Micro Chapter 4

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.

In the mid-1940s, the marginal tax income tax rate in the topincoe bracket was 94%. In the 1960s, the top rate was lowered to 70%, and in the 1980s, the top rate was again lowered to 28%. 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

Price Floor

If there was an increase in the tax on cell phones, what would be the effect on the equilibrium price and quantity of cell phones?

Price increases, quantity decreases.

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 orgone because of the tax.

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.

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.

With a price ceiling above the equilibrium price,

the market will be in equilibrium

Currently, federal and state gasoline taxes (imposed statutorily on the sellers of gasoline) amount to about $0.45 per gallon. Suppose the current price of gasoline is $1.20, and that if the tax was not in place, the price would only be $0.80.

A $0.05 burden is being borne by sellers and $0.40 by customers

Both price floors and price ceilings, when effective, lead to

A reduction in the quantity traded.

If an increase in the government-imposed mimimum wage pushes the price (wage) of unskilled labor above market equilibrium, what will most likely occur in the unskilled labor market?

A surplus of unskilled labor.

The more elastic the supply of a product, the more likely it is that the burden of a tax will

Fall on buyers

What is true about the elasticity regarding the economic impact of a subsidy?

When supply is relatively elastic, the benefits of a subsidy will mainly accrue to buyers.

The laffer curve illustrates the principle that

When tax rates are quite high, reducing tax rates will increase tax revenue.