Chapter 6 Econ 201

Price Ceiling

A legal maximum on the price at which a good can be sold

Price floor

A legal minimum on the price at which a good can be sold.

T/F- When we use the model of supply and demand to analyze a tax collected from the buyers, we shift the demand curve upward by the size of the tax.

F; we shift the demand curve downward by the size of the tax.

T/F- The ultimate burden of a tax lands mostly on the side of that market that is less elastic

T

A $1 per unit tax on consumers of a good is equivalent to

a $1 per unit tax levied on producers of the good

A binging price ceiling creates

a shortage

When the govt imposes a binding price floor, it causes

a surplus of the good to develop

What takes place when a tax is placed on a good?

an increase in the price buyers pay, a decrease in the price the sellers receive, and a decrease in the qty sold.

For a price ceiling to be a binding constraint on the market, the govt must set it

below the eq. price

The surplus caused by a binding price floor will be greatest if

both supply and demand are elastic.

Within the supply and demand model, a tax collected from the buyers of a good shifts the

demand curve upward by the size of the tax per unit.

The burden of tax falls more heavily on the sellers in a market when

demand is elastic and supply is inelastic.

The burden of a tax falls more heavily on the buyers in a market when

demand is inelastic and supply is elastic.

In a market with a binding price ceiling, an increase in the ceiling will what the qty supplied, what the qty demanded, and reduce the what?

increase, decrease, shortage.

A tax of $1.00 per gallon on gasoline

places a tax wedge of $1.00 between the price buyers pay and the price the sellers receive.

Within the supply and demand model, a tax collected from the sellers of a good shifts the

supply curve upward by the size of the tax per unit.

When a good is taxed, the burden of the tax falls mainly on consumers if

supply is elastic and demand is inelastic

tax wedge

the difference between what the buyer pays and the seller receives after a tax has been imposed.

What would increase qty supplied, decrease qty demanded, and increase the price that consumers pay?

the imposition of a binding price floor

tax incidence

the manner in which the burden of a tax is shared among participants in a market

What would increase the qty supplied, increase qty demanded, and decrease the price that consumers pay?

the repeal of a tax levied on producers

Which side of the market is more likely to lobby govt for a price floor?

the sellers