Q1 : Consider two separate markets for a product: Market 1 and Market 2. Suppose supply function is the same in both markets but demand is more inelastic at every price in Market 1 than it is in Market 2. If an excise tax of T is imposed on the product then the incidence of tax on the consumers:

a) Depends on whether the tax is collected and paid to the government by the producers, or paid to the government by the consumers for each purchase.

b) May be higher or lower in Market 1. We cannot tell from the given information.

c) Will be higher in Market 1

d) Will be lower in Market 1

Q2: Gizmo market in Freedonia is competitive. Suppose demand for Gizmos is Q^D(P^D) = 20 - 3P^D and supply of gizmos is Q^S(P^S) = -3 + 2P^S where quantity is in thousands of units per year and price is in dollars. If the government imposes a 1 excise tax on gizmos in Freedonia then what is the government's annual revenue from this tax?

a) 5 thousand dollars

b) 6 thousand dollars

c) 4 thousand dollars

d) 7 thousand dollars

Q3: Suppose there is a price ceiling in a competitive market for a product which is below the equilibrium price. In this market:

a) Both consumer and producer surplus will definitely be lower

b) Consumer surplus is definitely higher, but producer surplus may or may not be lower

c) Consumer surplus is definitely lower, but producer surplus may or may not be lower

d) Consumer surplus may or may not be lower, but producer surplus is definitely lower

Q4: Excise tax on a product causes deadweight loss because:

a) Tax receipts are less than the reduction in consumer and producer surplus.

b) Government might waste the tax revenue.

c) Consumer surplus goes down more than producer surplus

d) Consumers willingness to pay decreases because of the tax.

Q5: Consider a firm in a competitive industry with. Suppose this firm has constant MC and its ATC at capacity is above the entry price of potential entrants. This firm:

a) suspend production in the short run but will remain in the industry in the long run.

b) suspend output in the short run and definitely exit the industry in the long run.

c) may or may not suspend production in the short run but will definitely exit the industry in the long run.

d) will remain active in the short run but will definitely exit the industry in the long run.