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