Chapter 6: Government policies

Policymakers use taxes

• to raise revenue for public purposes but not to influence market outcomes

• both to raise revenue for public purposes and to influence market outcomes.

• when they realize that price controls alone are insufficient to correct market inequities.

• only in those markets in which the burden of the tax falls clearly on the sellers.

A price ceiling will be binding only if it is set

• equal to the equilibrium price.

• above the equilibrium price.

• below the equilibrium price.

• either above or below the equilibrium price.

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market?  After the price ceiling becomes effective, 

• a smaller quantity of the good is bought and sold.

• a smaller quantity of the good is demanded.

• a larger quantity of the good is supplied.

• the price rises above the previous equilibrium.

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?

• Improvements in production technology reduce the costs of producing laptop computers.

• The number of firms selling laptop computers decreases.

• Consumers' income decreases, and laptop computers are a normal good.

• The number of consumers buying laptop computers decreases.

Suppose the government has imposed a price ceiling on cellular phones.  Which of the following events could transform the price ceiling from one that is binding to one that is not binding?

• Cellular phones become more popular.

• Traditional land line phones become more expensive.

• The components used to produce cellular phones become more expensive.

• A technological advance makes cellular phone production less expensive.

If a price floor is a binding constraint on a market, then

• the equilibrium price must be above the price floor.

• the quantity demanded must exceed the quantity supplied.

• sellers cannot sell all they want to sell at the price floor.

• buyers cannot buy all they want to buy at the price floor.

If a binding price floor is imposed on the video game market, then

• the demand for video games will decrease.

• the supply of video games will increase.

• a surplus of video games will develop.

• All of the above are correct.

Refer to Figure 6-6.  Which of the following price ceilings would be binding in this market?

• $8

• $10

• $12

• $14

Refer to Figure 6-6.  Which of the following price floors would be binding in this market?

• $6

• $8

• $10

• $12

Refer to Figure 6-6.  Which of the following statements is correct?

• A price ceiling set at $12 would be binding, but a price ceiling set at $8 would not be binding.

• A price floor set at $8 would be binding, but a price ceiling set at $8 would not be binding.

• A price ceiling set at $9 would result in a surplus.

• A price floor set at $11 would result in a surplus.