ECN 212 CORE EXAM 2026 TEST QUESTIONS AND
ANSWERS GRADED A+
✔✔shortages - ✔✔is a situation in which the quantity demanded is greater than the
quantity supplied.
✔✔surpluses - ✔✔is a situation in which the quantity supplied is greater than the
quantity demanded.
✔✔statutory tax incidence - ✔✔the legal assignment of who pays a tax
-the actual burden does not depend on who legally pays the tax
✔✔actual tax incidence (tax burden) - ✔✔depends on the elasticity of supply relative to
demand
✔✔taxes and elasticity - ✔✔The actual burden of a tax depends on the
elasticity of supply relative to demand.
- As supply becomes more inelastic,
more of the burden will fall on sellers
and resource suppliers.
- As demand becomes more inelastic,
more of the burden will fall on buyers.
✔✔average tax rate - ✔✔tax liability/taxable income
✔✔marginal tax rate - ✔✔the change in tax liability/ the change in taxable income
important because it determines how much of an additional dollar earned must be paid
in taxes
✔✔tax rate - ✔✔the rate (%) at which an activity is taxed
✔✔tax base - ✔✔the amount of the activity that is taxed
✔✔tax revenues - ✔✔tax rate multiplied by tax base
✔✔the laffer curve - ✔✔illustrates the relationship between tax rates and tax revenues
--as tax rates increase, tax revenues will also increase even though tax base is
shrinking
--as rates continue to increase, the shrinkage in the tax base will dominate and the
higher rates will lead to a reduction in tax revenues
--this curve shows that tax revenues are low for both high and low tax rates
, ✔✔market effects of tax and subsidies - ✔✔As in the case of a tax, the division of the
benefit from a subsidy is determined by the relative elasticities of demand and supply
rather than to whom the subsidy is actually paid
When supply is highly inelastic relative to
demand, sellers will derive most of the benefits
of a subsidy.
• When demand is highly inelastic relative to
supply, the buyers will reap most of the
benefits of a subsidy.
✔✔ incentives - ✔✔rewards and penalties that motivate behavior
-focus on what will entice them to do something (cause and effect)
✔✔good institutions align __ with __ - ✔✔self-interests with social interest
✔✔we cannot buy everything, which forces us to - ✔✔ration our spending
✔✔we cannot do everything we want, which forces us to - ✔✔ration our time
✔✔scarcity - ✔✔the availability of resources is insufficient for individuals to satisfy all
desires at zero price
*forces us to make decisions and choose among available alternatives
✔✔absence of scarcity - ✔✔implies that all of our desires for goods are fully satisfied
✔✔price - ✔✔used to ration goods and resources in a market setting
✔✔market organization (capitalism) - ✔✔a method of organization that allows for
unregulated prices and the decentralized decisions of private property owners to resolve
the basic economic problems
✔✔market - ✔✔the interaction between all of the potential buyers and sellers of good or
service
✔✔economize - ✔✔individuals _______, meaning they gain a specific benefit at the
least possible cost
✔✔rational behavior - ✔✔behavior is based on a careful, deliberate process that
weighs expected benefits and costs.
People do not make decisions that
make themselves worse of.
ANSWERS GRADED A+
✔✔shortages - ✔✔is a situation in which the quantity demanded is greater than the
quantity supplied.
✔✔surpluses - ✔✔is a situation in which the quantity supplied is greater than the
quantity demanded.
✔✔statutory tax incidence - ✔✔the legal assignment of who pays a tax
-the actual burden does not depend on who legally pays the tax
✔✔actual tax incidence (tax burden) - ✔✔depends on the elasticity of supply relative to
demand
✔✔taxes and elasticity - ✔✔The actual burden of a tax depends on the
elasticity of supply relative to demand.
- As supply becomes more inelastic,
more of the burden will fall on sellers
and resource suppliers.
- As demand becomes more inelastic,
more of the burden will fall on buyers.
✔✔average tax rate - ✔✔tax liability/taxable income
✔✔marginal tax rate - ✔✔the change in tax liability/ the change in taxable income
important because it determines how much of an additional dollar earned must be paid
in taxes
✔✔tax rate - ✔✔the rate (%) at which an activity is taxed
✔✔tax base - ✔✔the amount of the activity that is taxed
✔✔tax revenues - ✔✔tax rate multiplied by tax base
✔✔the laffer curve - ✔✔illustrates the relationship between tax rates and tax revenues
--as tax rates increase, tax revenues will also increase even though tax base is
shrinking
--as rates continue to increase, the shrinkage in the tax base will dominate and the
higher rates will lead to a reduction in tax revenues
--this curve shows that tax revenues are low for both high and low tax rates
, ✔✔market effects of tax and subsidies - ✔✔As in the case of a tax, the division of the
benefit from a subsidy is determined by the relative elasticities of demand and supply
rather than to whom the subsidy is actually paid
When supply is highly inelastic relative to
demand, sellers will derive most of the benefits
of a subsidy.
• When demand is highly inelastic relative to
supply, the buyers will reap most of the
benefits of a subsidy.
✔✔ incentives - ✔✔rewards and penalties that motivate behavior
-focus on what will entice them to do something (cause and effect)
✔✔good institutions align __ with __ - ✔✔self-interests with social interest
✔✔we cannot buy everything, which forces us to - ✔✔ration our spending
✔✔we cannot do everything we want, which forces us to - ✔✔ration our time
✔✔scarcity - ✔✔the availability of resources is insufficient for individuals to satisfy all
desires at zero price
*forces us to make decisions and choose among available alternatives
✔✔absence of scarcity - ✔✔implies that all of our desires for goods are fully satisfied
✔✔price - ✔✔used to ration goods and resources in a market setting
✔✔market organization (capitalism) - ✔✔a method of organization that allows for
unregulated prices and the decentralized decisions of private property owners to resolve
the basic economic problems
✔✔market - ✔✔the interaction between all of the potential buyers and sellers of good or
service
✔✔economize - ✔✔individuals _______, meaning they gain a specific benefit at the
least possible cost
✔✔rational behavior - ✔✔behavior is based on a careful, deliberate process that
weighs expected benefits and costs.
People do not make decisions that
make themselves worse of.
