Department of Economics
University of Lethbridge
Econ 1010A
Practice Questions – Chapter 6
Use the following to answer question 1:
1. Refer to the graph above. An effective price ceiling at $3 causes consumer surplus to
A) increase from 80 to 120.
B) fall from 110 to 80.
C) increase from 120 to 130.
D) fall from 130 to 120.
2. If the supply curve is perfectly elastic the burden of a tax on suppliers is borne
A) entirely by the suppliers.
B) entirely by the consumers.
C) mostly by the suppliers, and partly by the consumers, if the demand curve is
inelastic.
D) partly by the suppliers, and mostly by the consumers, if the demand curve is elastic.
3. Which one of the following is most likely to be an example of a merit good or activity?
A) Excessive consumption of pork.
B) Provide free beer to teenagers.
C) Teach hockey to boys and girls in the community.
D) Exercising too much.
Page 1
Use the following to answer question 4:
Demand
S1
S1
Price
Price
S0
S0
Demand
tax
tax
(A)
(B)
Quantity
Quantity
Supply
Price
Price
S1
tax
tax
S0
Demand
Demand
(C)
(D)
Quantity
Quantity
4. Refer to the graphs above. In which graph is there no consumer surplus either with or
without a per unit tax?
A) A.
B) B.
C) C.
D) D.
Page 2
Use the following to answer question 5:
5. Refer to the graph above. An effective price ceiling at $3 imposes a deadweight loss of
A) 20.
B) 30.
C) 50.
D) 100.
Use the following to answer question 6:
Supply
Price
Pf
A
B
Pe
C
Pc
E
F
D
Demand
Q2
Q1
Q3
Quantity
6. Refer to the graph above. With an effective price ceiling at Pc, the quantity supplied
A) falls from Q3 to Q2.
B) falls from Q1 to Q2.
C) increases from Q2 to Q1.
D) increases from Q1 to Q3.
Page 3
Use the following to answer question 7:
Price
S1
J
A
B
S0
tax
I
C
D
H
G
Demand
E F
Quantity
7. Refer to the graph above. Initial market equilibrium is at the intersection of D and S0.
When government imposes a per unit tax, supply shifts from S0 to S1. The effect of this
tax is to
A) raise the price consumers pay from C to B.
B) raise the price consumers pay from C to A.
C) raise the equilibrium quantity sold from E to F.
D) reduce the price sellers charge from C to D.
Use the following to answer question 8:
S1
Price
P1
S0
A
P0
P2
C
B
D
Demand
Q1 Q0
Quantity
8. Refer to the graph above. If a tax is imposed on suppliers that shifts the supply curve
from S0 to S1
A) the tax is P1 - P0.
B) the tax revenue equals areas A + B + C + D.
C) the portion of the tax paid per unit by consumers is P1 - P0.
D) the welfare loss equals areas A + C.
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9. All of the following are macroeconomic goals except
A) preventing large fluctuations in the level of economic activity.
B) maintaining a relatively constant price level.
C) providing an economic environment conducive to economic growth.
D) ensuring that employers pay workers a minimum wage sufficient to escape poverty.
Hourly Wage Rate
Use the following to answer question 10:
Supply
$5.15
$4.60
$3.50
Demand
$1.75
0
500 700 800 900 1200
Quantity
10. Without government intervention, market forces would result in
A) 800 labour hours demanded, 800 labour hours supplied, and a wage rate of $4.60
per hour.
B) 500 labour hours demanded, 900 labour hours supplied, and a wage rate of $5.15
per hour.
C) 1200 labour hours demanded, 700 labour hours supplied, and a wage rate of $3.50
per hour.
D) 500 labour hours demanded, 500 labour hours supplied, and a wage rate of $6.90
per hour.
11. Given the same price elasticity of supply, sellers would be able to pass along the
smallest portion of a 10% tax on which item?
A) Beef with a price elasticity of demand of .62.
B) Pork with a price elasticity of demand of .73.
C) Chicken with a price elasticity of demand of .32.
D) Fish with a price elasticity of demand of .12.
Page 5
Use the following to answer question 12:
Price 10
8
S0
6
4.4
3
2
S1
A
D
C
B
0
Demand
672 840
1200
Quantity
12. Refer to the graph above. When market supply shifts from S0 to S1, the loss to suppliers
resulting from lower price is shown by area
A) A.
B) B.
C) C.
D) D.
Use the following to answer question 13:
P
10
Supply
7.5
5
2.5
Demand
0
0
200
400
600
800
Q
Page 6
13. Refer to the graph above. If the price of this product fell from $5.00 to $2.50, producer
surplus would fall from
A) 2000 to 500.
B) 1000 to 500.
C) 1000 to 250.
D) 500 to 250.
14. New York City has been experiencing a housing emergency for quite some time.
Apartments are difficult to come by. In fact, the vacancy rate has been below 5 percent
since World War II. The most likely cause of the housing emergency is
A) a price floor on rent higher than equilibrium price.
B) a price ceiling on rent lower than equilibrium price.
C) too high incomes in New York City.
D) a lack of a rationing mechanism to distribute existing apartments.
15. Rent-seeking activities
A) require resources, and the net result is to reduce total welfare to society.
B) require resources, but the net result is to increase total welfare to society.
C) do not require resources.
D) have no effect on society's welfare.
Page 7
Use the following to answer question 16:
Demand
S1
S1
Price
Price
S0
S0
Demand
tax
tax
(A)
(B)
Quantity
Quantity
Supply
Price
Price
S1
tax
tax
S0
Demand
Demand
(C)
(D)
Quantity
Quantity
16. Refer to the graphs above. Deadweight loss is the least with the imposition of a given
per unit tax in graphs
A) A and D.
B) B and C.
C) C and D.
D) B and D.
17. If your tax payment increases from $7,000 to $8,000 when income increases from
$70,000 to $80,000, the tax you are paying is
A) progressive.
B) regressive.
C) proportional.
D) retroactive.
Page 8
Use the following to answer question 18:
12
S
Price
10
8
6
4
2
D
0
2
4
6
8
10
Quantity
12
18. Refer to the graph above. If the government imposed a price ceiling of $4, producer
surplus would
A) increase from 2 to 4.
B) increase from 4 to 8.
C) fall from 8 to 2.
D) fall from 16 to 4.
Use the following to answer question 19:
Price 10
8
S0
6
4.4
3
2
0
S1
A
B
D
C
672 840
Demand
1200
Quantity
Page 9
19. Refer to the graph above. Initially, the market is in equilibrium where the demand curve
intersects S0. In the initial equilibrium, producer surplus is equal to
A) 806.4.
B) 1881.6.
C) 1260.
D) 2940.
20. If farmers were to decry the effect of this new technology on the price of milk and lobby
government to set the price of milk at its pre self-milking cow innovation price, what
would be the result?
A) Excess demand for milk.
B) Excess supply of milk.
C) Neither a shortage nor a surplus of milk.
D) A decline in the price of milk.
Use the following to answer question 21:
S
Price
4
3
2
D
0
2
3
4
Quantity
21. Refer to the graph above. A government-imposed price floor of $2 will result in
A) neither excess supply nor excess demand since it is binding.
B) neither excess supply nor excess demand since it is not binding.
C) an excess demand of 2.
D) an excess supply of 2.
22. Which of the following statements about market failure is true?
A) Most economists agree on when a market failure occurs.
B) Economic theory will tell you when a market failure occurs.
C) Market failures are sometimes made worse by government failures.
D) The market always leads to desired results.
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23. The belief that the wealthy should bear a larger tax burden than the poor reflects the
A) benefit principle of taxation.
B) cost principle of taxation.
C) ability to pay principle of taxation.
D) equity principle of taxation.
24. A progressive income tax is
A) a tax whose rates increase as a person's income increases.
B) a tax whose rates decrease as a person's income increases.
C) a tax whose rates are constant at all income levels, no matter what a taxpayer's total
annual income is.
D) is not used in Canada.
25. The Rent Control Authority of Chicago has found that total market demand for single
occupancy apartments is Qd = 400,000 - 250 P. The Authority also noted that supply is
given by Qs = 200,000 + 250P. Price of an apartment is measured in hundreds of dollars
and quantity is measured in thousands of apartments. Suppose the Authority decides to
impose a rent control of $300 per single-occupant apartment, how many people will be
unable to find an apartment at that price?
A) 325,000.
B) 300,000.
C) 50,000.
D) 275,000.
26. John, whose earnings last year were $30,000, paid $4,500 in income taxes while Mary,
whose earnings last year were $60,000, paid $12,000 in income taxes. The income tax
rates in this example reflect the
A) benefit principle of taxation since the tax is progressive.
B) benefit principle of taxation since the tax is regressive.
C) ability to pay principle of taxation since the tax is progressive.
D) ability to pay principle of taxation since the tax is regressive.
Page 11
Use the following to answer question 27:
Revenue
C
B
D
E
A
Quantity
27. Refer to the graph above. If the elasticity of supply is one, the burden of the tax will be
equally shared by consumers and suppliers at which point?
A) A.
B) C.
C) E.
D) It depends upon who pays the tax.
Use the following to answer question 28:
S1
Price
20
18
16
14
12
10
8
6
4
2
0
S0
Demand
0
300 400 500
1000
Quantity
28. Refer to the graph above. Assume that the market is initially in equilibrium at a price of
$10 and a quantity of 500 units. In equilibrium, consumer surplus is equal to
A) 1500.
B) 2500.
C) 3500.
D) 5000.
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29. Goods or activities that are deemed good for people even though they may choose not to
use the goods or engage in the activities are known as
A) merit goods or activities.
B) demerit goods or activities.
C) negative externalities.
D) public goods.
30. When government imposes a per unit tax on a product, the price consumers pay for the
product typically
A) increases by the amount of the per unit tax.
B) increases by less than the amount of the per unit tax.
C) decreases by the amount of the per unit tax.
D) decreases by less than the amount of the per unit tax.
Page 13