ECON Chapter 6

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price floor of $250 per physical. As a result of the price floor,

The quantity demanded of physicals decreases and he quantity of physicals doctors want to give increases

If a binding price ceiling is imposed on the computer market, then

The quantity of computers demanded will increase The quantity of computers supplied will decrease A shortage of computers will develop

A shortage results when

a binding price ceiling is imposed on a market

A price ceiling is

a legal maximum on the price at which a good can be sold

A price floor will be binding only if it is set

above the equilibrium price

As rationing mechanisms, prices

are efficient, but long lines are inefficient

A price ceiling will be binding only if it is set

below the equilibrium price

A price ceiling is binding when it is set

below the equilibrium price, causing a shortage

Suppose that the demand for picture frames is inelastic and the supply of picture frames is elastic. A tax of $1 per frame is levied on picture frames will increase the price paid by buyers of picture frames by

between $0.50 and $1

If a tax is imposed on a market with inelastic demand and elastic supply, then

buyers will bear most of the burden of tax

A legal maximum on the price at which a good can be sold is called a price

ceiling

If the government levies a $500 tax per car on sellers of cars, then the price paid by buyers of cars would

increase by less than $500

Suppose that the demand for picture frames is inelastic and the supply of picture frames is elastic. A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of picture frames by

less than $0.50

In a free, competitive market, what is the rationing mechanism

price

In a competitive market free of government regulation

price adjusts until quantity demanded equals quantity supplied

In response to a shortage caused by the imposition of a binding price ceiling on a market

price will no longer be the mechanism that rations scarce resources long lines of buyers will develop sellers could ration the good or service according to their own personal biases

A tax imposed on the sellers of a good will

raise the price buyers pay and lower the effective price sellers receive

In the 1970s, long lines at gas stations in the United States were primarily a result of the fact that

the U.S. government maintained a price ceiling on gasoline

If a price floor is not binding, then

the equilibrium price is above the price floor

If a price ceiling is not binding, then

the equilibrium price is below the price ceiling

An example of a price floor is

the minimum wage

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,

the quantity demanded of physicals increases and the quantity supplied of physicals decreases

If a nonbinding price floor is imposed on a market, then

the quantity sold in the market will stay the same

Buyers of a good bear the larger share of the tax burden when a tax is placed on a product for which

the supply is more elastic than the demand

If a tax is levied on the buyers of a product, then the supply curve

will not shift

If a tax is levied on the buyers of a product, then the demand curve

will shift down