Policy problems

1. Policy problems • Should taxes be imposed on producers or on consumers? A. the economic consequences on prices and quantities are identical. • How is the demand curve for cars affected by a $100 sales tax on cars? How is the supply curve affected by a $100 tax on suppliers of cars? A. a tax on consumers shifts the demand down and a tax on producers shift the supply to the left. • Subsidies: Show in a graph the effect of giving a subsidy of 5 cents per pound to orange farmers. A. A subsidy to producers shifts the supply to the right. • Labor Market: Use a graph to show that it is equivalent to impose a tax on workers and on firms. What is more fair: a tax on workers or on firms?

2. Questions from Previous Exams True/False • The price of gas went up and the quantity sold went down, therefore the law of supply has been violated. A. False Multiple Choice • If the supply of oil shifts to the left and all other relevant factors remain unchanged, then a) the demand for oil will fall b) the quantity demanded for oil will fall. This is the correct answer c) the demand for oil will rise d) the quantity demanded of oil will rise

3. ____ 3. An increase in the price of corn will cause a shift in the supply of corn to the right. A. False • ____ 4. If the price and quantity exchanged of a good simultaneously rise, then the law of demand has been violated. A. False • ____ 6. Suppose the price of a commodity is $15 per unit. At that price, consumers wish to purchase 6,000 units weekly and producers wish to sell 4,000 units weekly. In this situation, • a.unsatisfied consumers will bid up the market price. This is the correct answer. • b.the market price will fall because producers are unsatisfied. • c.the price will rise and the demand will fall to bring the market to equilibrium. • d.supply will shift to the right by 2,000 units in order to satisfy consumers.

4. 10. To make child daycare more affordable, government advisors are debating two possible options. Plan A is to give daycare centers a $100 subsidy per month per child. Plan B is to give the parents $100 reduction in taxes per month per child in daycare. Which plan benefits parents more? • a.Plan A because it will shift the supply to the right of childcare and decrease the price. • b.Plan B because the $100 goes directly to the parents. • c.The plans are equivalent in terms of their impact on the price minus subsidy paid by parents. A. This is the correct answer. • d.Plan A because the price will fall, while under Plan B the price will rise.

5. ____ 14. Comparing the elasticity of demand when the price is 12 and when the price is 4, when is the elasticity bigger? a.They are equal. b.The elasticity is greater when the price is 12. A.This is the correct answer. c.The elasticity is greater when the price is 8. d.More information is needed to answer this question.

6. Quiz-True or False-Old Exams • ____ if 1,000 acres of land can produce 3000 bushels of corn, then 2,000 acres can produce 6000 bushels of corn and 3,000 acres can produce 9000 bushels of corn. A. This is False. • ____ If the total benefits received from drug enforcement exceed its total costs, then the government should expand its drug enforcement activity. A.This is false. • ____ Fixed costs have no effect on a firm's profit. A. This is false.

7. In each of the following 4 circumstances, what would happen to the price and quantity consumed of corn. Circle the correct answer. Correct answer in bold. • ____ 1.The price of fertilizer goes up. Price: up down Quantity: up down • ____2.The price of wheat goes up. Price: up down Quantity: up down • ____3.An epidemic wipes out half the population (people). Price: up down Quantity: up down • ____4.The wages of industrial workers in the corn industry go up. Price: up down Quantity: up down

8. True-False • ____7. A firm's revenue can be calculated from its demand curve using the formula "price times quantity.” A. True. • ____9.If the demand for lettuce falls, the price will fall, causing the demand to go back up. A. False

9. ____2. Which of the following would cause an increase in the price of video tape rentals? • a.Movie theaters reduce their prices. • b.The royalties paid to movie actors fall. • c.The price of video cassette recorders (VCRs) increase. • d.A nationwide video rental chain exits the market. A. This is correct.

10. ____ 11. Consider the market for restaurant meals. Statistics show that wealthier families spend a greater proportion of their income on restaurant meals than do poorer families. If households' incomes rise substantially during an economic recovery, then we can expect • a.an increased supply of restaurant meals. • b.a lower price for restaurant meals. • c.the demand curve for restaurant meals to shift to the left. • d.an increased demand for restaurant meals. This is correct.