2) What would happen in a market where a price ceiling was set above equilibrium price
Equilibrium price would become the market price
3) When a shortage of a good is present due to a price ceiling?
� Non-price factors, such as discrimination or waiting in line, will play a greater role in the allocation of the good
4) If the government imposes a price floor on the market for milk, which of the following is most likely happen?
Surplus of milk
5) Both price floors and price ceilings lead to
Reductions in quantity traded
6) If a $5,000 tax is placed legally (statutorily) on the sellers of new automobiles and as a result the price of automobiles to consumers rises by $4,000, then the actual burden of the tax.
Is $4,000 on automobile buyers and $1,000 on sellers
7) The burden of a tax will fall primarily on sellers when the
Demand for the product is highly elastic and the supply is relatively inelastic
According to the Laffer curve
When marginal tax rates are high, a reduction in tax rates may increase tax revenue
The actual benefit of a government subsidy is determined primarily by
The elasticity's of demand and supply
13) A price ceiling set below an equilibrium price tends to cause persistent imbalances in the market because
Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.
15) The term "deadweight loss" or "excess burden" is used to describe the
� loss from the elimination of mutually beneficial exchanges that results from the imposition of a tax in a market.
A tax tends to
� reduce formal market activity because it lowers the return on such activity
The marginal tax rate is defined as
the change in tax liability divided by the change in taxable income
The actual burden of a tax AND benefits of subsidies is determined primarily by
elasticities of demand and suppl
Suppose the actions of the producers of a good impose an external cost which results in the actual market price of $25 and market output of 1,000 units. How does this outcome compare to the efficient, ideal equilibrium?
� The efficient price would be higher than $25 while the efficient output would be less than 1,000 units
15. Suppose the actions of the producers of a good generate an external benefit which results in the actual market price of $15 and market output of 614 units. How does this outcome compare to the efficient, ideal equilibrium? nOT ENOUGH PRODUCED
� The efficient price would be higher than $15 while the efficient output would be greater than 614 units
16. When the consumption of a good generates an external benefit
� The market demand curve will understate the total benefits derived from consumption of the good and as a result, too little of it will be produced and consumed.