1. 6 GOVERNMENT ACTIONS IN MARKETS

2. © 2012 Pearson Addison-Wesley Q1: Which of the following outcomes is typical of a price ceiling that is set below the market equilibrium price? A Less of the good is produced with the price ceiling than would be produced without it. B The price ceiling has no effect on the market equilibrium. C Consumers can buy more than the market equilibrium quantity because the price ceiling is below the market price. D More of the good is produced with the price ceiling than would be produced without it.

3. © 2012 Pearson Addison-Wesley Q2: With rent controls, what mechanism might arise to bring about the market equilibrium? A A fall in search costs B The creation of a black market C Increased advertising by landlords D More favorable leases offered to tenants

4. © 2012 Pearson Addison-Wesley Q3: If a minimum wage is set above the market equilibrium wage rate, employment ________. A will increase B will not change C will decrease D might increase, decrease, or not change, depending on how the minimum wage influences the supply of labor

5. © 2012 Pearson Addison-Wesley Q4: Suppose that the minimum wage in 1950s was 75 cents an hour until 1956 when it was raised to $1 an hour. If the minimum wage in the early 1950s was below the equilibrium wage rate and late 1950s wage was above the equilibrium wage rate. In the early 1950s, ______. A the labor market was more efficient B unemployment was greater C the deadweight loss was greater D the potential loss from job search was greater

6. © 2012 Pearson Addison-Wesley Q5: If a tax is imposed on buyers in a market in which the supply of the good is perfectly inelastic, then _________. A buyers pay the entire tax B sellers pay the entire tax C both buyers and sellers pay a portion of the tax D neither the buyers nor the sellers pay the tax

7. © 2012 Pearson Addison-Wesley Q6: The tax on insulin in the Philippines is about 20 percent. If you are rich and live in the Philippines, the tax is not a problem, but if you are poor, insulin becomes something that you cannot afford. Why do diabetes who take insulin care so much about the tax? A Because the demand for insulin is almost perfectly inelastic, buyers pay virtually the entire tax B Because sellers increase their profit when there is a tax C Because more insulin can be provided to those in need D Because the tax incidence is equal between the buyers and sellers

8. © 2012 Pearson Addison-Wesley Q7: If a production quota is set below the market equilibrium quantity, the marginal benefit from the quantity produced is ________ the marginal cost of producing it and production is ________. A greater than; inefficient B greater than; efficient C less than; inefficient D equal to; efficient

9. © 2012 Pearson Addison-Wesley Q8: Rather than prohibit an illegal good or service, the government might tax it. By imposing a tax on such a good or service the equilibrium market price _______ and the equilibrium quantity bought and sold ______. A rises; increases B rises; decreases C falls; increases D falls; decreases