CH 6

The price received by sellers in a market will increase if the government

increases a binding price ceiling in that market

As a rationing mechanism, discrimination according to seller bias is

inefficient and potentially unfair

Suppose there is currently a tax of $50 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $50 per ticket to $30 per ticket, then the

supply curve will shift downward by $20, and the price paid by buyers will decrease by less than $20.

able 6-4The following table contains the demand schedule and supply schedule for a market for a particular good. Suppose sellers of the good successfully lobby Congress to impose a price floor $3 above the equilibrium price in this market. Following the imposition of a price floor $3 above the equilibrium price, irate buyers convince Congress to repeal the price floor and to impose a price ceiling $1 below the former price floor. The resulting market price is

$3

. Suppose the government imposes a price floor of $30 on this market. What will be the size of the surplus in this market?

0 units

You have responsibility for economic policy in the country of Freedonia. Recently, the neighboring country of Sylvania has cut off all exports of oranges to Freedonia. George, who is one of your advisors, says that the best way to avoid a shortage of oranges is to take no action at all. Charles, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Otto, a third advisor, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Which of your three advisors is most likely to have studied economics?

George

a price floor

a. a legal minimum on the price at which a good can be sold. b.often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. c. a source of inefficiency in a market.

If a binding price floor is imposed on the video game market, then

a. the quantity of video games demanded will decrease. b. the quantity of video games supplied will increase. c. a surplus of video games will develop.

Figure 6-18The vertical distance between points A and B represents the tax in the market. Refer to Figure 6-18. The price that buyers pay after the tax is imposed is

$24

Refer to Figure 6-23. The effective price received by sellers after the tax is imposed is

$3

Refer to Figure 6-21. In the after-tax equilibrium, how much revenue does the government collect from the tax on this good?

$420

Refer to Figure 6-4. A government-imposed price of $16 in this market could be an example of a (i)binding price ceiling.(ii)non-binding price ceiling.(iii)binding price floor.(iv)non-binding price floor.

(ii) and (iii) only

Refer to Figure 6-25. The burden of the tax on sellers is

1 per unit

Refer to Figure 6-28. Suppose a tax of $6 per unit is imposed on this market. What will be the new equilibrium quantity in this market?

20 units

Refer to Figure 6-12. Which of the following statements best relates the figure to the events that occurred in the United States in the 1970s?

Buyers of gasoline paid a price of P1 before 1973; they paid a price of P2 after OPEC increased the price of crude oil in 1973, and there was a shortage of gasoline at that price.

Which of the following is not an example of a public policy?

Equilibrium laws

Which of the following is not correct?

Taxes levied on sellers and taxes levied on buyers are not equivalent

A shortage is eliminated when

a binding price ceiling is removed.

Which of the following is not a short-run effect of rent control on the housing market?

a large shortage

Rent-control laws dictate

a maximum rent that landlords may charge tenants.

Minimum-wage laws dictate

a minimum wage that firms may pay workers

Refer to Figure 6-6. In which of the following cases would sellers have to develop a rationing mechanism?

a price ceiling set at $6

Refer to Figure 6-8. If the government imposes a price floor of $5 on this market, then there will be

a surplus of 15 units of the good.

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,

a. the quantity of physicals demanded increases. b. there is shortage of physicals. c. the quantity of physicals supplied decreases

Refer to Figure 6-15. For a price floor to be binding in this market, it would have to be set at

any price above $3

When a tax is levied on sellers of tea,

both sellers and buyers of tea are made worse off.

price controls

can generate inequities of their own

To say that a price floor is binding is to say that the price floor

causes quantity supplied to exceed quantity demanded.

Refer to Figure 6-1. The price ceiling shown in panel (b)

creates a shortage

If the government removes a binding price floor from a market, then the price received by sellers will

decrease, and the quantity sold in the market will increase.

The minimum wage

does not apply to unpaid internships

A tax imposed on the sellers of a good will lower the

effective price received by sellers and lower the equilibrium quantity

Minimum-wage laws dictate the

lowest price employers may pay for labor.

If a tax is levied on the buyers of a product, then there will be a(n)

movement down and to the left along the supply curve

If the government removes a $2 tax on buyers of cigars and imposes the same $2 tax on sellers of cigars, then the price paid by buyers will

not change, and the price received by sellers will not change.

Suppose that in a particular market, the demand curve is highly elastic, and the supply curve is highly inelastic. If a tax is imposed in this market, then the

sellers will bear a greater burden of the tax than the buyers

When a binding price floor is imposed on a market to benefit sellers

some sellers will not be able to sell any amount of the good.

A binding price floor will reduce a firm's total revenue

when demand is elastic

Figure 6-33 The diagram shows the effect of a tax as measured by the distance between J and K. Refer to Figure 6-33 . Based upon the diagram,

​the incidence of the tax falls more heavily on sellers.