Chp 6- ECN
Taxes...
-Reduce Quantity -Raise Prices buyers pay -Reduce the prices sellers receive
Subsidies...
-increase quantity -reduce the price buyers pay -raise the prices sellers receive
Which of the following is an example of a quantity quota?
A city enforces zoning laws that restrict the number of housing units.
tax on buyers leads to...
A decline in quantity sold
Quota
A limit on the max quantity of a good that can be sold
Price Ceiling
A max price that sellers can charge
If the market price is too high
A price ceiling is imposed
Binding price ceiling
A price ceiling that prevents the market from reaching the market equilibrium price, meaning that the highest price sellers can charge is set below the equilibrium price.
Binding price floor
A price floor that prevents the market from reaching the equilibrium price, meaning that the lowest price that sellers can charge is above the equilibrium price.
Mandate
A requirement to buy or sell a minimum amount of a good
Both buyers and sellers bear the economic burden of
A tax on buyers
Both buyers and sellers bear the economic burden of
A tax on sellers
A binding price floor is always
Above equilibrium
If demand is inelastic and supply is elastic, who is bearing more tax burden ?
Buyers
A tax on sellers increases the price that ________ and decreases ________
Buyers pay ; the price that sellers recycle
A tax on sellers leads to a
Decline in quantity sold
In 2016, Amazon began charging a 5.75 % sales tax on products it sells in the District of Columbia. Holding all else constant, the effect of this tax would be to _____ in the District of Columbia
Decrease Amazon sales
We should focus instead on the economic burden, which
Describes the burden created by the change in after-tax prices faced by buyers and sellers
The statutory burden of a tax payment is the
Gov-designated burden of a tax payment
A price floor is only binding if
It is above equilibrium
A price ceiling is only binding if
It is below equilibrium
Subsidies
Payment made by the gov to those who make a specific choice. Just like with taxes, it doesn't matter who gets the subsidy.
If the subsidy price becomes higher for buyers, it shifts the curve
Right for demand
The benefits of subsidies are divided between ____________ based on __________
Sellers and buyers; elasticities of supply and demand
Staturtory burden of a tax describes
The burden of being assigned by the gov the responsibility of sending a tax payment
A binding price floor in a market is removed. Which will most likely occur as a result
The market price will fall
If demand is elastic and supply is inelastic,
The price for buyers goes up only a small amount and sellers face a larger share of the tax incidence
A tax on buyers increases ________ and decreases _______
The price that buyers pay and decreases the price that sellers receive
A subsidy is
a government payment designed to encourage particular purchases or productive activities.
Price Floor
a minimum price that sellers can charge
A tax on buyers shifts the
demand curve to the left to reflect the lower willingness to pay for a good in the presence of tax
A subsidy for buyers of a product shifts the:
demand curve to the right
Buyers bear a smaller incidence of the tax when:
demand is more elastic than supply
Quantity Regulation
min or max quantity that can be sold
Price ceilings cause
shortages
A tax on sellers will shift the
supply curve upward ( left) by the amount of the tax.
Sellers bear a smaller incidence of a tax when:
supply is more elastic relative to demand.
Price Floors cause
surpluses
The economic burden of a tax is the
the burden created by the change in after-tax prices faced by buyers and sellers
Tax incidence
the division of the economic burden of a tax between buyers and sellers
Tax incidence depends on
the elasticities of supply and demand
