Question

1.Net economic benefit is improved with ______.

a subsidy

b. an excise tax

c. a quota

d. none of the above

2. Suppose the government decides to create a price support (floor) on the price of corn, which of the following is a true statement?

a. A binding price support/floor will tend to lower the price of corn for poorer people.

b. If the price floor is binding (and the government does not buy any wheat), there will be an excess supply of corn in the market.

c. A non-binding price support/floor below the equilibrium price in the market will lead to a rise in the price of corn.

d. It is likely that the total surplus (consumer surplus plus producer surplus) will rise with a price support program.

3. If a market is competitive with no governmental intervention, and the market equilibrium price is $20 and the market equilibrium quantity is 5,000, which of the following interventions would the market clear and remain in an equilibrium state?

a. The government establishes a price ceiling of $10.

b. The government implements an excise tax of $4 per unit.

c. The government establishes a price floor of $23.

d. None of the above

Answer 1

Solution-

1.Net economic benefit is improved with Subsidy.

The correct option is A. Subsidy.

2. Suppose the government decides to create a price support (floor) on the price of corn, which of the following is a true statement?

The correct option is B. If the price floor is binding (and the government does not buy any wheat), there will be an excess supply of corn in the market.

3. If a market is competitive with no governmental intervention, and the market equilibrium price is $20 and the market equilibrium quantity is 5,000, which of the following interventions would the market clear and remain in an equilibrium state?

The correct option is B. The government implements an excise tax of $4 per unit.

Reason-

The market will clear. The tax will alter the equilibrium price and quantity, but there will be no excess demand or excess supply.

​