Government Intervention Pros/Cons/Diagrams

Which regions show the total consumer expenditure after the subsidy is implemented?

• D+J+K+L

• C +I + D +J

• B + E + F +C + I +H + G +D + J + K + L

• B + E + F +C + I +H +G

Which regions show the amount producers receive after the subsidy is implemented?

• D + J + K + L

• C + I + D + J

• B + E + F + C + I + H + G + D + J + K + L

• B + E + F + C + I + H + G

Which regions show the total amount of money spent by the government to fund the subsidy?

• D + J + K + L

• C + I + D + J

• B + E + F + C + I + H + G + D + J + K + L

• B + E + F + C + I + H + G

The demand and supply schedules for grain are shown in the image. The government fixes the minimum price (price floor) at $18 per tonne. How much will this cost taxpayers, IF the government buys the entire economic surplus?

• $72,000

• $108,000

• $144,000

• $180,000

Which sections represent the deadweight loss arising from the imposition of the tax?

• A + B + C + E

• E + F + G + J

• E + F

• H + I + J

Which sections represent the incidence of tax paid by customers?

• A + B + C +E

• D +F + G

• B +C

• D

Which sections represent the government’s tax revenues?

• B + C +D + H +I

• B+C+D

• D +F + G

• E+F

Which of the following is not an effect of a price ceiling being imposed?

• Improvement in allocative efficiency

• Reduced market supply

• Creation of unofficial markets

• Shortages

What is the reason why price ceilings are often imposed on essential goods and services, such as food products and rents on public housing?

• To make these goods and services affordable to low-income earners

• To reduce the consumption level of these goods and services

• To create informal markets for these products

• To create producer surplus for suppliers of these goods and services

Which of the following market responses is most rational to expect?

• Excess supply leads to reduced prices

• Excess demand leads to reduced prices

• Excess supply leads to increased prices

• Consumer and producer surplus are equal at market equilibrium