Chapter 6 Econ

A binding price ceiling creates

A shortage

Takes place when a tax is placed on a good? There is

An increase in the price buyers pay, a decrease in the price sellers receive and the quantity sold decreases

Example of a price floor

The minimum wage

Studies show that a 10 % increase in minimum wage

Decreases teen employment by about 1-3 %

T/F the shortage of housing caused by a binding rent control is likely to be more severe in the long run when compared to the short run

T

T/F the ultimate burden of a tax lands most heavily on the side of the market that is less elastic

T

What is true if the gov places a price ceiling on gas at 1.50$ per gallon and the equilibrium price is 1.00$ per gallon

A significant increase in the supply of gasoline could cause the price ceiling to become a binding constraint

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

Below the equilibrium price

The surplus caused by a binding price floor will be the 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 downward by the size of the tax per unit

T/F a 10$ tax on baseball gloves will always raise the price that the buyers pay for baseball gloves by 10$

F

T/F a 10% increase in minimum wage causes a 10% reduction in teen employment

F

T/F a price floor in a market always creates a surplus in that market

F

T/F if the equilibrium price of gasoline is 1$ per gallon and the gov places a price ceiling on gasoline of 1.50$ per gallon the result will be shortage of gasoline

F

T/F the gov can choose to choose to place the burden of a tax on the buyers in a market by collecting the tax from the buyers rather than the sellers

F

T/F the minimum wage helps all teens bc they receive higher wages than they would otherwise

F

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

A price floor

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

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

T/F A price ceiling set below equilibrium price causes a surplus

T

T/F a price ceiling that is not a binding constraint today could cause a shortage in the future of demand were to increase and raise the equilibrium price above the fixed price ceiling

T

T/F a price floor set above the equilibrium price is a binding constraint

T

T/F a tax collected from buyers has an equivalent impact to a same size tax collected from sellers

T

T/F a tax creates a tax wedge between a buyer and seller. This causes the price paid by the buyer to rise, the price received by the seller to fall, and the quantity sold to fall

T

T/F if medicine is a necessity, the burden of a tax on meds will likely land more heavily on the buyers of medicine

T

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

The sellers

What is true about binding price ceiling

The shortage created by the price ceiling is greater in the long run than in the short run

When a tax is collected from the buyers in a market

The tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers