Demand and supply: Applications and extensions.

Demand and supply are two of the most basic concepts in economics that describe the interactions between buyers and sellers in a market. These concepts have a wide range of applications and extensions, some of which include:

Market equilibrium: The point at which the quantity demanded of a good or service equals the quantity supplied is called market equilibrium. At this point, the price of the good or service is stable and there is no surplus or shortage. Market equilibrium is an important concept in understanding how markets function and how prices are determined.
Elasticity: Elasticity is a measure of how responsive the quantity demanded or supplied is to changes in price. It helps to understand how changes in price will affect the quantity demanded or supplied, and ultimately the market equilibrium.
Market failure: Market failure occurs when the market is not able to allocate resources efficiently. This can happen due to externalities, public goods, and market power. Understanding how demand and supply interact in these situations is crucial in identifying and addressing market failure.
Government intervention: Governments often intervene in markets to correct the market failure or achieve other policy objectives. Understanding how demand and supply interact in a market is crucial in evaluating the effectiveness of these interventions.
International trade: International trade is the exchange of goods and services between countries. The theory of comparative advantage is based on the concept of demand and supply. It suggests that countries should specialize in producing goods and services for which they have a comparative advantage and trade for goods and services for which they have a comparative disadvantage.
Behavioral economics: This field of economics uses the principles of psychology to understand how people make decisions. Behavioral economics has extended the classical model of demand and supply by including factors such as emotions, social norms, and cognitive biases.

In conclusion, demand and supply are fundamental concepts in economics that have a wide range of applications and extensions. These concepts are used to understand how markets function, how prices are determined, and how to address market failure. They are also used to evaluate the effectiveness of government interventions, understand international trade, and incorporate behavioral factors in decision-making.

1.Government-imposed rent controls that reduce the price of rental housing below equilibrium lead to:

a decline in the future supply of rental housing

an improvement in the quality of rental housing

surpluses of rental housing in the market

an efficient use of housing space

2.Which of the following happens because of the imposition of a price ceiling in a market?

The quantity of the good exchanged increases

The consumer surplus rises

The quantity of the good exchanged declines

The producer surplus rises

3.Which of the following is NOT generally involved in the production process in a market economy?

The transformation of resources into goods and services

The sale of goods and services in the marketplace

The purchase of raw materials, labor services, tools, and machines

The political consideration of alternative production and resource use plans for the economic system as a whole

4.Assume the demand for apples is highly inelastic, while the supply is highly elastic. If the government statutorily imposes a $2 tax per apple on sellers, the:

actual burden of the tax will fall primarily on the buyers of apples

actual burden of the tax we equally split between buyers and sellers

actual burden of the tax will fall primarily on the sellers of apples

statutory incidence of the tax falls on customers

5.The additional tax liability a person faces divided by his or her additional taxable income is known as:

the marginal tax rate

the Laffer tax rate

the average tax rate

the tax base

6.Which of the following would be expected to occur if a new subsidy is granted to students taking classes at culinary (cooking) schools?

Students will receive the full benefit of the subsidy as it is paid directly to them rather than being paid to the culinary (cooking) schools

The number of students attending culinary (cooking) schools will fall

There will be no opportunity cost of the subsidy program because no tax increases, debt, or cuts to other programs will be needed to finance the subsidy

The tuition rate charged by culinary (cooking) schools will rise

7.Which of the following is true of government subsidy programs in the United States?

Subsidies to higher education have resulted in drastically reduced prices for college students over the past few decades

Subsidies to health care such as Medicare and Medicaid have resulted in falling health care prices for all consumers over the past few decades

Many subsidy programs are driven by political considerations and targeted toward well-organized interest groups in exchange for votes and political support

Because they require no funding in the form of additional taxes, debt or cuts to other programs, they have had lower opportunity costs than other government programs

8.Identify the correct statement about a black market.

In a black market, the quality of goods is often higher and more reliable than in normal legal markets

Transactions in a black market generally result in more tax revenues for government than transactions in normal legal markets

A black market involves transactions of illegal goods or legal goods being sold at illegal prices

In a black market, the safety of buyers and sellers and the terms of their transactions are protected and enforced through the normal legal system

9.The curve illustrating the relationship between tax rates and the level of tax revenue is called:

the deadweight loss curve

the Smith curve

the average tax curve

the Laffer curve

10.Which of the following would result from a government-imposed price ceiling that lowered the price of gasoline below its market equilibrium level (such as the one imposed in the 1970s)?

A surplus of gasoline, and large inventories of unsold gasoline

A decrease in the quantity of gasoline demanded

A shortage of gasoline, and long lines at gasoline stations

An increase in the quantity of gasoline consumed

11.Buyers bear the larger share of the tax burden when:

demand is relatively inelastic, and supply is relatively elastic

the tax is statutorily levied on buyers rather than sellers

the tax is statutorily levied on sellers rather than buyers

demand is relatively elastic, and supply is relatively inelastic

12.Which of the following is true of a resource market?

In a resource market, the quantity of a resource demanded and its price are inversely related

In a resource market, the quantity of a resource demanded and its price are directly related

In a resource market, the quantity of a resource demanded is not dependent upon its price

In a resource market, the quantity of a resource supplied and its price are inversely related

13.Which of the following would increase the supply of a good or service?

An increase in the price of resources used in producing the good or service

A decrease in the price of resources used in producing the good or service

An increase in the cost of production due to higher government regulations on the production of the good or service

An increase in the legal minimum wage that results in higher wages for workers producing the good or service

14.Suppose the Laffer curve for the United States bends backward above the revenue-maximizing marginal tax rate of 20 percent. If the existing marginal tax rate in the United States is 30 percent, which of the following steps would result in an increase in tax revenue?

Reduce the marginal tax rate to zero

ncrease the marginal tax rate to 35 percent

Increase the marginal tax rate to 100 percent

Decrease the marginal tax rate to 25 percent

15.Which of the following will happen if the price of flour increased from $2 per pound to $3.50 per pound?

The quantity of flour demanded will decrease in the resource market

The supply of bread will increase in the product market

The quantity of flour demanded will increase in the resource market

The quantity of bread demanded will increase in the product market

16.Supposed that Jade has a tax liability of $30,000 when her taxable income is $100,000, and her tax liability rises to $48,000 when her taxable income rises to $120,000. Which of the following is true?

Jade faces a regressive tax

Jade faces a progressive tax

Jade’s marginal tax rate on this additional income is 40 percent

Jade’s average tax rate at $120,000 is 30 percent

17.A subsidy is

a price floor that reduces the quantity of the good exchanged and reduces the gains from trade

a per-unit payment made by the government to either the buyer or the seller when a good is exchanged

a price ceiling that pushes the price of a good below the market equilibrium and leads to a shortage

a per-unit amount payment made by the producers to the government for undertaking an economic activity

18.In economics, the term tax incidence refers to:

how the percentage of a taxpayer’s income paid in taxes changes with income levels

how the burden of a tax is distributed among buyers and sellers

the date of the week, month, or year on which taxes are due to be paid

which level of government is imposing the tax

19.Which of the following describes the importance of the legal structure in the operational efficiency of a market system?

It helps in the enforcement of contracts and the settling of disputes between buyers and sellers

It allows the political process to set the prices of goods and services for buyers

It keeps goods that people should not consume for moral reasons from being sold

It generates enough revenue to pay off the national debt through the taxation of goods and services

20.The deadweight loss resulting from a tax is a result of:

a decrease in the price of the good being taxed

an increase in the quantity of a good produced due to a tax

a tax being statutorily levied on buyers rather than sellers

a decline in the level of an economic activity that is taxed

21.If lowering the per unit tax on widgets from $25 to $20 results in the number of widgets sold rising from 100 to 150, then

tax revenue will fall as a result of the tax reduction

tax revenue will not change as a result of the tax reduction

tax revenue will rise as a result of the tax reduction

the quantity purchased must be unrelated to the level of the tax

22.Suppose a $500 tax is imposed statutorily on the sellers. In the supply and demand framework this would be illustrated by:

a vertical downward shift in the supply curve by $500

a vertical upward shift in the demand curve by $500

a vertical upward shift in the supply curve by $500

a vertical downward shift in the demand curve by $500

23.Which of the following is a difference between black markets and normal legal markets?

There is a lower incidence of defective products in black markets than in normal legal markets

The incidence of violence is generally lower in black markets than in normal legal markets

Prices are likely to be higher in black markets than in normal legal markets

Only supply determines the prices in black markets, while demand and supply both determine prices in normal legal markets

24.According to the Laffer curve:

tax revenue can never be increased by lowering tax rates

tax revenue will always fall as tax rates increase

above some tax rate, additional increases in the tax rate will reduce tax revenue

tax revenue will always rise as tax rates increase

25.Which of the following will result from the government imposition of a price floor or price ceiling?

A reduction in discrimination and lower reliance on nonprice factors in exchange

An increase in the number of exchanges, and more efficient resource use

The elimination of harmful secondary effects affecting buyers and sellers

A reduction in the number of mutually beneficial exchanges in the market, a reduction in the gains from trade, and reduced efficiency of resource use

26.When Erin’s taxable income is $60,000, she has a $20,000 tax liability. When her taxable income rises to $100,000 her tax liability increases to $25,000. Which of the following is true?

Erin faces a proportional tax system

Erin faces a progressive tax system

Erin faces a marginal tax rate of 25 percent

Erin faces a regressive tax system

27.Which of the following is true of the relationship between resource prices and product prices?

An increase in the price of a resource leads to an increase in the price of products produced with that resource

An increase in the demand for, and price of, a product leads to a decrease in the demand for the resources used to produce that product

An increase in the price of a resource leads to an increase in the supply of products produced with that resource

An increase in the price of a resource leads to a decrease in the price of products produced with that resource

28.A subsidy on a good will lead to a greater benefit:

to the buyer when higher taxes rather than government debt are used to finance the payment of the subsidy

to the seller if the supply is inelastic and demand is elastic

to the seller when it is statutorily granted and paid to the seller rather than the buyer

to the seller if the supply is elastic and demand is inelastic

29.Which of the following is a result of an increase in the price of a resource?

Higher production costs of goods produced with the resource

Lower prices of goods produced with the resource

Lower production costs of goods produced with the resource

Greater demand for the goods produced with the resource

30.Suppose a tax is imposed statutorily on the buyers of a good that has the usual upward sloping supply curve and downward sloping demand curve. The actual burden of the tax will:

fall on whichever side of the market has the highest price elasticity (is most elastic)

fall entirely on the buyers

be the same as it would be if the tax was statutorily imposed on the sellers of the good instead

fall entirely on the sellers

31.Which of the following is a reason for people engaging in black market transactions?

To buy or sell goods the government has made illegal or to evade high government-imposed taxes

The perpetual surplus of goods that exist in black markets due to the price floors imposed by government on black market goods and services

Stronger government enforcement of contracts between buyers and sellers in black markets than in normal legal markets

The reduced risks involved in black market transactions relative to transactions conducted in normal legal markets

32.Which of the following do rent controls (government-imposed price ceilings on rental housing) lead to?

An improvement in the quality of rental housing

A decrease in discrimination in rental housing markets

An increase in the supply of rental housing

Shortages of rental housing

33.Which of the following is essential for the efficient operation of markets?

A legal system that provides for secure private-property rights and contract enforcement

A very small number of producers to minimize the choices consumers need to make across competing goods

An excess supply of the good in the market to ensure no need for rationing

Government control and regulation of prices

34.Tax revenue equals:

the tax base plus the tax rate

the tax base divided by the tax rate

the tax base multiplied by the tax rate

the difference between the tax base and the tax rate

35.The distribution of the actual benefit of a subsidy between buyer and seller depends on:

which party is statutorily paid the subsidy

which level of government is granting the subsidy

the relative elasticities of demand and supply

whether higher taxes or increased government debt are used to finance the subsidy

36.Combined state and federal taxes on gasoline average around 50 cents per gallon, and these taxes are statutorily levied on gasoline sellers. Because the demand for gasoline is relatively inelastic compared to the supply of gasoline:

buyers likely do not bear much of the actual burden because it is statutorily levied on sellers who must submit the tax payments

the net price received by sellers after they pay taxes likely falls by almost the full amount of the tax

sellers likely bear most of the actual burden of the tax through lower gasoline prices

buyers likely bear most of the actual burden of the tax through higher gasoline prices

37.Which of the following is true of a government-mandated minimum wage?

It is a price floor

It increases the employment of unskilled workers

It is a price ceiling

It only affects individuals in poverty

38.A progressive tax is one in which:

the average tax rate is the same at all taxable income levels

the average tax rate falls with taxable income

the average tax rate rises with taxable income

the marginal tax rate is the same at all taxable income levels

39.Which of the following is true of price controls?

Price controls always help the intended beneficiaries

Price controls reduce the gains from trade

Price controls result in expansions in the quantity consumed

Price controls do not generate any secondary effects

40.Jason’s tax liability is $2,880 on an income of $18,000. His average tax rate would be:

19 percent

21 percent

15 percent

16 percent

41.According to the Laffer curve:

When tax rates are high (on the upper portion of the Laffer curve), revenue can be increased by lowering tax rates

The revenue from a tax always rises when tax rates are increased

When tax rates are low (on the lower portion of the Laffer curve), revenue can be increased by lowering tax rates

The deadweight loss of taxation equals zero when the tax rate is set to maximize revenue

42.Which of the following is true regarding the interrelationship between the market for laptop computers and the market for aluminum, a resource used to make laptop computers?

A decrease in the demand for laptop computers will increase the demand for aluminum

A decrease in the demand for laptop computers will reduce the demand for aluminum

A decrease in the price of aluminum will lead to a decrease in the supply of laptop computers

An increase in the price of aluminum will increase the demand for laptop computers

43.An increase in the demand for cars will lead to:

a decrease in the profitability of the car industry, causing a decrease in the supply of steel

a contraction of the car industry, causing a decrease in the price of steel

an expansion of the car industry, causing an increase in the demand for steel

a decrease in the wages of the workers in the car industry

44.A condition in which a government-imposed price ceiling causes the amount of a good offered for sale by producers to be less than the amount demanded by buyers is known as a:

shortage

surplus

scarcity

deficiency

45.The actual incidence or burden of a tax will fall primarily on sellers when:

demand is relatively inelastic, and supply is relatively elastic

the tax is statutorily levied on buyers rather than sellers

the tax is statutorily levied on sellers rather than buyers

demand is relatively elastic, and supply is relatively inelastic

46.The excess burden, or deadweight loss, of taxation reflects:

the social benefit of the government spending funded by the revenue from the tax

the losses in tax revenue resulting from tax evasion by consumers and producers

losses to buyers and sellers over and above the amount of tax revenue paid

the degree to which taxes are born by buyers rather than sellers

Demand and supply: Applications and extensions.

Demand and supply: Applications and extensions.

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