Principles of Microeconomics 8th Edition Mankiw Test Bank Full Download

Principles of Microeconomics 8th Edition Mankiw Test Bank
Principles of Microeconomics 8th Edition Mankiw

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Subjective Short Answer
1. Define a price ceiling.

ANSWER: A price ceiling is a legal maximum on the price at which a good can be sold.
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.005 - Analyze the effects of price controls on market outcomes.
TOPICS: Supply and demand
Price ceilings
KEYWORDS: BLOOM'S: Knowledge
CUSTOM ID: 001.06 - SAE - MANK08
2. When a price ceiling is binding, is the price ceiling set above or below the market equilibrium price?
ANSWER: A binding price ceiling will be set below the market equilibrium price.
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.205 - Given a scenario, determine if it is an example of a binding
price control.
Price ceilings
3. Does a binding price ceiling result in a shortage or a surplus in the market?

ANSWER: A binding price ceiling will result in a shortage in the market.
DIFFICULTY: Moderate
Price ceilings
4. Define a price floor.

ANSWER: A price floor is a legal minimum on the price at which a good can be sold.
DIFFICULTY: Easy
Price floors
5. When a price floor is binding, is the price floor set above or below the market equilibrium price?
ANSWER: A binding price floor will be set above the market equilibrium price.
DIFFICULTY: Easy
price control.
Price floors
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6. Will a binding price floor result in a shortage or a surplus in the market?
ANSWER: A binding price floor will result in a surplus in the market.
Price floors
Figure 6-31
7. Refer to Figure 6-31. If the government set a price ceiling at $9, would there be a shortage or surplus, and how large
would be the shortage/surplus?
ANSWER: There would be a shortage of 6 units.
LEARNING OBJECTIVES: ECON.MANK.232 - Given a supply and demand graph, determine the surplus or
shortage generated by a binding price control.
Price ceilings
KEYWORDS: BLOOM'S: Application
ANSWER: A price ceiling set at $15 would not be binding, so there would be neither a shortage nor a
surplus.
Price ceilings
ANSWER: A price ceiling set at $8 would result in a shortage of 8 units.
DIFFICULTY: Challenging
Price ceilings
10. Refer to Figure 6-31. If the government set a price floor at $15, would there be a shortage or surplus, and how large
ANSWER: A price floor set at $15 would result in a surplus of 6 units.
Price floors
ANSWER: A price floor set at $9 would not be binding, so there would be neither a shortage nor a
surplus.
Price floors
Price floors
Figure 6-32

ANSWER: There would be a shortage of 20 units.
Price ceilings
ANSWER: A price ceiling set at $80 would not be binding and, therefore, would not result in a
shortage or surplus.
Price ceilings
Price ceilings
Price floors
ANSWER: A price floor set at $55 would not be binding and, therefore, would not result in a shortage
or surplus.
Price floors
Scenario 6-1
Suppose that demand in the market for good X is given by the equation
and that supply in the market for good X is given by the equation
18. Refer to Scenario 6-1. What are the equilibrium price and quantity in the market for good X?
ANSWER: The equilibrium price is $10 and the equilibrium quantity is 20 units.
LEARNING OBJECTIVES: ECON.MANK.092 - Examine firms in competitive markets.
Equilibrium
19. Refer to Scenario 6-1. If the government set a price ceiling at $8, would there be a shortage or surplus, and how large
Price ceilings
20. Refer to Scenario 6-1. If the government set a price ceiling at $12, would there be a shortage or surplus, and how
large would be the shortage/surplus?
ANSWER: A price ceiling set at $12 would not be binding, so there would be neither a shortage nor a
surplus.
Price ceilings
21. Refer to Scenario 6-1. If the government set a price floor at $13, would there be a shortage or surplus, and how large
Price floors
22. Refer to Scenario 6-1. If the government set a price floor at $7, would there be a shortage or surplus, and how large
ANSWER: A price floor set at $7 would not be binding, so there would be neither a shortage nor a
surplus.
Price floors
Scenario 6-2
Suppose demand for a product is given by the equation
and supply for the product is given by the equation
23. Refer to Scenario 6-2. What are the equilibrium price and equilibrium quantity in the market for this product?
ANSWER: The equilibrium price is $15 and the equilibrium quantity is 60 units.
LEARNING OBJECTIVES: ECON.MANK.092 - Examine firms in competitive markets.

Equilibrium
24. Refer to Scenario 6-2. Suppose the government sets a price ceiling at $12 for this product. Is this price ceiling
binding, and what will be the size of the shortage/surplus in this market?
ANSWER: The price ceiling will be binding, and there will be a shortage of 24 units.
price control.
Price ceilings
25. Refer to Scenario 6-2. Suppose the government sets a price ceiling at $17 for this product. Is this price ceiling
binding, and what will be the size of the shortage/surplus in this market?
ANSWER: The price ceiling will not be binding and, therefore, there will be no shortage or surplus in
this market resulting from the price ceiling.
price control.
Price ceilings
26. Refer to Scenario 6-2. Suppose the government sets a price floor at $13 for this product. Is this price floor binding,
and what will be the size of the shortage/surplus in this market?
ANSWER: The price floor will not be binding and, therefore, there will be no shortage or surplus in
this market resulting from the price floor.
price control.
Price floors
27. Refer to Scenario 6-2. Suppose the government sets a price floor at $13 for this product. Initially, is this price floor
binding? Suppose that for some reason demand were to decrease to
Would the $13 price floor be binding after the shift in the demand curve? If so, what is the size of the resulting
shortage/surplus?
ANSWER: Initially the price floor is not binding since $13 is below the market equilibrium price of
$15. However, when the demand curve shifts, the equilibrium price becomes $10. Thus,
the price floor is now binding and will result in a surplus of 24 units.
price control.
Price floors
28. The following table shows the demand and supply schedules in a particular market.
Quantity Quantity
Price Demanded Supplied
$1 8 3
$3 6 6
$5 4 9
$7 2 12
$9 0 15
If the government sets a price floor $2 above the equilibrium price, how many units will be sold in this market?
ANSWER: The equilibrium price is $3, so the price floor is set at $5, which is a binding price floor.
The number of units sold in the market will be the quantity demanded at the price floor,
which is 4 units.
Price floors
Table 6-6
Quantity Quantity
Price ($) Demanded Supplied
0 21 0
1 18 4
2 15 8
3 12 12
4 9 16
5 6 20
6 3 24
7 0 28
29. Refer to Table 6-6. If the government set a price ceiling at $2, would there be a shortage or surplus, and how large
ANSWER: A price ceiling set at $2 would be binding and would result in a shortage of 7 units.
Price ceilings
30. Refer to Table 6-6. If the government set a price ceiling at $4, would there be a shortage or surplus, and how large
ANSWER: A price ceiling set at $4 would not be binding and, therefore, would not result in a shortage
or surplus.
Price ceilings
31. Refer to Table 6-6. If the government set a price floor at $4, would there be a shortage or surplus, and how large
ANSWER: A price floor set at $4 would be binding and would result in a surplus of 7 units.
Price floors
32. Refer to Table 6-6. If the government set a price floor at $2, would there be a shortage or surplus, and how large
ANSWER: A price floor set at $2 would not be binding and, therefore, would not result in a shortage
or surplus.
Price floors
33. Refer to Table 6-6. In this market, over what range of prices would a price ceiling set by the government be binding?
ANSWER: A price ceiling must be set below the equilibrium price to be binding. Therefore, a price
ceiling will be binding in this market if it is set anywhere below $3.
price control.
Price ceilings
34. Refer to Table 6-6. In this market, over what range of prices would a price floor set by the government be binding?
ANSWER: A price floor must be set above the equilibrium price to be binding. Therefore, a price floor
will be binding in this market if it is set anywhere above $3.
price control.
Price floors
Figure 6-33
35. Refer to Figure 6-33. Suppose a $3 per-unit tax is imposed on the sellers of this good. What price will buyers pay for
the good after the tax is imposed?
ANSWER: Buyers will pay $11.50.
LEARNING OBJECTIVES: ECON.MANK.231 - Given a supply and demand graph, determine the impact of a
tax on the price and quantity in a market.
TOPICS: Taxes
36. Refer to Figure 6-33. Suppose a $3 per-unit tax is imposed on the sellers of this good. How much is the burden of this
tax on the buyers in this market?
ANSWER: The burden of the tax on buyers is $1.50.
LEARNING OBJECTIVES: ECON.MANK.025 - Compare the distribution of the tax burden among buyers and
sellers with differing elasticities.
TOPICS: Taxes
37. Refer to Figure 6-33. Suppose a $3 per-unit tax is imposed on the sellers of this good. What is the effective price that
sellers will receive for the good after the tax is imposed?
ANSWER: The effective price that sellers will receive is $8.50.

TOPICS: Taxes
38. Refer to Figure 6-33. Suppose a $3 per-unit tax is imposed on the sellers of this good. How much is the burden of this
tax on the sellers in this market?
ANSWER: The burden of the tax on sellers is $1.50.
TOPICS: Taxes
39. Refer to Figure 6-33. Suppose a $4 per-unit tax is imposed on the sellers of this good. How many units of this good
will be sold after the tax is imposed?
ANSWER: With a $4 per-unit tax, 8 units will be sold in this market.
TOPICS: Taxes
Figure 6-34
40. Refer to Figure 6-34. If the government imposes a tax of $6 per unit in this market, how many units will be bought
and sold in the market after the tax is imposed?
ANSWER: With a $6 tax per unit, the number of transactions will fall to 30 units.
TOPICS: Taxes
41. Refer to Figure 6-34. If the government imposes a tax of $6 per unit in this market, how much will sellers receive per
unit after the tax is imposed?
ANSWER: With a $6 tax per unit, the amount received by sellers will fall to $6 per unit.
TOPICS: Taxes
42. Refer to Figure 6-34. If the government imposes a tax of $6 per unit in this market, what price will buyers pay per
unit after the tax is imposed?
ANSWER: With a $6 tax per unit, the price buyers pay will rise to $12 per unit.
TOPICS: Taxes
43. Refer to Figure 6-34. If the government imposes a tax of $6 per unit in this market, how much is the burden of the tax
on the buyers in this market?
ANSWER: With a $6 tax per unit, the price buyers pay will rise from $8 to $12 per unit. Therefore, the burden of the
tax on buyers is $4 per unit.
TOPICS: Taxes
44. Refer to Figure 6-34. If the government imposes a tax of $6 per unit in this market, how much is the burden of the tax
on the sellers in this market?
ANSWER: With a $6 tax per unit, the amount sellers receive will fall from $8 to $6 per unit. Therefore, the burden of
the tax on sellers is $2 per unit.
TOPICS: Taxes
45. Refer to Figure 6-34. If the government imposes a tax of $6 per unit in this market, who will bear the greater burden
of the tax - the buyers, the sellers, or will the burden be shared equally?
ANSWER: With a $6 tax per unit, the burden of the tax on buyers is $4 and the burden of the tax on sellers is $2.
Therefore, buyers will bear a greater burden of the tax.
TOPICS: Taxes
46. In a particular market, market demand is given by the equation
and market supply is given by the equation
Suppose a per-unit tax is imposed that reduces the number of units bought and sold in the market to 25 units. What is the
size of the tax, and who bears the greater burden of the tax, buyers or sellers?
ANSWER: If the number of transactions falls to 25 units, plugging 25 into the demand and supply curves gives a
price paid by buyers of $35 and an amount received by sellers of $25. Therefore, the tax is $10 per unit.
In addition, since the initial equilibrium price in this market is $30, the buyers and the sellers share the
burden of the tax equally.
TOPICS: Taxes
47. If the demand curve is more price elastic than the supply curve in a particular market, will the buyers or the sellers
bear a larger burden of a per-unit tax imposed on the market?
ANSWER: The sellers will bear the larger burden of the tax.
TOPICS: Taxes
48. If the supply curve is more price elastic than the demand curve in a particular market, will the buyers or the sellers
bear a larger burden of a per-unit tax imposed on the market?
ANSWER: The buyers will bear the larger burden of the tax.
TOPICS: Taxes
49. If the demand curve is more price elastic than the supply curve, will the buyers or the sellers bear a greater burden of a
tax? Draw a diagram to illustrate your answer.
ANSWER: When the demand curve is more elastic than the supply curve, the sellers will bear the greater burden of a
tax imposed on the market. A graph such as the following illustrates this.

where P’ is the price paid by buyers and P’’ is the amount received by sellers after the tax is imposed.
TOPICS: Taxes
50. If the supply curve is more price elastic than the demand curve, will the buyers or the sellers bear a greater burden of a
tax? Draw a diagram to illustrate your answer.
ANSWER: When the supply curve is more price elastic than the demand curve, the buyers will bear the greater
burden of a tax imposed on the market. A graph such as the following illustrates this.
where P’ is the price paid by buyers and P’’ is the amount received by sellers after the tax is imposed.
TOPICS: Taxes
51. Using a supply and demand diagram, show a labor market with a binding minimum wage. Use the diagram to show
those who are helped by the minimum wage and those who are hurt by the minimum wage.

ANSWER:
Those who are helped by the minimum wage are the workers who are still employed and
now receive the higher wage. In the diagram, those would be measured by the quantity of
labor demanded at the minimum wage, q0. The minimum wage creates unemployment
equal to the difference between the quantity of labor supplied and the quantity demanded at
the minimum wage, q2-q0. The perceptive student might note that the unemployed group
can be divided into those who lose their jobs as a result of the minimum wage (the
competitive equilibrium quantity of labor minus the quantity demanded at the minimum
wage, q1-q0), and those who enter the market as a result of the higher wage but cannot find
employment (quantity of labor supplied at the minimum wage minus the competitive
equilibrium quantity, q2-q1). The buyers of the labor (employers) are also worse off
because they have to pay a higher wage for labor and, hence, hire a smaller quantity.
Minimum wage
KEYWORDS: BLOOM'S: Comprehension
52.
Using the graph shown, analyze the effect a $300 price ceiling would have on the
a.
market for ten-speed bicycles. Would this be a binding price ceiling?
Using the graph shown, analyze the effect a $700 price floor would have on this
b.
market for ten-speed bicycles. Would this be a binding price floor?
c. Why would policymakers choose to impose a price ceiling or price floor?

ANSWER: For this example, a $300 price ceiling would cause a shortage of 4,000 bicycles. A
a. price ceiling is binding if it is set at any price below equilibrium price. Because the
equilibrium price in this market is $500, this would be a binding price ceiling.
For this example, a $700 price floor would cause a surplus of 4,000 bicycles. A price
b. floor is binding if it is set at any price above equilibrium price. Because the
equilibrium price in this market is $500, this would be a binding price floor.
More than one reason may exist for policymakers to impose a price ceiling or price
floor in a market. Often this is done in an attempt to increase equality; a price ceiling
c. may be imposed if policymakers perceive the equilibrium price to be unfair to buyers,
and a price floor may be imposed if policymakers perceive the equilibrium price to be
unfair to sellers.
Price controls
53. Using the graph shown, answer the following questions.

a. What was the equilibrium price in this market before the tax?
b. What is the amount of the tax?
c. How much of the tax will the buyers pay?
d. How much of the tax will the sellers pay?
e. How much will the buyer pay for the product after the tax is imposed?
f. How much will the seller receive after the tax is imposed?
g. As a result of the tax, what has happened to the level of market activity?

ANSWER: $6 a.
$4 b.
$1 c.
$3 d.
$7 e.
$3 f.
As a result of the tax, the level of market activity has fallen, from 60 units bought and
g.
sold to only 50 units bought and sold.
LEARNING OBJECTIVES: ECON.MANK.099 - Examine the effects of taxes on market outcomes.
TOPICS: Taxes
54. Using the graph shown, answer the following questions.

a. What was the equilibrium price in this market before the tax?
ANSWER: a. $5
b. $3
$2 c.
$1 d.
$7 e.
$4 f.
As a result of the tax, the level of market activity has fallen, from 10 units bought and
g.
sold to only 8 units bought and sold.
TOPICS: Taxes
55. Using the graph shown, in which the vertical distance between points A and B represents the tax in the market, answer
the following questions.
a. What was the equilibrium price and quantity in this market before the tax?
ANSWER: a.
$8; 8,000 units
$5 b.
$3 c.
$2 d.
$11 e.
$6 f.
As a result of the tax, instead of 8,000 units bought and sold, only 6,000 will be
g.
bought and sold.
TOPICS: Taxes
Principles of Microeconomics 8th Edition Mankiw Test Bank
56. How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.
ANSWER:
The tax burden falls more heavily on the side of the market that is more inelastic.
TOPICS: Taxes
KEYWORDS: BLOOM'S: Comprehension
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1. Define a price ceiling.

3. Does a binding price ceiling result in a shortage or a surplus in the market?

4. Define a price floor.

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and supply for the product is given by the equation

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and market supply is given by the equation

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53. Using the graph shown, answer the following questions.

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54. Using the graph shown, answer the following questions.

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