Chapter 6 Microeconomics

When a binding price ceiling is imposed on a market

- price no longer serves as a rationing device - the quantity supplied at the price ceiling exceeds the quantity that would have been supplied without the price ceiling - all buyers benefit

A tax on the buyers of TV's

;dads buyers to demand a smaller quantity at every place

what hurts those they are trying to help

Price controls

the burden of tax is distributed among the various people who make up the economy

Tax Incidence

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

United states' nonbonding price ceiling on gasoline to become binding

Price controls are usually enacted

When policymakers believe that the market price of a good or service is unfair to buyers or sellers

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. Harpo, who is one of your advisors, suggests that you should impose a binding price ceiling in order to avoid a shortage of oranges. Chico, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Zeppo, a third advisor, says that the best way to avoid a shortage of oranges is to take no action at all. Which of your three advisors is most likely to have studied economics?

Zeppo

if the demand curve is very elastic and the supply curve is very inelastic in a market, then the sellers will:

bear a greater burden of a tax imposed on the market, even if the tax is imposed on the buyer

if the government levies a $500 tax on buyers, then the price received by sellers would

decrease less then $500

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

decrease the quantity sold in the market will increase

if buyers pay the majority of the tax, then we know that

demand is more inelastic then supply

A tax of $1 on sellers always increases the equilibrium price by $1

false

Suppose the government imposes a price floor of $5 on this market. What will be the size of the surplus in this market?

go to the $5 and take quantity supplied- quantity demanded

if the government removes a binding price ceiling from a market, then the price paid by buyers will

increase and the quantity sold in the market will increase

A tax imposed on the buyers of a good will

lower the effective price received by sellers and lower the equilibrium quantity

Refer to Figure 6-3. In which of the following cases would sellers have to develop a rationing mechanism?

lowest price is the ceiling (which in this case was $8)

in a free competitive market what is the rationing mechanism

price

lowest price for labor

price floors

if a price floor is a binding constraint on a market, then

sellers cannot sell all they want to sell at the price floor

Refer to Figure 6-12. For every unit of the good that is sold,

subtract the lowest number on the supply curve after tax- lowest number on supply curve before tax

Refer to Figure 6-3. If the government imposes a price floor of $14 on this market, then there will be a

surplus of 40 - in the graph you take the quantity at 14 dollars of supply and demand. You subtract the highest from the lowest and that is your surplus.

suppose the equilibrium price of a physical examination 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 nonbonding price floor is imposed on a market then

the quantity sold in the market will stay the same

Suppose the government has imposed a price floor on cellular phones. Which of the following events could transform the price floor from one that is binding to one that is not binding?

traditional land line phones become more expensive

lawmakers can decide whether the buyers or the sellers must send a tax top the government, but they can't legislate the true burden of a tax

true

not all sellers benefit from a binding price floor

true

price controls are usually enacted when a policymakers believe that the market price of a good or service is unfair to buyers

true

when a binding price ceiling is imposed on a market for a good, some people who want to buy the good cannot do so

true

binding minimum wage creates what

unemployment

if a tax is levied on the sellers of a product, then the supply curve

will shift up