Question

- - - - - - - - - Price of Corn (dollaro) Quantity (tons of com) Refer to the figure above. With no international trade, the domestic equilibrium quantity of corn produced and sold is OA. 24. OB. Q3 O 0.91 OD. 25. OE. 22

2. A binding price floor

	A.	has no effect
	B.	creates a permanent surplus
	C.	creates a temporary surplus
	D.	creates a permanent shortage

3. Protection of a new industry until it becomes strong enough to compete with foreign producers is based on the argument of

	A.	infant industries.
	B.	government revenue creation.
	C.	reciprocity.
	D.	creation of a level playing field.
	E.	national defense.

4. Economists prefer tariffs to free trade since tariffs do not have a deadweight loss.

True

False

5. Which of the following is true?

i. If demand is perfectly elastic, the tax creates no deadweight loss.

ii. The more elastic the supply of a factor of production, the greater is the deadweight loss from an income tax

iii. A tax is regressive if the average tax rate rises with income.

	A.	Only ii
	B.	Only i
	C.	i and ii
	D.	Only iii
	E.	i and iii

Answer 1

1. The domestic equilibrium quantity of corn produced is Q3.

2. Supply is more than demand. And since market force can do nothing, the price floor creates a permanent surplus.

3. Infant industry.

4. False. Tariffs do create a deadweight loss.