Chapter Six
If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would
increase by less than $1,000
Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the
buyers will bear a greater burden of the tax than the sellers
Rent control
1.) is an example of a price ceiling 2.) leads to a larger shortage of apartments in the long run than in the short run 3.) leads to lower rents, and in the long run, to lower-quality housing
A legal maximum on the price at which a good can be sold is called a price
ceiling
A tax on sellers of coffee mugs
decreases the size of the coffee mug market
A tax on the buyers of sofas
decreases the size of the sofa market
Tax incidence
depends on the elasticities of supply and demand
If a tax is levies on the buyers of a product, then there will be a(n)
downward shift of the demand curve
When a tax is placed on the sellers of a product, buyers pay
more, and sellers receive less than they did before the tax
In a competitive free market of government regulation,
price adjusts until quantity demanded equals quantity supplied
A legal minimum on the price at which a good can be sold is called a
price floor
When a binding price ceiling is imposed on a market,
price no longer serves as a rationing device
Suppose that in 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
If a tax is levied on the sellers of a product, then the supply curve will
shift up
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
the equilibrium price is below the price celing
Price controls are usually enacted
when policy makers believe that the market price of a good or service is unfair to buyers or selelrs
A binding minimum wage tends to
1.) cause a labor surplus 2.) cause unemployment 3.) have the greatest impact in the market for teenage labor
If a binding price floor is imposed on the video game market, then
a surplus of video games will develop
A price floor will be binding only if it is set
above the equilibrium price
A price ceiling will be binding only if it is set
below the equilibrium price
A shortage results when a
binding price ceiling is imposed on a market
When a tax is placed on the sellers of energy drinks, the
burden of the tax will be shared by the buyers and the sellers, but the division of the burden is not always equal
When a tax is placed on the buyers of a product, buyers pay
more and sellers receive less than they did before the tax
