Government Intervention

After the government imposed a $0.20 per gallon tax on gasoline, the price of a gallon of gasoline increased from $1.00 to $1.15. Which of the following statements is true?

• Consumers bear the entire burden of the tax, since producers can pass the tax along to consumers.

• Consumers and producers share the tax burden equally.

• Consumers bear most, but not all, of the tax burden.

• Producers bear the entire burden of the tax, since the tax was levied on producers, not consumers.

• There is no tax burden, since gasoline is a normal good.

Antitrust legislation is designed to make it illegal for a firm to monopolize an industry. Which of the following best states the economic rationale for this legislation?

• A monopolist produces too little of the good, producing an output that minimizes the average cost of production.

• A monopolist produces too little of the good, charging consumers a price that exceeds the marginal cost of production.

• A monopolist is more likely to pollute the environment than are firms in a competitive industry.

• A monopolist engages in price discrimination, charging low-income people with elastic demand curves a higher price than that charged to high-income people with inelastic demand curves.

• A monopolist produces too much of a good, attracting scarce factors of production that might be better utilized in other industries.

If government regulators set price such that a natural monopolist earns only normal profits, price will be set equal to

• marginal revenue

• marginal cost

• average total cost

• average revenue

• average variable cost

The graph above shows the market for good X The letters in the graph denote the enclosed areas If the government imposes an excise tax of t dollars on each unit of good X, which of the following represents the deadweight loss after the imposition of the tax?

• C+D+E

• D+E

• C +D + E + F

• E + F

• A

The graph above shows the market for good X The letters in the graph denote the enclosed areas If the government imposes an excise tax of t dollars on each unit of good X, which of the following represents the producer surplus after the imposition of the tax?

• A

• A + B + C+D

• D + E

• H + F + E

• G

The government revenue collected by the tax is equal to

• P1GHP0

• P1GKP0

• GHK

• P1GIP2

• P0HIP2

Which of the following bears the total tax burden?

• The consumers bear it.

• The producers bear it.

• The consumers and the producers each bear a part of it.

• The group that legally pays the tax bears it.

• The government bears it.

The graph above illustrates the labor market for teenage workers. The current minimum wage for all workers is W1. If Congress introduces a sub-minimum wage, W2 that applies only to teenagers, what is the most likely effect on teenage employment?

• Teenage employment will increase because firms will want to hire more teenagers at W2 than at W1.

• Teenage employment will increase because more teenagers will want to work at W2 than at W1.

• Teenage employment will decrease because fewer teenagers will want to work at W2 than at W1.

• Teenage employment will decrease because firms will want to hire fewer teenagers at W2 than at W1.

• Teenage employment will stay the same because the market-clearing wage is lower than W1 and W2.

The graph above shows the supply and demand curves for gasoline. Which of the following will occur if the government establishes a price ceiling of $1.20 per gallon?

• A shortage of 900 million gallons

• A shortage of 200 million gallons

• A shortage of 100 million gallons

• A surplus of 100 million gallons

• Neither a surplus nor a shortage

Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good?

• The quantity sold will exceed the equilibrium quantity.

• Firms’ total revenues will increase if demand is price elastic.

• There will be a shortage in the market.

• All firms will shut down, since price is below the equilibrium price.

• Price will exceed the marginal cost of producing the last unit sold.