Econ 202 - Ch 7

Rent control is an example of

a price ceiling

A rent control is an example of a ________.

price ceiling

How does a free market eliminate a shortage?

By letting the price rise

Which of the following is true of a progressive tax system?

High income households pay a higher percentage of their income as taxes.

The Canadian government has wage controls for medical doctors. To keep things simple, let's assume that they set one wage for all doctors: $100,000 per year. It takes about 6 years to become a general practitioner or a pediatrician, but it takes about 8 or 9 years to become a specialist like a gynecologist, surgeon, or ophthalmologist. What kind of doctor would you want to become under this system? (Note: The actual Canadian system does allow a specialist to earn a bit more than general practitioners, but the difference isn't big enough to matter.)

Pediatrician

When a price ceiling is in place keeping the price below the market price, what's larger: quantity demanded or quantity supplied?

Quantity demanded

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia. What will be the likely effect on the market for sparkling wine in Vinyardia?

Quantity demanded will decrease, quantity supplied will increase, and a surplus will result.

Which of the following is likely to happen if a price control below the equilibrium price is imposed?

Quantity demanded will exceed quantity supplied

Which of the following is likely to happen if a price control above the equilibrium price is imposed?

Quantity supplied will exceed quantity demanded

Suppose an excise tax of $1 is imposed on every case of beer sold and sellers are responsible for paying this tax. How would the imposition of the tax be illustrated in a graph?

The supply curve for cases of beer would shift to the left by $1.

Which job exists in part because time-sensitive wealthy individuals want to pay someone else to wait in line for them?

Ticket scalpers

If the government wants to minimize the welfare loss of a tax, it should tax goods with more inelastic demands or supplies.

True

Rent control is an example of a price ceiling.

True

Which term refers to a legally established minimum price that firms may charge?

a price floor

A gallon of milk costs $4 in Bonland. If the government fixes the price at $3.50, ________

a shortage of milk will occur in the market

If the sellers of a good are taxed for each unit sold, ________.

a smaller quantity of the good is sold

When the government taxes a good or service, it

affects the market equilibrium for that good or service

Suppose the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price. To keep it simple, assume that people must wait in line to get bread at the controlled price. Would consumer surplus rise, fall, or can't you tell with the information given?

consumer surplus decreases.

When the demand for a product is less elastic than the supply

consumers pay the majority of the tax on the product

A price ceiling leads to a(n) ________ if below equilibrium price

decrease in total surplus

A price floor set above the equilibrium price leads to a(n) ________.

excess supply of goods in the market

A price floor is the ________.

lower limit on the price of a good

To affect the market outcome, a price ceiling

must be set below the equilibrium price

In order to be binding, a price ceiling

must lie below the free market equilibrium price.

A proportional tax is a tax for which people with lower incomes

pay the same percentage of their incomes in tax as do people with higher incomes.

The government of Lithasia has decided to set a minimum price for certain agricultural products in order to safeguard the interests of farmers. This is an example of a ________.

price floor

Scenario: There are 4 households in a locality. The annual income of the first household is $20,000, the annual income of the second household is $47,000, the annual income of the third household is $50,000, and the annual income of the fourth household is $71,000. Refer to the scenario above. If the income tax rate for the fourth household is higher than the income tax rate for the second household, it can be inferred that the government follows a ________ income tax system.

progressive

A ________ system is one in which households pay the same percentage of their incomes in taxes regardless of their income level.

proportional

In New York City, about 1 million apartments are subject to rent control by the local government. Rent control

puts a legal limit on the rent that landlords can charge for an apartment.

If you pay $2,000 in taxes on an income of $20,000, and a tax of $2,700 on an income of $30,000, then over this range of income the tax is

regressive

The actual division of the burden of a tax between buyers and sellers in a market is called

tax incidence

In a proportional tax system, ________

the average tax rate equals the marginal tax rate

The demand curve for pizza in Foodieland is vertical. If a tax is imposed on each pizza bought, ________.

the burden of the tax will fall entirely on the buyers

The supply of milk in Nexus City is perfectly elastic. If a tax is imposed on each gallon of milk sold, ________.

the burden of the tax will fall entirely on the buyers

The incidence of a per-unit tax on a good is identical for buyers and sellers of the good if:

the buyers and sellers of the good are equally sensitive to price changes.

The corporate income tax is ultimately paid by all of the following except

the corporation's debtors in the form of lower rates of return on the corporation's bonds. Corporate Income Tax is paid by: -customers in the form of higher prices -employees in the form of lower wages -owners of the corporation

If a tax is imposed on each unit of a good purchased, ________.

the demand curve shifts to the left

The deadweight loss of taxation on a good is higher if ________.

the demand or the supply of the good is relatively price elastic

The tax incidence on buyers is higher if ________.

the elasticity of the market supply curve is higher than the elasticity of the market demand curve

If a tax is imposed on a good,________.

the equilibrium quantity of the good in the market falls

Scenario: There are 4 households in a locality. The annual income of the first household is $20,000, the annual income of the second household is $47,000, the annual income of the third household is $50,000, and the annual income of the fourth household is $71,000. Refer to the scenario above. Which family pays the lowest percentage of its income as taxes if the government follows a progressive tax system?

the first household

A tax bracket is

the income range within which a particular tax rate applies.

In a progressive tax system, ________.

the marginal tax rate exceeds the average tax rate

With an increase in the demand for a good, if prices are not allowed to increase:

there will be no incentive for firms to increase the quantity supplied of the good