Multiple Choice Questions
1. Other things being equal, for a given tax, if the demand curve is less elastic,
a. The greater the tax revenue raised and the greater the deadweight cost of the tax.
b. The greater the tax revenue raised and the smaller the deadweight cost of the tax.
c. The less the tax revenue raised and the greater the deadweight cost of the tax.
d. The less the tax revenue raised and the smaller the deadweight cost of the tax.
2. An increase in a subsidy will increase
a. Consumer surplus.
b. Producer surplus.
c. The deadweight loss.
d. All of the above.
3. With a subsidy,
a. The price producers receive is the price consumers pay plus the subsidy.
b. The subsidy leads to the production of more than the efficient level of output.
c. There is a deadweight loss.
d. All of the above are true.
4. The longer the time people have to adjust to a tax, the _____________ revenue it will raise and the _____________ quantity traded will fall.
a. More; more
b. More; less
c. Less; more
d. Less; less
5. A permanent increase in price would tend to decrease the consumer surplus by _____________ or increase the producer surplus by _____________ in the long run than in the short run.
a. More; more
b. More; less
c. Less; more
d. Less; less
6. In the case of a price floor, if the government buys up the surplus,
a. Consumer surplus decreases.
b. Producer surplus increases.
c. A greater deadweight loss occurs than with a deficiency payment system.
d. All of the above are true.
7. The longer a price ceiling is left below the equilibrium price in a market, the _____________ is the reduction in the quantity exchanged and the _____________ is the resulting deadweight loss.
a. Greater; greater
b. Greater; smaller
c. Smaller; greater
d. Smaller; smaller
8. With a deficiency payment program,
a. The government sets the target price at the equilibrium price.
b. Producer and consumer surplus falls.
c. There is a deadweight loss because the program increases the output beyond the efficient level of output.
d. All of the above are true.