Chapter 6: Supply, Demand, and Government Policies - Questions

What is a price control?

a) A tax on goods

b) A government-imposed price restriction

c) A supply increase

d) A profit-maximizing strategy

b) A government-imposed price restriction

What does a price ceiling do?

a) Sets a maximum price

b) Sets a minimum price

c) Increases supply

d) Eliminates shortages

a) Sets a maximum price

What is an example of a price floor?

a) Rent control

b) Gasoline price cap

c) Minimum wage

d) Sales tax

c) Minimum wage

What happens when a price ceiling is set below equilibrium?

a) Surplus

b) Shortage

c) No effect

d) Increased supply

b) Shortage

What happens when a price floor is set above equilibrium?

a) Shortage

b) Surplus

c) No effect

d) Lower wages

b) Surplus

What does a non binding price ceiling mean?

a) It is above equilibrium and has no effect

b) It is below equilibrium and causes a shortage

c) It increases demand

d) It decreases supply

a) It is above equilibrium and has no effect

Which of the following is an example of a price ceiling?

a) Minimum wage

b) Rent control

c) Sales tax

d) Worker benefits

b) Rent control

What is the goal of the Fair Labor Standards Act (FLSA)?

a) To regulate stock markets

b) To protect workers' rights

c) To lower production costs

d) To increase corporate profits

b) To protect workers' rights

What does tax incidence determine?

a) Who pays the tax

b) How much profit is earned

c) How quickly supply changes

d) The total tax revenue

a) Who pays the tax

Who bears the greater tax burden when supply is more elastic than demand?

a) Producers

b) Consumers

c) Government

d) Employers

b) Consumers

What does FICA tax help fund?

a) Roads and bridges

b) Military expenses

c) Social Security and Medicare

d) Normal goods

c) Social Security and Medicare

What happens when a minimum wage is set too high?

a) More jobs are created

b) Unemployment may increase

c) Employers hire more workers

d) Wages decrease

b) Unemployment may increase

A ________ is a maximum price that can be legally charged for a good or service.

Price ceiling

A _________ is a minimum price that must be paid for a good or service.

Price floor

When a price ceiling is set below equilibrium, a ________ occurs.

Shortage

When a price floor is set above equilibrium, a _____ occurs.

Surplus

Rent control is an example of a _______.

Price ceiling

________ is the main source of government revenue.

Taxation

_________ determines how the tax burden is distributed between buyers and sellers.

Tax incidence

The tax burden falls more heavily on the side of the market that is _________ elastic.

Less

_______ taxes help fund Social Security and Medicare.

FICA

What is the difference between a price floor and a price ceiling?

A price floor sets a minimum price, while a price ceiling sets a maximum price.

What happens when a binding price floor is set above equilibrium?

Surplus occurs since supply exceeds demand.

What is a non binding price ceiling?

Price ceiling set above equilibrium, having no effect on the market.

Who bears the greater tax burden when demand is more elastic than supply?

Producers

Who bears the greater tax burden when supply is more elastic than demand?

Consumers