King: Economics Chapter 05 Instructions Answer the following questions and then press 'Submit' to get your score. Question 1 Which of the following is not an argument against government intervention in a market? a) If the government reduces output below the free market level, consumer surplus will fall. b) If the government reduces output below the free market level, producer surplus will fall. c) If the government raises output above the free market level, consumers will get no benefit from the extra units of output. d) If the government raises output above the free market level, some units of output will cost more to produce than the value placed on them by consumers. Question 2 Which of the following statements about a price ceiling is false? a) The number of buyers who gain from the ceiling is smaller than the original number of buyers. b) The ceiling creates an excess demand. c) The ceiling generates losers as well as gainers. d) To have any effect, the price ceiling must be set at a higher level than the original market price. Question 3 Assuming that everyone is law-abiding, which of the following would not reduce the quantity traded in a market? a) The imposition of an effective price ceiling. b) The removal of an effective price floor. c) The imposition of a supply-side quantity control. d) The imposition of a demand-side quantity control. Question 4 Suppose the government introduces a specific tax of £5 a unit on a product which has sloping supply and demand curves. Which of the following statements about the resulting curve S+tax is true? a) The gap between S+tax and S will be higher at high quantities than at low quantities. b) The gap between S+tax and S will be higher at low quantities than at high quantities. c) The gap between S+tax and S will be £5 at each quantity. d) The gap between S+tax and S will be whatever is needed to show that the equilibrium price for consumers increases by £5. Question 5 On a graph showing the effects of an ad valorem tax, where do we find the price received by producers? a) At the point on S below the point where S+tax intersects D. b) At the point where S intersects D. c) At the point where S+tax intersects D. d) At the initial price minus the amount of the tax. Question 6 Which of the following statements about the incidence of a specific tax is false? a) The incidence which falls on consumers plus the incidence which falls on producers equals the amount of the tax. b) The incidence falls more heavily on producers than consumers if the demand curve is flatter than the supply curve. c) The incidence falls more heavily on consumers than producers if the supply curve is flatter than the demand curve. d) The incidence always falls wholly on consumers. Question 7 Under which of the following circumstances would the incidence of a specific tax fall wholly on consumers? a) Demand is perfectly elastic. b) Supply is perfectly elastic c) Both demand and supply have unit elasticity. d) Under all circumstances. Question 8 Suppose the CAP has imposed a tariff on the import of a certain foodstuff from outside the EU, and suppose that EU consumers always pay a price equal to the rest of the world price plus the tariff. Which of the following events would not lead to a higher price for EU consumers? a) A rise in the supply of the foodstuff by EU producers. b) An increase in the tariff. c) A rise in the demand for the foodstuff by non-EU consumers. d) A fall in the supply of the foodstuff by non-EU producers. Question 9 Suppose the CAP reduces the tariff on imports of a certain foodstuff from outside the EU. Which of the following statements is false? a) The quantity consumed in the EU would increase. b) The quantity of imports into the EU would increase. c) The incomes of EU farmers would increase. d) The incomes of non-EU farmers would increase. Question 10 Suppose the government introduces a prohibition on the supply or purchase of some substance. Assuming that some suppliers and some users ignore the law, which of the following could not occur? a) The price might rise. b) The price might stay the same. c) The price might fall. d) There would be no price because the market would disappear underground.