Chapter 7 — Quiz

Multiple choice

Q1. A binding price ceiling: a) Raises the price above the equilibrium b) Sets a floor below which prices cannot fall c) Caps the price below the equilibrium and creates a shortage d) Has no effect on the market

Q2. A price ceiling that is set above the equilibrium price: a) Creates a shortage b) Creates a surplus c) Has no effect (it doesn't bind) d) Causes prices to rise

Q3. Rent control is most accurately described as: a) A policy with universal economic support b) A policy with universal economic opposition c) A policy with strong economic consensus against it but real political support driven by concerns the standard model doesn't fully capture d) A policy with no clear economic effects

Q4. A binding minimum wage: a) Has no effect because employers won't comply b) Causes unemployment, with the size depending on the elasticity of labor demand c) Always benefits all workers d) Lowers wages for some workers

Q5. The Card-Krueger 1994 study found: a) That the minimum wage caused massive job losses b) No significant negative effect on fast-food employment from a New Jersey minimum wage increase c) That the minimum wage caused inflation d) That minimum wages should be eliminated

Q6. The CBO's 2021 estimate of the labor demand elasticity for low-wage workers is roughly: a) 0 b) Around −0.1 to −0.2 (small, smaller than the simple model predicts) c) Around −1 to −2 d) Around +1

Q7. When demand is highly inelastic and supply is elastic, the burden of a tax falls mostly on: a) Producers b) Consumers c) The government d) Foreigners

Q8. The 1991 U.S. luxury tax on yachts illustrates: a) That taxes always work as intended b) That when supply is inelastic and demand is elastic, the tax burden falls on producers, not on the wealthy buyers it was meant to target c) That cigarette taxes are effective d) That all taxes raise revenue

Q9. A subsidy is best described as: a) A penalty for buying a good b) The mirror image of a tax — it lowers the price for buyers and raises it for sellers c) An exclusive benefit for the rich d) A government expense with no market effects

Q10. The Bennett hypothesis claims that: a) Federal student loan subsidies have been partly captured by colleges as higher tuition b) Tuition is too high c) Federal aid is the only solution to college affordability d) Education is a market failure

Q11. Deadweight loss is best described as: a) The maximum revenue a tax can raise b) The value of trades that don't happen because of an intervention c) A measure of how bad a policy is morally d) The same thing as a shortage

Q12. A policy with substantial deadweight loss is: a) Always a bad idea b) Always a good idea c) Sometimes good and sometimes bad — deadweight loss measures inefficiency, not overall desirability d) Impossible

Short answer

SA1. Why does a binding price ceiling reduce the quantity sold below the equilibrium quantity?

SA2. List four reasons voters support rent control even when economists oppose it.

SA3. Why is the empirical labor demand elasticity for low-wage workers smaller than the simple supply-and-demand model predicts? Give two reasons.

SA4. State the tax incidence rule: who bears more of the tax burden?

SA5. Distinguish statutory incidence from economic incidence using a real example.

True / False

TF1. A price ceiling above the equilibrium has no effect on the market. (True / False)

TF2. Rent control is unambiguously bad and has no benefits to anyone. (True / False)

TF3. The minimum wage causes large employment losses according to the most recent empirical literature. (True / False)

TF4. Whoever the law says must pay a tax actually bears the economic burden of the tax. (True / False)

TF5. Subsidies always go to the people they are intended to help. (True / False)

TF6. Deadweight loss is a measure of how morally bad a policy is. (True / False)

Selected answers in appendices/answers-to-selected.md.