Macro Equilibrium and Policy Part 2

An 18.4 cent tax on every gallon if gasoline sold, is an example of a ( ) tax

excise

a tax on a good or service that depends on the units sold, not the price of the good or service is called ( ) tax

excise

A price fixed above equilibrium that changes the incentives that both buyers and sellers face is called price

floor

Incentives faced by both buyers and sellers change in the face of a price

floor

Taxes on Products

generally result in fewer products being purchased

a nonbinding price ceiling

A maximum legal price that is not set below the equilibrium price.

a price floor will

Change the incentives that both buyers and sellers face.

An excise tax is a tax on

a good or service that depends on the units sold

a binding price ceiling is

a maximum legal price set below the equilibrium price

When a tax is imposed on a market

both producers and consumers are affected, no matter who pays the tax

Government services that are funded by tax revenue rely on taxes imposed on

buyers and sellers

a tax

does not change any non price determinant of a demand good

The role of government in market economies is to

enforcing contracts, defining and enforcing property rights, punishing dishonest behavior, determining rules of commerce

in the market for labor

households are on the supply side and firms are on the demand side

a tax on producers

increases the cost of goods sold and shifts the supply curve to the left

when minimum wage results in unemployment, people may turn to ( ) markets to provide their labor

informal

Taxes on Products

reduce consumers' affordability

When there is a shortage in the market consumers tend to

reduce the quantity consumed

An example of a price ceiling is

rent control

When a shortage is eliminated, the market

returns to an equilibrium where the quantity supplied equals the quantity demanded

A tax on demanders shifts the

shifts the demand curve to the left

in the presence of a tax on suppliers

the cost of producing the good or service increases

when a tax is placed on a good

the price paid by consumers always rises, but the price received by producers may decrease

The quantity traded times tax equals

the tax revenue from a tax

Which of the following is a reason for the government of a country to impose excise taxes on cigarettes

to discourage smoking, increase government revenue

The primary reason that governments tax economic activity is

to generate the revenue needed to pay for services

If price was not allowed to adjust, a shortage:

would persist, and the market would not return to equilibrium.