Macroeconomics/Microeconomics Machine-graded Assessment Items Module: Government Action

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1 Macroeconomics/Microeconomics Machine-graded Assessment Items Module: Government Action Machine-graded assessment question pools are provided for your reference and are organized by learning outcome. It is your responsibility to handle this material securely and appropriately, with proper security to prevent the quiz questions and answers from being widely available and searchable via the Internet. Send any comments or feedback to Evaluate the consequences of government policies in markets. Short Title: Government Action Analyze the consequences of the government setting a binding price ceiling Short Title: Price Ceilings Price ceilings typically result in. shortages* excess supply price equilibrium Price ceilings attempt to make consumer prices. lower* higher at equilibrium Refer to the figure below. If the government set a price ceiling of $8, there would be a: (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/price- floor.png) shortage of 4 units*

2 excess supply of 4 units shortage of 8 units // Updated 10/22/2015 answer choice edited Refer to the figure below. If the government set a price ceiling of $6, (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/price- floor.png) consumers would demand 14 units.* there would be a shortage of 14 units. there would be an excess supply of 6 units. // Updated 10/22/2015 answer choice edited Refer to the figure below. If the government set a price ceiling at $10, there would be a(n): (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/price- ceiling.png) shortage of 24 units.* excess supply of 32 units. excess supply of 80 units. // Updated 10/22/2015 answer choices edited 4.1.a.0 Identify the market s equilibrium price and quantity under a price ceiling Short Title: Equilibrium Under Price Ceilings

3 4.1.a.1 A government decides to set a price ceiling on bread so that bread is affordable to the poor. The conditions of demand and supply are given in the table below. What is the equilibrium price before the price ceiling? What will the excess supply or the shortage be if the price ceiling is set at $2.40? Price Qd Qs $1.60 9,000 5,000 $2.00 8,500 5,500 $2.40 8,000 6,400 $2.80 7,500 7,500 $3.20 7,000 9,000 $3.60 6,500 11,000 $4.00 6,000 15,000 $2.80; 1,600 shortage* $2.40; 1,600 shortage $2.80; 1,600 excess supply // Updated 10/22/2015 question and answer choices edited 4.1.a.2 A government decides to set a price ceiling on bread so that bread is affordable to the poor. The conditions of demand and supply are given in the table below. What will the excess supply or the shortage be if the price ceiling is set at $2.00? Price Qd Qs $1.60 9,000 5,000 $2.00 8,500 5,500 $2.40 8,000 6,400 $2.80 7,500 7,500 $3.20 7,000 9,000 $3.60 6,500 11,000 $4.00 6,000 15,000 3,000 excess supply 3,000 shortage* 8,500 shortage // Updated 10/22/2015 question and answer choices edited

4 4.1.a.3 A government decides to set a price ceiling on bread of $2.40 so that bread is affordable to the poor. The conditions of demand and supply are given in the table below. What will be the price and quantity of bread purchased? Price Qd Qs $1.60 9,000 5,000 $2.00 8,500 5,500 $2.40 8,000 6,400 $2.80 7,500 7,500 $3.20 7,000 9,000 $3.60 6,500 11,000 $4.00 6,000 15,000 $2.40; 8,000 $2.40; 6,400* $2.00; 7,000 // Updated 10/22/2015 question wording improved 4.1.b.0 Compute the market shortage resulting from a price ceiling and show graphically Short Title: Market Shortages from Price Ceilings 4.1.b.1 Suppose the local government is concerned about the health of local school children, and for that reason imposes a price ceiling of $3 on yogurt. Based on the graph below, which of the following is true? (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/shortage.png) The quantity demanded will be 5 yogurts. * The quantity supplied will be 3 yogurts. * There will be a shortage of 2 yogurts. *

5 4.1.b.2 Suppose, in the graph below, there is a price ceiling of $3. Then there is a shortage of: (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/shortage- surplus.png) 3 units. 6 units. * 0 units. 4.1.b.3 Suppose, in the graph below, there is a price ceiling of $6. Then there is a shortage of (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/shortage- surplus.png) 3 units. 6 units. 0 units. * Analyze the consequences of the government setting a binding price floor Short Title: Price Floors The local government is concerned about poverty so it institutes a minimum wage of $9 per hour. If the demand and supply for labor are given in the graph above, there will be

6 (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/shortage- surplus.png) a surplus of 3 workers. a surplus of 6 workers.* a shortage of 6 workers A price floor attempts to keep prices. higher than the equilibrium price* lower than the equilibrium price at the equilibrium price // Updated 10/22/2015 answer choices edited are enacted when discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling. price floors* price ceilings rent controls // Removed 10/22/ The federal minimum wage is an example of a: price floor.* price ceiling. rent control Price floors typically result in. excess supply* excess demand quantity supplied equals quantity demanded

7 4.2.a.0 Identify the market s equilibrium price and quantity for a price floor Short Title: Equilibrium for Price Floors 4.2.a.1 Supply and demand for bushels of wheat (millions) are shown in the following table. A $10.00 price floor would result in: Price Qd Qs $ $ $ $ $ $ $ a price of $10.00 and an excess supply of 4 million bushels.* a price of $8.00 and an excess supply of zero. a price of $9.00 and an excess supply of 2 million bushels. // Updated 10/22/2015 answer choices edited 4.2.a.2 Refer to the figure below. If the government sets a price floor of $80, the excess supply will be: (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/price- ceiling.png) 16* // Updated 10/22/2015 question and answer choices edited 4.2.a.3 Refer to the figure below. If the governments set a price floor of $80, there would be:

8 (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/price- ceiling.png) 12 units sold.* 28 units sold. 16 units sold. // Removed 10/22/2015 Refer to the figure below. If the government sets a price floor of $80, the price would be: (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/price- ceiling.png) $30 higher than the equilibrium price.* $30 lower than the equilibrium price. The same as the equilibrium price. 4.2.b.0 Compute the market surplus resulting from a price floor and show graphically Short Title: Market Surpluses from Price Floors 4.2.b.1 If the government sets floor prices for wheat or corn that guarantee farmers an above- market price for that product, the most probable result would be what? over production.* more suppliers would leave the market. the market would suffer shortages. // Updated 10/22/2015 question and answer choices edited 4.2.b.2 Refer to the figure below. If the government set a price floor of $30, there would be:

9 (img us- west- 2.amazonaws.com/oerfiles/Assessments/economics/price- ceiling.png) excess supply of 16 units excess supply of 12 units zero excess supply* // Updated 10/22/2015 question and answer choices edited 4.2.b.3 Supply and demand for bushels of wheat (millions) are shown in the following table. A $9.00 government mandated price floor would result in: Price Qd Qs $ $ $ $ $ $ $ an excess supply of 2 million bushels of wheat.* a shortage of 2 million bushels of wheat. zero excess supply. // Updated 10/22/2015 answer choices edited 4.2.c.0 Explain the outcome of a binding price ceiling or price floor on the price and quantity of a product sold Short Title: Impact of Binding Price Ceilings or Price Floors 4.2.c.1 A price ceiling creates when it is set the equilibrium price. excess demand below*

10 excess demand above excess supply below 4.2.c.2 A price floor creates when it is set the equilibrium price. excess demand below excess supply below excess supply above* 4.2.c.3 How does a price floor set above the equilibrium price affect quantity demanded and quantity supplied? It results in a greater quantity supplied than the quantity demanded, otherwise known as excess supply.* It results in a greater quantity supplied than the quantity demanded, otherwise known as a shortage. It results in a smaller quantity supplied than the quantity demanded, otherwise known as a shortage. // Updated 10/22/2015 question and answer choices edited Explain how the price elasticities of demand and supply affect the incidence of a sales tax Short Title: Tax Incidence When supply is inelastic and demand is elastic, the tax incidence falls on. the producer* the consumer government // Content page - Reading: Tax Incidence When supply is elastic and demand is inelastic, the tax incidence falls on the. consumer* producer government // Content page - Reading: Tax Incidence The demand for cigarettes is highly inelastic. This suggests that the incidence of a higher tax on cigarettes will fall primarily on: Cigarette consumers.* Cigarette sellers. Government. // Content page - Reading: Tax Incidence Define progressive, proportional, and regressive taxes Short Title: Taxation Which of the following example(s) describe a progressive tax? Income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households*

11 Social Security tax rate of 6.2% on earned income below $117,000 and 0% on income earned above $117,000 Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn // Content page - Reading: Financing Government Which of the following example(s) describe a regressive tax? Social Security tax rate of 6.2% on earned income below $117,000 and 0% on income earned above $117,000* Income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn // Content page - Reading: Financing Government Which of the following example(s) describe a proportional tax? Medicare payroll tax of 2.9% of income for everyone, regardless of how much they earn* Social Security tax rate of 6.2% on earned income below $117,000 and 0% on income earned above $117,000 Income tax with a 10% tax rate on low income households and 20-30% tax rates on higher income households // Content page - Reading: Financing Government Property taxes are: imposed based on ownership of assets such as real estate and autos.* generally considered to be regressive. generally considered to be progressive.* // Content Page Reading: Types of Taxes Sales taxes are: imposed as a percentage of the value of the purchase.* generally considered to be regressive.* a tax burden that is entirely paid by consumers. // Content Page Reading: Types of Taxes The ability to pay principle of taxation holds that: people with more income should pay more taxes.* people who receive more of the benefit of government spending should pay more taxes. taxes should be proportional to income. // Content Page Reading: Financing Government A flat tax: may not be realistic because most actual proposals exempt lower income households from paying taxes.* is a progressive tax. imposes a single, identical tax rate on the income of all taxpayers.* // Content Page Reading: Types of Taxes

12 Tom earns $35,000 per year. The income tax rate on incomes below $20,000 is 10 percent. The rate on income between $20,001 and $35,000 is 15 percent. Which of the following is/are true? Tom s marginal income tax rate is 15 percent.* The income tax is progressive.* The income tax is regressive. // Content Page Reading: Taxation