Chapter 6

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling is established,

a larger quantity of the good is demanded.

A price ceiling is

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

A shortage results when a

binding price ceiling is imposed on a market.

Which of the following is not a result of rent control?

Higher quality housing

Under rent control, bribery is a potential mechanism to

allocate housing to the most deserving tenants.

Which of the following statements is correct? a. Government can decide who ultimately pays a tax. b. Who bears the burden of a tax depends on the price elasticities of supply and demand. c. A tax levied on buyers will never be partially paid by sellers. d. A tax levied on sellers always will be passed on completely to buyers.

b. Who bears the burden of a tax depends on the price elasticities of supply and demand.

If a tax is levied on the sellers of fish, then

buyers and sellers will share the burden of the tax.

Price ceilings and price floors that are binding

cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price.

A tax on the sellers of coffee will increase the price of coffee paid by buyers,

decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.

Suppose that a tax is placed on books. If the buyers pay the majority of the tax, then we know that the

demand is more inelastic than the supply.

Suppose the government imposes a 50-cent tax on the sellers of packets of chewing gum. The tax would

discourage market activity.

Most labor economists believe that the supply of labor is

less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.

In the housing market, supply and demand are

more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.

allocate housing to the most deserving tenants.

more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.

When OPEC raised the price of crude oil in the 1970s, it caused the United States'

nonbinding price ceiling on gasoline to become binding.

Suppose the equilibrium price of a stick of deodorant is $4, and the government imposes a price floor of $5 per stick. As a result of the price floor, the

quantity demanded of deodorant decreases, and the quantity of deodorant that firms want to supply increases.

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.

The imposition of a binding price ceiling on a market causes

quantity demanded to be greater than quantity supplied.

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

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

Suppose there is currently a tax of $80 per ticket on airline tickets. Sellers of airline tickets are required to pay the tax to the government. If the tax is reduced from $80 per ticket to $64 per ticket, then the

supply curve will shift downward by $16, and the effective price received by sellers will increase by less than $16.

A payroll tax is a

tax on the wages that firms pay their workers.

The term tax incidence refers to

the distribution of the tax burden between buyers and sellers.

If a price floor is not binding, then

the equilibrium price is above the price floor.

If a price ceiling is not binding, then

there will be no effect on the market price or quantity sold.

In the market for apartments, rent control causes the quantity supplied

to fall and quantity demanded to rise.

Consider the market for gasoline. Buyers

would lobby for a price ceiling, whereas sellers would lobby for a price floor.