Econ Chapter 6

The U.S. Congress first instituted a minimum wage in

1938

price ceiling

A legal maximum on the price at which a good can be sold. If the price ceiling is below the equilibrium price, then the price ceiling is binding, and the quantity demanded exceeds the quantity supplied.

price floor

A legal minimum on the price at which a good can be sold. If the price floor is above the equilibrium price, then the price floor is binding, and the quantity supplied exceeds the quantity demanded.

Tax on a good

A tax on a good places a wedge between the price paid by buyers and the price received by sellers. When the market moves to the new equilibrium, buyers pay more for the good and sellers receive less for it. In this sense, buyers and sellers share the tax burden. The incidence of a tax (that is, the division of the tax burden) does not depend on whether the tax is levied on buyers or sellers.

A $1 per unit tax levied on consumers of a good is equivalent to

a $1 per unit tax levied on producers of the good.

When the government imposes a binding price floor, it causes?

a surplus of the good to develop.

If the government levies a $500 tax per car on sellers of cars, then the price received by sellers of cars would

decrease by less than $500

A tax imposed on the sellers of a good will lower the

effective price received by sellers and lower the equilibrium quantity.

A minimum wage that is set below a market's equilibrium wage will

have no impact on employment

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

A tax burden falls more heavily on the side of the market that

is more inelastic.

The tax burden will fall most heavily on sellers of the good when the demand curve

is relatively flat, and the supply curve is relatively steep.

A tax imposed on the sellers of a good will raise the

price paid by buyers and lower the equilibrium quantity.

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

sellers will bear most of the burden of the tax.

When a good is taxed, the burden of the tax falls mainly on consumers if

supply is elastic, and demand is inelastic.

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

tax incidence

the manner in which the burden of a tax is shared among participants in a market

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

the repeal of a tax levied on producers

If a price ceiling is not binding, then

there will be no effect on the market price or quantity sold.