ECO Ch. 4
Currently, federal and state gasoline taxes (imposed statutorily on the sellers of gasoline) amount to about $.45 per gallon. Suppose the current price of gasoline is $1.20 per gallon, and that if the tax was not in place, the price would be only $.80.
A $.05 burden is being borne by sellers and $.40 by consumers.
In the mid-1940s, the marginal income tax rate in the top income tax bracket was 94 percent. In the 1960s, the top rate was lowered to 70 percent, and in the 1980s, the top rate was again lowered to 28 percent. The data show that as a result of these tax rate reductions, tax revenue (particularly from the rich) increased. This is consistent with the idea illustrated with the
Laffer curve.
A legal minimum wage is an example of
a price floor.
Both price floors and price ceilings, when effective, lead to
a reduction in the quantity traded.
If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?
a surplus of unskilled labor
Suppose there is an increase in the excise tax imposed on cigarettes, a good for which the demand is relatively inelastic. The short-run burden of the tax increase will be borne primarily by
consumers, because the increase in market price will be large relative to the increase in the excise tax.
An increase in the demand for a product will cause output to
increase and both the demand for and prices of the resources used to produce the product to increase.
The market pricing system corrects an excess supply by
lowering the product price and decreasing producer profits.
When the price of a good is legally set below the equilibrium level, a shortage often results. This shortage
occurs because the price ceiling prevents the market mechanism from establishing an equilibrium price.
If there was an increase in the excise tax on beer, what would be the effect on the equilibrium price and quantity of beer?
price increases, quantity decreases
The Laffer curve illustrates the principle that
when tax rates are quite high, reducing tax rates will increase tax revenue.
Figure 4-14 depicts the milk market. The horizontal line, P, represents a price ceiling imposed by the government. Which of the following is true?
The quantity sold will be 500 gallons.
Which of the following is a true statement regarding the economic impact of a subsidy?
When supply is relatively elastic, the benefits of a subsidy will mainly accrue to buyers.
During the imposition of price controls in the 1970s, long gasoline lines were common. In the absence of price controls, markets would have eliminated such excess demand by
allowing the price to rise, so gas was rationed to those willing to pay the most for it.
The more elastic the supply of a product, the more likely it is that the burden of a tax will
fall on buyers.
An income tax is regressive if
high-income recipients pay a lower percentage of their incomes in taxes than those whose incomes are low.
Rent controls generally fix the price of rental housing below market equilibrium. Economic analysis suggests these controls
reduce the future supply of rental housing.
The deadweight loss resulting from levying a tax on an economic activity is
the loss of potential gains from trade from activities forgone because of the tax.
With a price ceiling above the equilibrium price,
the market would be in equilibrium.
Because illegal drug markets operate outside the legal system,
the quality of these drugs has increased. the sellers of illegal drugs earn less money. there is less violence in these markets than if they were legal. none of the above.
