Chapter 6

Refer to Figure 6-10. The amount of the tax that buyers would pay would be

$1.00.

Refer to Figure 6-10. The amount of the tax that sellers would pay would be

$1.50.

Refer to Figure 6-10. The amount of the tax imposed in this market is

$2.50.

Refer to Figure 6-10. The price sellers receive after the tax is imposed is

$3.50.

Refer to Figure 6-10. The equilibrium price in the market after the tax is imposed is

$6.00.

Refer to Figure 6-10. The price buyers will pay after the tax is imposed is

$6.00.

Which of the following is the most correct statement about tax burdens?

A tax burden falls most heavily on the side of the market that is more inelastic.

One economist has argued that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this?

He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city

Rent control is

a common example of a price ceiling.

A binding price floor in a market sets price

above equilibrium price and causes a surplus.

Under rent control, bribery is a mechanism to

bring the total price of an apartment (including the bribe) closer to the equilibrium price.

When a tax is placed on the sellers of lemonade

buyers and sellers share the burden of the tax

Suppose that the demand for macaroni is price inelastic and the supply of macaroni is price elastic, and that the demand for cigarettes is price inelastic and the supply of cigarettes is price elastic. If a tax were levied on the sellers of both of these commodities, we would expect that the

buyers of both goods would pay most of the tax.

A government-imposed maximum price at which a good can be sold is called a price

ceiling.

A tax placed on kite buyers will shift

demand downward, causing both equilibrium price and quantity to fall.

In the end, tax incidence

depends on the forces of supply and demand.

The term tax incidence refers to the

division of the tax burden between buyers and sellers.

A legal minimum price at which a good can be sold is a price

floor.

A price ceiling that is not binding will

have no effect on the market price.

A tax on the buyers of coffee will

increase the equilibrium price of coffee, and reduce the equilibrium quantity.

A price ceiling

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

The equilibrium wages of teenagers tend to be

low because teenagers are among the least skilled and least experienced workers.

A tax placed on the seller of a good

raises the price buyers pay and lowers the price sellers receive.

If a tax is imposed on a market with elastic demand and inelastic supply,

sellers will bear most of the burden of the tax

Refer to Figure 6-4. If the government imposes a binding price ceiling in this market at a price of $5.00, the result would be a

shortage of 20 units.

Suppose that a tax is placed on DVDs. If the seller ends up paying the majority of the tax we know that the

supply curve is more inelastic than the demand curve.

Refer to Figure 6-5. If the government imposes a binding price floor of $5.00 in this market, the result would be a

surplus of 35.

If the minimum wage is above the equilibrium wage,

the quantity demanded of labor will be less than the quantity supplied

Although lawmakers legislated a fifty-fifty division in the payment of the FICA tax

the same outcome would occur if the entire tax had been levied on only the worker or only on the firm.

Policymakers choose to enact price controls in a market because

they believe the market's outcome to be unfair.

Price controls are

usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers.

If a tax is levied on the seller of a product the demand curve

will not change.