Micro Ch 29 and 30 Practice Problems Key
$
S1 = S0 + tax
S0
P4 = 63
P3 = 55
P2 = 43
P1 = 35
D
0
Q1 Q2
9,000 11,000
Cases of bourbon, week
In the diagram above:
S0 = supply curve for bourbon (seller's supply)
D = demand curve for bourbon
St = supply for bourbon plus excise tax on bourbon
(effective supply as seen by buyers)
tax = an excise tax on bourbon (of $20 per case)
1. The excise tax on bourbon as described in the diagram is ultimately paid:
A)
B)
Answer: D
by buyers only.
by sellers only.
C)
D)
40 percent by buyers and 60 percent by sellers.
60 percent by buyers and 40 percent by sellers.
Wage
S Labor+ tax
S Labor
$5.40
$5.00
$4.90
D
0
Q Labor
2. Refer to the above graph. Suppose the labor market above is in equilibrium at a wage rate of $5.00 per hour.
Now the government decides to impose a wage tax of $.50 per hour on the market. If the number of workers
hired after the imposition of the tax is 1,000, then the total amount of the tax is:
A)
$200. B) $300. C) $400. D) $500.
Answer: D
3. Refer to the above graph. It shows the supply curve for a product before tax (S0 ) and after a $1 excise tax is
imposed (S1 ). The excise tax on the product is ultimately paid:
A)
by buyers only. C)
75 percent by buyers and 25 percent by sellers.
B)
by sellers only. D)
25 percent by buyers and 75 percent by sellers.
Answer: C
4. Refer to the above graph. It shows the supply curve for a product before tax (S0 ) and after a $1 excise tax is
imposed (S1 ). If 500 units of the product are sold after the tax is imposed, the amount of tax revenue going to the
government is:
A)
$125. B) $250. C) $375. D) $500.
Answer: D
5. Refer to the above graph. It shows the supply curve for a product before tax (S0 ) and after a $1 excise tax is
imposed (S1 ). If 500 units of the product are sold after the tax is imposed, the amount of the tax borne by the
consumer is:
A)
$125. B) $250. C) $375. D) $500.
Answer: C
6. Refer to the above graph. A tax is imposed that shifts the supply curve from S to S + tax. What is the difference
in revenue kept by producers before the tax was imposed and after the tax was imposed?
A)
$0.75 B) $2.25 C) $4.75 D) $11.25
Answer: C
7. Refer to the above graph. A tax is imposed that shifts the supply curve from S to S + tax. What is the amount of
the tax borne by producers?
A)
$0.75 B) $1.50 C) $11.25 D) $16.00
Answer: A
8. Refer to the above graph. A tax is imposed that shifts the supply curve from S to S + tax. What is the amount of
the tax borne by consumers?
A)
Answer: B
$0.75 B) $1.50 C) $11.25 D) $13.50
9. The graph above represents the market for a product where D1 and S1 show the supply and demand curves
before the imposition of a sales tax. Following the tax, the government's tax revenue is:
A)
FIJG. B) ACEG. C) BCEF. D) ABFG.
Answer: B
10. The basic purpose of antitrust laws is to:
A)
achieve subsidies for American business.
C)
control prices to protect consumers.
B)
limit monopoly power in industry. D)
enforce laws that restrict competition.
Answer: B
11. Conglomerate mergers are combinations of:
A)
many small firms.
B)
firms producing the same product.
C)
firms producing unrelated products.
D)
firms operating at different stages in a given production process.
Answer: C
12. A merger between one firm and another firm that is its supplier is known as a:
A)
horizontal merger. B) vertical merger. C) conglomerate merger. D) parallel merger.
Answer: B
13. A merger between McDonald's and Burger King would be an example of a:
A)
conglomerate merger. B) horizontal merger. C) vertical merger. D) parallel merger.
Answer: B
14. An example of a horizontal merger is one between an airline and:
A)
a chain of hotels. B) another airline. C) an aluminum company. D) a car rental company.
Answer: B
15. The merger of a manufacturing firm in one industry with another manufacturing firm in the same industry is
called a:
A) horizontal merger. B) vertical merger. C) secondary merger. D) conglomerate merger.
Answer: A