ECO QUIZ

not binding

A price ceiling above the equilibrium price; has no effect on the market outcome a price floor below the equilibrium price, has no effect on the market outcome

How price ceilings affect market outcomes

In the long run, supply and demand are more price-elastic

Implicit Cost

Requires a cash outlay, eg, the opportunity cost of the owners' time 1/10 principle: The cost of something is what you give to get it

price ceilings

a legal maximum on the price of a good or service. Example; rent control

price floor

a legal minimum on the price of a good or service. Example; minimum wage

A tax burden falls more heavily on the side of the market that a. has a fewer number of participants. b. is more inelastic. c. is closer to unit elastic. d. is less inelastic.

b

taxes

the government can make buyers or sellers pay a specific amount on each unit

binding constraint

when the equilibrium price is more than the price ceiling; causes a shortage or when the equilibrium price is below the price floor (illegal); causes a surplus

How is the burden of a tax divided? (i) When the tax is levied on the sellers, the sellers bear a higher proportion of the tax burden. (ii) When the tax is levied on the buyers, the buyers bear a higher proportion of the tax burden. (iii) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear an equal proportion of the tax burden. (iv) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden.

(iv) Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden.

If the government removes a binding price floor from a market, then price paid by buyers will a) increase, and the quantity sold in the market will increase. b) increase, and the quantity sold in the market will decrease. c) decrease, and the quantity sold in the market will increase. d) decrease, and the quantity sold in the market will decrease.

c

A minimum wage that is set below a market's equilibrium wage will result in an excess a. demand for labor, that is, unemployment b. demand for labor, that is, a shortage of workers c. supply for labor, that is unemployment d. none of the above

d

A tax on the sellers of coffee will increase the price of coffee paid by buyers, a. increase the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee. b. increase the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee. c. decrease the effective price of coffee received by sellers, and increase the equilibrium quantity of coffee. d. decrease the effective price of coffee received by sellers, and decrease the equilibrium quantity of coffee.

d

Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $.80 per bottle. Which of the following statements is correct? a. This tax causes the supply curve for liquor to shift upward by $1.00 at each quantity of liquor. b. The effective price received by sellers is $0.20 per bottle less than it was before the tax. c. Eighty percent of the burden of the tax falls on buyers. d. All of the above are correct.

d