Chapter 6 questions

Producers of cheese complain that the price floor has reduced their total revenue. True or False: This is possible if demand is elastic.

true The farmers' complaint that their total revenue has declined is correct if demand is elastic. With elastic demand, the percentage decline in quantity would exceed the percentage rise in price, so total revenue would fall.

When the government imposes a binding price floor, it causes

a surplus of the good to develop.

Per-unit tax

price consumers pay - price producers receive

Congress and the President decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $0.50 tax on each gallon of gasoline sold. If the demand for gasoline were more elastic, this tax would be _____ Incorrect effective in reducing the quantity of gasoline consumed.

-It doesn't matter -more

Suppose that, in a competitive market without government regulations, the equilibrium price of milk is $3.50 per gallon. The government has instituted a legal minimum price of $3.90 per gallon for milk. Price control : Binding or not:

Price floor binding

True or False: The effect of the tax on the quantity sold would have been larger if the tax had been levied on consumers.

false The equilibrium quantity of wine produced, the amount consumers pay per bottle of wine, and the amount producers receive for each bottle of wine are all independent of who pays the tax. Regardless of whether the tax is levied on consumers, causing the demand curve to shift by the amount of the tax, or on producers, causing the supply curve to shift by the amount of the tax, the new quantity at which the curves intersect will be the same. Therefore, it doesn't matter whether the government imposes the tax on consumers or producers

Which of the following would increase quantity supplied, decrease quantity demanded, and increase the price that consumers pay?

the imposition of a binding price floor When the government imposes a legal minimum on the price of a good, this is known as a price floor. If the price floor being imposed is above the equilibrium price, the price floor is binding and causes a surplus in the market. The end result is an increase in the quantity supplied, a decrease in the quantity demanded, and an increase in the price that consumers pay.

Suppose the government doesn't want to discourage employers from hiring research assistants and, therefore, wants to minimize the share of the tax paid by the employers. Of the three tax proposals, which is best for accomplishing this goal? -The proposal in which workers pay the entire tax -The proposal in which each side pays half the tax -The proposal in which employers pay the entire -None of the proposals is better than the others

-None of the proposals is better than the others From this exercise, you can see that the equilibrium quantity of labor, the amount employers pay per hour after the tax, and the amount workers take home are all independent of who pays the tax. Therefore, it doesn't matter which tax proposal the government implements because none of the proposals is better than the others.

Suppose that, in a competitive market without government regulations, the equilibrium price of milk is $3.50 per gallon. Due to new regulations, grocery stores that would like to pay better wages in order to hire more workers are prohibited from doing so. Price control : Binding or not:

Price ceiling binding

Suppose that, in a competitive market without government regulations, the equilibrium price of milk is $3.50 per gallon. The government prohibits grocery stores from selling milk for more than $3.90 per gallon. Price control : Binding or not:

Price ceiling non-binding

In a market with a binding price ceiling, an increase in the ceiling will ________ the quantity supplied, ________ the quantity demanded, and reduce the ________.

increase, decrease, shortage

Effects of rent control Rent controls force landlords to price apartments below the equilibrium price level. An immediate effect is a shortage (excess demand) of apartments, because the quantity of apartments demanded is greater than the quantity supplied at the regulated price. When cities prevent landlords from charging market rents, which of the following are common long-run outcomes? Check all that apply. -Efficient use of housing space results. -Nonprice methods of rationing emerge. -Landlords earn lower profits from renting housing units, but the rent charged has no effect on either the quantity or quality of rental units. -The quality of rental housing units falls.

-Nonprice methods of rationing emerge. -The quality of rental housing units falls.