Question

1. When government imposes taxes on the buyers

		a. then the demand curve will shift to the left.
		b. then the demand curve will shift to the right.
		c. then both the demand and supply curve will shift to the left.
		d. the both the demand and supply curve will shift to the right.

2. Which of the following is a result of rent control?

	a.	less maintenance provided by landlords
	b.	all of the above
	c.	fewer new apartments offered for rent
	d.	bribery

3. Assume that in the market of bottled water the demand is more inelastic than the supply. Which one of the following is correct?

	a.	Since the demand is more inelastic than the supply, therefore, sellers will bear more burden of tax.
	b.	The burden of the tax will be shared equally between buyers and sellers.
	c.	Since the demand is more inelastic than the supply therefore, buyers will bear more burden of tax.
	d.	It is impossible to determine how the burden of the tax will be shared.

4. Rent Control is

	a.	both a minimum rent and a maximum rent that landlords may charge from their tenants.
	b.	a maximum rent that landlords may charge from their tenants.
	c.	the exact rent that landlords must charge from their tenants.
	d.	a minimum rent that landlords may charge from their tenants.

Answer 1

1.

Since tax creates distortions in the market because it increases the price for the buyers and decreases the price which a seller receive.

When a tax is imposed on the buyers, then only demand curve shifts leftward but tax will be shared by both producer and buyers.

Hence option a is the correct answer.

2.

The price ceiling is a legal maximum price which can be charged by the sellers and it is set below the equilibrium price. The price ceiling imposed by the government leads shortage of goods.

If price ceiling is set below the equilibrium price, then it will be binding and if it is set above the equilibrium price, then it will be not binding.

Rent control is the example of price ceiling.

Since due to rent control rent is very low and it is below the equilibrium price. Therefore landlords do not care about the maintenance and fewer new apartments are offered for the rent due to less rent. Since this leads to excess demand and therefore the possibility of the bribery arises.

It means all of the above statement is true regarding the rent control.

Hence option b is the correct answer.

3.

Since in the given the market of bottled water the demand is more inelastic than the supply. Hence tax burden will be more on the buyers relative to sellers.

Therefore it can be said that the demand is more inelastic than the supply therefore, buyers will bear more burden of tax.

Hence option c is the correct answer.

4.

The price ceiling is a legal maximum price which can be charged by the sellers and it is set below the equilibrium price. The price ceiling imposed by the government leads shortage of goods.

Since rent control is an example of rent control, therefore it can be said that rent Control is a maximum rent that landlords may charge from their tenants.

Hence option b is the correct answer.