Principles of Economics Exam 2
Study online at https://quizlet.com/_26ayu9
1. A tax imposed on sellers causes the supply curve to shift: up and to the left
2. A tax placed on a seller of a good lowers: price received by seller
3. A tax placed on a seller of a good raises: price paid by buyer
4. If tax is imposed on market with inelastic supply and elastic demand, who
bears the bigger burden?: Sellers because the more inelastic curve pays more of
the tax
5. How do taxes affect market activity?: They discourage it
6. How do taxes affect gains from trade?: They lower gains from trade and cause
DWL
7. On efficiency grounds, why is a tax in a market characterized by inelasticity
preferred to a tax in a market characterized by elasticity?: Because in an
inelastic market DWL is smaller since trades don't decrease as much
8. How do subsidies affect gains from trade?: Subsidies increase market activity,
and thus decrease gains from trade
9. If a subsidy was provided to employers for each low-wage worker hired,
what would happen to wages and employment?: Employment would rise and
wages would rise
10. What is a price ceiling?: A government-imposed maximum price at which a
good can be sold
11. Who are price controls that keep prices below the free market price intend-
ed to help?: Buyers
12. How do price controls that keep prices below the free market price affect
gains from trade?: They decrease
13. Is there more discrimination in a free market or in a market with price
controls?: A market with price controls
14. In what way is a price control not beneficial?: They may make it even more
difficult for the poor/disadvantaged to buy goods and services that they need
15. How would a shortage caused by rent control be affected over time?: Short-
age would increase because elasticity increases over time
16. What do price gouging laws do?: Keep price below market level when trig-
gered (i.e. in a natural disaster)
17. If a country opens its borders to international trade in goods and services,
what would we expect to happen in the import sector?: We expect price to fall
18. If a country opens to free international trade, what will happen to domestic
production in the import sector?: Domestic production will fall
19. If a country opens to free international trade, what will happen to domestic
consumption in the import sector?: Domestic consumption will rise
20. Who will bear the burden if a tariff is imposed in a market?: Domestic
consumers in the market will be hurt because they'll bear 100% of the tax burden
1/5
, Principles of Economics Exam 2
Study online at https://quizlet.com/_26ayu9
21. If a tariff is imposed in a market, who will benefit?: Domestic producers in
the market
22. If the US imports computer chips from China, what will happen to the
number of jobs in the US computer chip industry?: Jobs in computer chip
industry may decline
23. If US imports computer chips from China, what will happen to the number
of jobs in other sectors?: They will rise
24. What are the 3 aspects if trade theory?: 1) If you protect domestic producers
in one industry from foreign competition, then you will harm domestic producers in
other industries
2) If you protect domestic producers in one industry from foreign competition, then
there will be a net loss in efficiency
3) Gains from trade with free trade are greater than gains from trade in autarky
25. From an economic perspective, since free trade is good, why do politicians
implement tariffs so often?: Because gains from protectionism are often concen-
trated and the costs diffuse
26. From an economic perspective, is it better to "buy American"?: No, be-
cause favoring one market damages another domestic exporting market
27. From an economic perspective, are there valid arguments for restricting
international trade?: Yes, but their practical applications may be difficult
28. What is a private cost?: The cost paid by a consumer or producer in a market
29. What are externalities?: Externalities are side effects passed on to a party
other than the buyers/sellers in the market
30. What is Coase Theorem?: Markets may produce efficient allocations even in
the presence of externalities if transaction costs are low and property rights are
clearly defined
31. What happens in a positive externality?: Too few students (less than efficient)
will take a course in principles of economics
32. How does a tax placed on a buyer or seller of a good affect price?: Price
paid by buyer increases
33. How is the distribution of the burden of a tax decided?: It depends on
elasticity (the more inelastic side pays more)
34. When is DWL of a tax small?: When market demand is relatively inelastic
35. What is a price floor?: A government imposed minimum price at which a good
can be sold
36. What will happen to the number of people attending college if we place
a limit on the level of college tuition?: We should expect the number of people
attending college to decrease because there will be a shortage
2/5
Study online at https://quizlet.com/_26ayu9
1. A tax imposed on sellers causes the supply curve to shift: up and to the left
2. A tax placed on a seller of a good lowers: price received by seller
3. A tax placed on a seller of a good raises: price paid by buyer
4. If tax is imposed on market with inelastic supply and elastic demand, who
bears the bigger burden?: Sellers because the more inelastic curve pays more of
the tax
5. How do taxes affect market activity?: They discourage it
6. How do taxes affect gains from trade?: They lower gains from trade and cause
DWL
7. On efficiency grounds, why is a tax in a market characterized by inelasticity
preferred to a tax in a market characterized by elasticity?: Because in an
inelastic market DWL is smaller since trades don't decrease as much
8. How do subsidies affect gains from trade?: Subsidies increase market activity,
and thus decrease gains from trade
9. If a subsidy was provided to employers for each low-wage worker hired,
what would happen to wages and employment?: Employment would rise and
wages would rise
10. What is a price ceiling?: A government-imposed maximum price at which a
good can be sold
11. Who are price controls that keep prices below the free market price intend-
ed to help?: Buyers
12. How do price controls that keep prices below the free market price affect
gains from trade?: They decrease
13. Is there more discrimination in a free market or in a market with price
controls?: A market with price controls
14. In what way is a price control not beneficial?: They may make it even more
difficult for the poor/disadvantaged to buy goods and services that they need
15. How would a shortage caused by rent control be affected over time?: Short-
age would increase because elasticity increases over time
16. What do price gouging laws do?: Keep price below market level when trig-
gered (i.e. in a natural disaster)
17. If a country opens its borders to international trade in goods and services,
what would we expect to happen in the import sector?: We expect price to fall
18. If a country opens to free international trade, what will happen to domestic
production in the import sector?: Domestic production will fall
19. If a country opens to free international trade, what will happen to domestic
consumption in the import sector?: Domestic consumption will rise
20. Who will bear the burden if a tariff is imposed in a market?: Domestic
consumers in the market will be hurt because they'll bear 100% of the tax burden
1/5
, Principles of Economics Exam 2
Study online at https://quizlet.com/_26ayu9
21. If a tariff is imposed in a market, who will benefit?: Domestic producers in
the market
22. If the US imports computer chips from China, what will happen to the
number of jobs in the US computer chip industry?: Jobs in computer chip
industry may decline
23. If US imports computer chips from China, what will happen to the number
of jobs in other sectors?: They will rise
24. What are the 3 aspects if trade theory?: 1) If you protect domestic producers
in one industry from foreign competition, then you will harm domestic producers in
other industries
2) If you protect domestic producers in one industry from foreign competition, then
there will be a net loss in efficiency
3) Gains from trade with free trade are greater than gains from trade in autarky
25. From an economic perspective, since free trade is good, why do politicians
implement tariffs so often?: Because gains from protectionism are often concen-
trated and the costs diffuse
26. From an economic perspective, is it better to "buy American"?: No, be-
cause favoring one market damages another domestic exporting market
27. From an economic perspective, are there valid arguments for restricting
international trade?: Yes, but their practical applications may be difficult
28. What is a private cost?: The cost paid by a consumer or producer in a market
29. What are externalities?: Externalities are side effects passed on to a party
other than the buyers/sellers in the market
30. What is Coase Theorem?: Markets may produce efficient allocations even in
the presence of externalities if transaction costs are low and property rights are
clearly defined
31. What happens in a positive externality?: Too few students (less than efficient)
will take a course in principles of economics
32. How does a tax placed on a buyer or seller of a good affect price?: Price
paid by buyer increases
33. How is the distribution of the burden of a tax decided?: It depends on
elasticity (the more inelastic side pays more)
34. When is DWL of a tax small?: When market demand is relatively inelastic
35. What is a price floor?: A government imposed minimum price at which a good
can be sold
36. What will happen to the number of people attending college if we place
a limit on the level of college tuition?: We should expect the number of people
attending college to decrease because there will be a shortage
2/5
