1. When the government places a tax on a good and all else is held constant, whi
ID: 1136001 • Letter: 1
Question
1. When the government places a tax on a good and all else is held constant, which of the following would most likely happen?
The government receives no tax revenue if the tax is more than 20%.
The price and quantity adjust back to the competitive market equilibrium point.
The supply curve shifts to the right.
The overall consumption of the good decreases, assuming the good does not have a vertical demand curve.
The price the buyer pays for the good decreases, assuming the good does not have a horizontal demand curve.
2. According to the accompanying figure, if the price is $10, there is a:
surplus of 30 units.
shortage of 15 units.
surplus of 15 units.
shortage of 30 units.
surplus of 22 units.
3. When the demand curve shifts to the left and all else is held constant, the
equilibrium price rises and the equilibrium quantity rises.
equilibrium price falls and the equilibrium quantity remains constant.
equilibrium price rises and the equilibrium quantity falls.
equilibrium price falls and the equilibrium quantity falls.
equilibrium price falls and the equilibrium quantity rises.
4. The difference between a tax and a subsidy is that when the government places a tax on a good, it _________ the equilibrium price and _________ the equilibrium quantity, whereas when the government places a subsidy on a good, it _________ the equilibrium price and _________ the equilibrium quantity.
decreases; decreases; increases; increases
decreases; increases; increases; decreases
increases; decreases; decreases; increases
increases; does not change; does not change; increases
increases; increases; decreases; decreases
Explanation / Answer
1. When the government places a tax on a good and all else is held constant, then the overall consumption of the good decreases , assuming the good does not have a vertical demand curve. Because when tax is imposed , price that buyers pays increases and price that seller receive decreases , as a result equilibrium quantity decreases.Hence, option(D) is correct.
3. When the demand shifts to the left and all else is held constant, the equilibrium price falls and equilibrium quantity falls . Hence, option(D) is correct.
4. The difference between a tax and subsidy is that when the government places a tax on a good, it increases the equilibrium price and decreases the equilibrium quantity , whereas when the government places a subsidy on a good, it decreases the equilibrium price and increases the equilibrium quantity. Hence, option(C) is correct.
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