii) only
b. (iv) only
c. (i) and (iii) only
d. (ii) and (iv) only
50. The imposition of a binding price ceiling on a market causes quantity demanded to
be
a. greater than quantity supplied.
b. less than quantity supplied.
c. equal to quantity supplied.
d. Both a) and b) are possible.

Figure 4
Panel (a) Panel (b)


51. Refer to Figure 4. A binding price ceiling is shown in
a. panel (a) only.
b. panel (b) only.
c. both panel (a) and panel (b).
d. neither panel (a) nor panel (b).
52. Refer to Figure 6-1. In which panel(s) of the figure would there be a shortage of
the good at the price ceiling?
a. panel (a) only
b. panel (b) only
c. both panel (a) and panel (b)
d. neither panel (a) nor panel (b)
53. Which of the following is the most likely explanation for the imposition of a price
floor on the market for corn?
a. Policymakers have studied the effects of the price floor carefully, and they
recognize that the price floor is advantageous for society as a whole.
b. Buyers and sellers of corn have agreed that the price floor is good for both of
them and have therefore pressured policy makers into imposing the price floor.
c. Buyers of corn, recognizing that the price floor is good for them, have pressured
policymakers into imposing the price floor.
d. Sellers of corn, recognizing that the price floor is good for them, have pressured
policymakers into imposing the price floor.




54.Suppose the government has imposed a price floor on the market for soybeans. Which
of the following events could transform the price floor from one that is not binding
into one that is binding?
a. Farmers use improved, draught-resistant seeds, which lowers the cost of growing
soybeans.
b. The number of farmers selling soybeans decreases.
c. Consumers' income increases, and soybeans are a normal good.
d. The number of consumers buying soybeans increases.
55. If a price floor is a binding constraint on a market, then
a. the equilibrium price must be above the price floor.
b. the quantity demanded must exceed the quantity supplied.
c. sellers cannot sell all they want to sell at the price floor.
d. buyers cannot buy all they want to buy at the price floor.
Figure 5

56. Refer to Figure 5. Which of the following statements is not correct?
a. When the price is $10, quantity supplied equals quantity demanded.
b. When the price is $6, there is a surplus of 8 units.
c. When the price is $12, there is a surplus of 4 units.
d. When the price is $16, quantity supplied exceeds quantity demanded by 12 units.
57.Refer to Figure 5. A government-imposed price of $6 in this market could be an
example of a
(i) binding price ceiling.
(ii) non-binding price ceiling.
(iii) binding price floor.
(iv) non-binding price floor.
a. (i) only
b. (ii) only
c. (i) and (iv) only
d. (ii) and (iii) only

Figure 6

58. Refer to Figure 6. A price ceiling set at
a. $4 will be binding and will result in a shortage of 3 units.
b. $4 will be binding and will result in a shortage of 6 units.
c. $7 will be binding and will result in a surplus of 6 units.
d. $7 will be binding and will result in a surplus of 12 units.
59. Refer to Figure 6. A price floor set at
a. $4 will be binding and will result in a shortage of 3 units.
b. $4 will be binding and will result in a shortage of 6 units.
c. $7 will be binding and will result in a surplus of 6 units.
d. $7 will be binding and will result in a surplus of 12 units.
Table 1
Price Quantity
Demanded
Quantity
Supplied
$0 12 0
$1 10 2
$2 8 4
$3 6 6
$4 4 8
$5 2 10
$6 0 12
60. Refer to Table 1. Which of the following price ceilings would be binding in this
market?
a. $2
b. $3
c. $4
d. $5
61. Refer to Table 1. Suppose the government imposes a price ceiling of $1 on this
market. What will be the size of the shortage in this market?
a. 0 units
b. 2 units
c. 8 units
d. 10 units
62. Refer to Table 1. Suppose the government imposes a price floor of $1 on this
market. What will be the size of the surplus in this market?
a. 0 units
b. 2 units
c. 8 units
d. 10 units
63. Which of the following is not a result of rent control?
a. fewer new apartments offered for rent
b. less maintenance provided by landlords
c. bribery
d. higher quality housing
64. In the housing market, supply and demand are
a. more elastic in the short run than in the long run, and so rent control leads to a
larger shortage of apartments in the short run than in the long run.
b. more elastic in the short run than in the long run, and so rent control leads to a
larger shortage of apartments in the long run than in the short run.
c. more elastic in the long run than in the short run, and so rent control leads to a
larger shortage of apartments in the short run than in the long run.
d. more elastic in the long run than in the short run, and so rent control leads to a
larger shortage of apartments in the long run than in the short run.
65. Which of the following statements about the effects of rent control is correct?
a. The short-run effect of rent control is a surplus of apartments, and the long-run
effect of rent control is a shortage of apartments.
b. The short-run effect of rent control is a relatively small shortage of apartments,
and the long-run effect of rent control is a larger shortage of apartments.
c. In the long run, rent control leads to a shortage of apartments and an
improvement in the quality of available apartments.
d. The effects of rent control are very noticeable to the public in the short run
because the primary effects of rent control occur very quickly.
66. An example of a price floor is
a. the regulation of gasoline prices in the U.S. in the 1970s.
b. rent control.
c. the minimum wage.
d. any restriction on price that leads to a shortage.

67.If the minimum wage exceeds the equilibrium wage, then
a. the quantity demanded of labor will exceed the quantity supplied.
b. the quantity supplied of labor will exceed the quantity demanded.
c. the minimum wage will not be binding.
d. there will be no unemployment.
68. There are several criticisms of the minimum wage. Which of the following is not one
of those criticisms? The minimum wage
a. often hurts those people who it is intended to help.
b. results in an excess supply of low-skilled labor.
c. prevents some unskilled workers from getting needed on-the-job training.
d. fails to raise the wage of any employed person.
69. Long lines
a. and discrimination according to seller bias are both inefficient rationing
mechanisms because they both waste buyers time.
b. and discrimination according to seller bias are both inefficient rationing
mechanisms because the good does not necessarily go to the buyer who values it
most highly.
c. are an inefficient rationing mechanism because they waste buyers time, and
discrimination according to seller bias is an inefficient rationing mechanism
because the good does not necessarily go to the buyer who values it most highly.
d. are an inefficient rationing mechanism because the good does not necessarily go
to the buyer who values it most highly, and discrimination according to seller
bias is an inefficient rationing mechanism because it wastes buyers time.
70. If the government removes a tax on a good, then the price paid by buyers will
a. increase, and the price received by sellers will increase.
b. increase, and the price received by sellers will decrease.
c. decrease, and the price received by sellers will increase.
d. decrease, and the price received by sellers will decrease.
71. A tax on the sellers of coffee will increase the price of coffee paid by buyers,
a. increase the effective price of coffee received by sellers, and increase the
equilibrium quantity of coffee.
b. increase the effective price of coffee received by sellers, and decrease the
equilibrium quantity of coffee.
c. decrease the effective price of coffee received by sellers, and increase the
equilibrium quantity of coffee.
d. decrease the effective price of coffee received by sellers, and decrease the
equilibrium quantity of coffee.




72. Suppose sellers of perfume are required to send $1.00 to the government for every
bottle of perfume they sell. Further, suppose this tax causes the price paid by buyers
of perfume to rise by $0.60 per bottle. Which of the following statements is correct?
a. The effective price received by sellers is $0.40 per bottle less than it was before
the tax.
b. Sixty percent of the burden of the tax falls on sellers.
c. This tax causes the demand curve for perfume to shift downward by $1.00 at
each quantity of perfume.
d. All of the above are correct.

73. When a tax is imposed on the sellers of a good, the supply curve shifts
a. upward by the amount of the tax.
b. downward by the amount of the tax.
c. upward by less than the amount of the tax.
d. downward by less than the amount of the tax.
74. Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline
tickets are required to pay the tax to the government. If the tax is reduced from $50
per ticket to $30 per ticket, then the
a. demand curve will shift upward by $20, and the price paid by buyers will
decrease by less than $20.
b. demand curve will shift upward by $20, and the price paid by buyers will
decrease by $20.
c. supply curve will shift downward by $20, and the effective price received by
sellers will increase by less than $20.
d. supply curve will shift downward by $20, and the effective price received by
sellers will increase by $20.

75. If the government passes a law requiring buyers of college textbooks to send $5 to the
government for every textbook they buy, then
a. the demand curve for textbooks shifts downward by $5.
b. buyers of textbooks pay $5 more per textbook than they were paying before the
tax.
c. sellers of textbooks are unaffected by the tax.
d. All of the above are correct.
76. Which of the following statements is correct concerning the burden of a tax imposed
on take-out food?
a. Buyers bear the entire burden of the tax.
b. Sellers bear the entire burden of the tax.
c. Buyers and sellers share the burden of the tax.
d. We have to know whether it is the buyers or the sellers that are required to pay
the tax to the government in order to make this determination.

Figure 7
The vertical distance between points A and B represents the tax in the market.

77. Refer to Figure 7. The price that buyers pay after the tax is imposed is
a. $8.
b. $10.
c. $16.
d. $24.

78. Refer to Figure 7. The effective price that sellers receive after the tax is imposed is
a. $6.
b. $10.
c. $16.
d. $24.

79.Refer to Figure 7. The per-unit burden of the tax on buyers is
a. $6.
b. $8.
c. $14.
d. $24.
Figure 8

80. Refer to Figure 8. The price paid by buyers after the tax is imposed is
a. $3.
b. $4.
c. $5.
d. $7.
81. Refer to Figure 8. The effective price received by sellers after the tax is imposed is
a. $3.
b. $4.
c. $5.
d. $7.
82. Refer to Figure 8. For every unit of the good that is sold, sellers are required to
send
a. one dollar to the government, and buyers are required to send two dollars to the
government.
b. two dollars to the government, and buyers are required to send one dollar to the
government.
c. three dollars to the government, and buyers are required to send nothing to the
government.
d. nothing to the government, and buyers are required to send two dollars to the
government.


83. Suppose the government imposes a $40 tax on the buyers of refrigerators. The tax
would
a. shift the demand curve downward by less than $40.
b. raise the equilibrium price by $40.
c. create a $20 tax burden each for buyers and sellers.
d. discourage market activity.
84. Which of the following causes the price paid by buyers to be different than the price
received by sellers?
a. a binding price floor
b. a binding price ceiling
c. a tax on the good
d. All of the above are correct.
85. The price received by sellers in a market will increase if the government decreases a
a. binding price floor in that market.
b. binding price ceiling in that market.
c. tax on the good sold in that market.
d. None of the above is correct.
86. The price paid by buyers in a market will decrease if the government
a. imposes a binding price floor in that market.
b. increases a binding price ceiling in that market.
c. increases a tax on the good sold in that market.
d. decreases a binding price floor in that market.
87. Suppose that in a particular market, the demand curve is highly elastic, and the
supply curve is highly inelastic. If a tax is imposed in this market, then the
a. buyers will bear a greater burden of the tax than the sellers.
b. sellers will bear a greater burden of the tax than the buyers.
c. buyers and sellers are likely to share the burden of the tax equally.
d. buyers and sellers will not share the burden equally, but it is impossible to
determine who will bear the greater burden of the tax without more information.
88. Sellers of a good bear the larger share of the tax burden when a tax is placed on a
product for which the
(i) supply is more elastic than the demand.
(ii) demand in more elastic than the supply.
(iii) tax is placed on the sellers of the product.
(iv) tax is placed on the buyers of the product.
a. (i) only
b. (ii) only
c. (i) and (iv) only
d. (ii) and (iii) only



Figure 9
Suppose the government imposes a $2 on this market.

89. Refer to Figure 9. The buyers will bear a higher share of the tax burden than sellers
if the demand is
a. D1, and the supply is S1.
b. D2, and the supply is S1.
c. D1, and the supply is S2.
d. D2, and the supply is S2.
90. Refer to Figure 9. The buyers and sellers will bear an eaqual share of the tax burden
if the demand is
a. D1, and the supply is S1.
b. D2, and the supply is S1.
c. D1, and the supply is S2.
d. D2, and the supply is S2.
91. Refer to Figure 9. Suppose D1 represents the demand curve for paperback novels,
D2 represents the demand curve for gasoline, and S1 represents the supply curve for
paperback novels and gasoline. After the imposition of the $2 on paperback novels
and on gasoline, the
a. buyers of gasoline bear a higher burden of the $2 tax than buyers of paperback
novels.
b. sellers of gasoline bear a higher burden of the $2 tax than sellers of paperback
novels.
c. buyers of gasoline bear an equal burden of the $2 tax as buyers of paperback
novels.
d. Both a) and b) are correct.
92. When a tax is levied on a good, the buyers and sellers of the good share the burden,
a. provided the tax is levied on the sellers.
b. provided the tax is levied on the buyers.
c. provided a portion of the tax is levied on the buyers, with the remaining portion
levied on the sellers.
d. regardless of how the tax is levied.
93. What happens to the total surplus in a market when the government imposes a tax?
a. Total surplus increases by the amount of the tax.
b. Total surplus increases but by less than the amount of the tax.
c. Total surplus decreases.
d. Total surplus is unaffected by the tax.
94. A tax placed on buyers of airline tickets shifts the
a. demand curve for airline tickets downward, decreasing the price received by
sellers of airline tickets and causing the quantity of airline tickets to increase.
b. demand curve for airline tickets downward, decreasing the price received by
sellers of airline tickets and causing the quantity of airline tickets to decrease.
c. supply curve for airline tickets upward, decreasing the effective price paid by
buyers of airline tickets and causing the quantity of airline tickets to increase.
d. supply curve for airline tickets upward, increasing the effective price paid by
buyers of airline tickets and causing the quantity of airline tickets to decrease.
95. It does not matter whether a tax is levied on the buyers or the sellers of a good
because
a. sellers always bear the full burden of the tax.
b. buyers always bear the full burden of the tax.
c. buyers and sellers will share the burden of the tax.
d. None of the above is correct; the incidence of the tax does depend on whether
the buyers or the sellers are required to pay the tax.
96. When a tax is levied on buyers, the
a. supply curves shifts upward by the amount of the tax.
b. tax creates a wedge between the price buyers effectively pay and the price sellers
receive.
c. tax has no effect on the well-being of sellers.
d. All of the above are correct.
97. When the government places a tax on a product, the cost of the tax to buyers and
sellers
a. is less than the revenue raised from the tax by the government.
b. is equal to the revenue raised from the tax by the government.
c. exceeds the revenue raised from the tax by the government.
d. Without additional information, such as the elasticity of demand for this product,
it is impossible to compare the cost of a tax to buyers and sellers with tax
revenue.





98. Which of the following quantities decrease in response to a tax on a good?
a. the equilibrium quantity in the market for the good, the effective price of the
good paid by buyers, and consumer surplus
b. the equilibrium quantity in the market for the good, producer surplus, and the
well-being of buyers of the good
c. the effective price received by sellers of the good, the wedge between the
effective price paid by buyers and the effective price received by sellers, and
consumer surplus
d. None of the above is necessarily correct unless we know whether the tax is
levied on buyers or on sellers.
99. Taxes cause deadweight losses because they
a. lead to losses in surplus for consumers and for producers that, when taken
together, exceed tax revenue collected by the government.
b. distort incentives to both buyers and sellers.
c. prevent buyers and sellers from realizing some of the gains from trade.
d. All of the above are correct.
100. The supply curve for liquor is the typical upward-sloping straight line, and the
demand curve for liquor is the typical downward-sloping straight line. When liquor
is taxed, the area on the relevant supply-and-demand graph that represents the
deadweight loss is
a. larger than the area that represents consumer surplus in the absence of the tax.
b. larger than the area that represents governments tax revenue.
c. a triangle.
d. All of the above are correct.
101. In the market for widgets, the supply curve is the typical upward-sloping straight
line, and the demand curve is the typical downward-sloping straight line. The
equilibrium quantity in the market for widgets is 250 per month when there is no
tax. Then a tax of $6 per widget is imposed. As a result, the government is able to
raise $750 per month in tax revenue. We can conclude that the after-tax quantity of
widgets is
a. 75 per month.
b. 100 per month.
c. 125 per month.
d. 150 per month.







Figure 10
The vertical distance between points A and B represents a tax in the market.

102. Refer to Figure 10. The imposition of the tax causes the quantity sold to
a. increase by 1 unit.
b. decrease by 1 unit.
c. increase by 2 units.
d. decrease by 2 units.
103. Refer to Figure 10. The imposition of the tax causes the price received by sellers to
a. decrease by $2.
b. increase by $3.
c. decrease by $4.
d. increase by $5.
104. Refer to Figure 10. The amount of tax revenue received by the government is
a. $2.50.
b. $4.
c. $5.
d. $9.
105. Refer to Figure 10. The loss of producer surplus as a result of the tax is
a. $1.
b. $2.
c. $3.
d. $4.
106. Refer to Figure 10. Total surplus without the tax is
a. $10, and total surplus with the tax is $2.50.
b. $10, and total surplus with the tax is $7.50.
c. $20, and total surplus with the tax is $2.50.
d. $20, and total surplus with the tax is $7.50.
107. Suppose a tax of $5 per unit is imposed on a good, and the tax causes the
equilibrium quantity of the good to decrease from 200 units to 100 units. The tax
decreases consumer surplus by $450 and decreases producer surplus by $300. The
deadweight loss from the tax is
a. $250.
b. $500.
c. $750.
d. $1,000.
108. Suppose a tax of $5 per unit is imposed on a good. The supply curve is a typical
upward-sloping straight line, and the demand curve is a typical downward-sloping
straight line. The tax decreases consumer surplus by $10,000 and decreases producer
surplus by $15,000. The deadweight loss of the tax is $2,500. The tax decreased the
equilibrium quantity of the good from
a. 6,500 to 5,500.
b. 5,500 to 4,500.
c. 5,000 to 3,000.
d. 6,000 to 4,000.
109. The price elasticities of supply and demand affect
a. both the size of the deadweight loss from a tax and the tax incidence.
b. the size of the deadweight loss from a tax but not the tax incidence.
c. the tax incidence but not the size of the deadweight loss from a tax.
d. neither the size of the deadweight loss from a tax nor the tax incidence.
110. The deadweight loss from a tax of $5 per unit will be smallest in a market with
a. inelastic supply and elastic demand.
b. inelastic supply and inelastic demand.
c. elastic supply and elastic demand.
d. elastic supply and inelastic demand.
111. Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for
the good, other things equal,
a. the larger is the decrease in quantity demanded as a result of the tax.
b. the smaller is the tax burden on buyers relative to the tax burden on sellers.
c. the larger is the deadweight loss of the tax.
d. All of the above are correct.
112. Which of the following statements is correct regarding a tax on a good and the
resulting deadweight loss?
a. The greater are the price elasticities of supply and demand, the greater is the
deadweight loss.
b. The greater is the price elasticity of supply and the smaller is the price elasticity
of demand, the greater is the deadweight loss.
c. The smaller are the decreases in quantity demanded and quantity supplied, the
greater the deadweight loss.
d. The smaller is the wedge between the effective price to sellers and the effective
price to buyers, the greater is the deadweight loss.
113. Consider a good to which a per-unit tax applies. The size of the deadweight that
results from the tax is smaller, the
a. larger is the price elasticity of demand.
b. smaller is the price elasticity of supply.
c. larger is the amount of the tax.
d. All of the above are correct.
144. Assume the price of gasoline is $2.40 per gallon, and the equilibrium quantity of
gasoline is 12 million gallons per day with no tax on gasoline. Starting from this
initial situation, which of the following scenarios would result in the largest
deadweight loss?
a. A 10 percent increase in the price of gasoline reduces the quantity of gasoline
demanded by 2 percent and it increases the quantity of gasoline supplied by 5
percent; and the tax on gasoline amounts to $0.40 per gallon.
b. A 10 percent increase in the price of gasoline reduces the quantity of gasoline
demanded by 2 percent and it increases the quantity of gasoline supplied by 7
percent; and the tax on gasoline amounts to $0.40 per gallon.
c. A 10 percent increase in the price of gasoline reduces the quantity of gasoline
demanded by 1 percent and it increases the quantity of gasoline supplied by 8
percent; and the tax on gasoline amounts to $0.35 per gallon.
d. There is insufficient information to make this determination.
115. An increase in the size of a tax is most likely to increase tax revenue in a market
with
a. elastic demand and elastic supply.
b. elastic demand and inelastic supply.
c. inelastic demand and elastic supply.
d. inelastic demand and inelastic supply.
116. In which of the following cases is it most likely that an increase in the size of a tax
will decrease tax revenue?
a. The price elasticity of demand is small, and the price elasticity of supply is large.
b. The price elasticity of demand is large, and the price elasticity of supply is small.
c. The price elasticity of demand and the price elasticity of supply are both small.
d. The price elasticity of demand and the price elasticity of supply are both large.

45#,* 6$37+, /,#12+-38

&9 The New Yoik Times iepoiteu (Feb 17, 1996) that subway iiueiship ueclineu
aftei a faie inciease: "Theie weie neaily foui million fewei iiueis in Becembei
199S, the fiist full month aftei the piice of a token incieaseu 2S cents to $1.Su, than
in the pievious Becembei, a 4.S% uecline."
a. 0se these uata to estimate the piice elasticity of uemanu foi subway iiues.
b. Accoiuing to youi estimate, what happens to the Tiansit Authoiity's ievenue
when the faie iises.
c. Why might youi estimate of the elasticity be unieliable.

.9 Phaimaceutical uiugs have an inelastic uemanu, anu computeis have an elastic
uemanu. Suppose that technological auvance uoubles the supply of both piouucts
(that is, the quantity supplieu at each piice is twice what it was).
a. What happens to the equilibiium piice anu quantity in each maiket.
b. Which piouuct expeiiences a laigei change in piice.
c. Which piouuct expeiiences a laigei change in quantity.
u. What happens to total consumei spenuing on each piouuct.

:9 Congiess anu the piesiuent ueciue that the 0niteu States shoulu ieuuce aii
pollution by ieuucing its use of gasoline. They impose a $u.Su tax foi each gallon of
gasoline solu.
a. Shoulu they impose this tax on piouuceis oi consumeis. Explain caiefully
using a supply-anu-uemanu uiagiam.
b. If uemanu foi gasoline weie moie elastic, woulu this tax be moie effective oi
less effective in ieuucing the quantity of gasoline consumeu. Explain with
both woius anu a uiagiam.
c. Aie consumeis of gasoline helpeu oi huit by this tax. Why.
u. Aie woikeis in the oil inuustiy helpeu oi huit by this tax. Why.

;9 If the goveinment places a $Suu tax on luxuiy cais, will the piice paiu by
consumeis iise by moie than $Suu, less than $Suu, oi exactly $Suu. Explain.

<9 Evaluate the following two statements. Bo you agiee. Why oi why not.
a. "A tax that has no ueauweight loss cannot iaise any ievenue foi the
goveinment."
b. "A tax that iaises no ievenue foi the goveinment cannot have any
ueauweight loss."

=9 Consiuei the maiket foi iubbei banus.
a. If this maiket has veiy elastic supply anu veiy inelastic uemanu, how woulu
the buiuen of a tax on iubbei banus be shaieu between consumeis anu
piouuceis. 0se the tools of consumei suiplus anu piouucei suiplus in youi
answei.
b. If this maiket has veiy inelastic supply anu veiy elastic uemanu, how woulu
the buiuen of a tax on iubbei banus be shaieu between consumeis anu
piouuceis. Contiast youi answei with youi answei to pait (a).