Unit 2.7-2.

10: Multiple choice quiz

1. When a government places an ad valoreum tax on a good or service this is represented by:
A shift in the supply curve to the left, parallel to the original supply curve
A shift in the supply curve to the right, parallel to the original supply curve
A less elastic supply curve to the left of the original supply curve
A less elastic supply curve to the right of the original supply curve

2. When a government places a specific flat rate tax on a good or service this is represented
by:
A shift in the supply curve to the left, parallel to the original supply curve
A less elastic supply curve to the right of the original supply curve
A shift in the supply curve to the right, parallel to the original supply curve
A less elastic supply curve to the left of the original supply curve

3. When a government places a tax on a product there is a dead weight loss. This can be
described as ________
The loss to society caused by market inefficiency
The loss to the producer caused by market inefficiency
The loss to the consumer caused by market inefficiency
The loss to either producer or consumer surplus caused by market inefficiency

4. When a government places a tax on a product we would expect to see a fall in sales and an
increase in the price of the good or service. This is called the _______
Incidence of taxation
Loss from taxation
Burden of taxation
Deadweight loss

5. Which of the following is not a reason for governments imposing a tax on a good or
service?
To encourage consumption of the good or service
To reduce consumption for certain goods and services
To raise tax revenue to pay for public services
Sales taxes are easier to collect than income taxes

6. Some governments prefer to collect tax revenues from income taxes and taxes on company
profits rather than sales taxes. Which of the following reasons explains this preference?
Income and profit taxes do not harm companies
Income and profit taxes are a fairer way of collecting tax revenue
Income and profit taxes are progressive
Sales taxes discourage the consumption of certain products that they wish to discourage

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InThinking www.thinkib.net/Economics 1
7. Which of the following is not an advantage of advaloreum taxes rather than flat rate taxes?
The amount of tax revenue collected grows as the economy grows
They are self regulating as they do not require annual changes to the tax rate
It generates more tax revenue than flat rate taxes
It is more progressive as the amount of tax is proportional to selling price

8. Complete the following sentence. The burden of sales tax placed on a PED unitary goods
is paid by the _________
Consumer
Producer
Consumers and producers equally
Neither consumers and producers

9. Complete the following sentence. The burden of sales tax placed on a PED elastic goods is
paid primarily by the _________
Consumers
Neither consumers or producers
Producers
Consumers and producers equally

10. Which of the following reasons is not a reason for a government to place a subsidy on a
good or service?
To help domestic firms from foreign competition
To raise government revenues
To lower the price of basic essentials
To guarantee the production of essential goods and services

11. Governments place a maximum price (price ceiling) on a good or service for the
following reasons:
To raise sales revenue for businesses producing those goods
To increase economic growth
To make certain essential items affordable for those households on low incomes
To guarantee production of certain goods and services

12. A shortage for a good or service cannot be resolved by which of the following policies:
The government can produce the good or service themselves
A specific tax on the product
A rationing system
A government subsidy

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InThinking www.thinkib.net/Economics 2
13. Which of the following goods and services are subject to a minimum price in many
countries?
Housing
Essential food products
Capital
Labour

14. Which of the following is not an example of market failure?

Lack of public goods
Shortages caused by the imposition of a minimum price
Oversupply of demerit goods
Undersupply of merit goods

15. The government wishes to correct market failure by internalising the externalities. This
can be achieved by _________
Taxing demerit goods and subsidising merit goods
Imposing taxes on dangerous goods such as alcohol and cigarettes
Providing public services
Promoting the production of merit goods through public production

16. The government imposes rent controls in a city to increase the supply of low cost
housing. Which stakeholders lose out the most from such a policy?
Local building firms
Landlords / prospective landlords
Wealthy tennants
Low income tennants

17. The real cost of a subsidy can be described as ___________

The amount of money that the government provides to producers to increase output
The increase in taxes to pay for the subsidy
The increase in sales resulting from the subsidy
The opportunity cost of providing the subsidy

18. A subsidy can be represented on a diagram by the following:

A second demand curve drawn parallel to the right of the original
A second demand curve drawn parallel to the left of the original
A second supply curve drawn parallel to the right of the original
A second supply curve drawn parallel to the left of the original

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InThinking www.thinkib.net/Economics 3
19. A government decides to offer subsidies to bread producers in a country. Which
stakeholders benefit from the subsidy?
Consumers only
Producers and consumers
Producers only
Government

20. Which of the following is not a reason for a government to provide a minimum price for
agricultural products.
To guarantee food supplies in the economy
To provide farmers with a more stable income
To encourage greater efficiency in the farming industry
To reduce a nations reliance on imported food products

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InThinking www.thinkib.net/Economics 4