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.