ECON 131 HW 6
Rent-control laws dictate`
a maximum rent that landlords may charge tenants.
The minimum wage was instituted to ensure workers
a minimally adequate standard of living.
Minimum-wage laws dictate
a minimum wage that firms may pay workers.
In the United States, before OPEC increased the price of crude oil in 1973, there was
a nonbinding price ceiling on gasoline.
A price ceiling will be binding only if it is set
below the equilibrium price.
A shortage results when a
binding price ceiling is imposed on a market.
Policymakers use taxes
both to raise revenue for public purposes and to influence market outcomes.
If a tax is imposed on a market with inelastic demand and elastic supply, then
buyers will bear most of the burden of the tax.
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.
If the government removes a tax on a good, then the price paid by buyers will
decrease, and the price received by sellers will increase.
If the government removes a binding price floor from a market, then the price paid by buyers will
decrease, and the quantity sold in the market will increase
A tax on the sellers of coffee mugs
decreases the size of the coffee mug market.
Tax incidence
depends on the elasticities of supply and demand.
The goal of rent control is to
help the poor by making housing more affordable.
f the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would
increase by less than $1,000.
If the government removes a binding price ceiling from a market, then the price paid by buyers will
increase, and the quantity sold in the market will increase.
Over time, housing shortages caused by rent control
increase, because the demand for and supply of housing are more elastic in the long run.
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.
Most labor economists believe that the supply of labor is
less elastic than the demand, and, therefore, workers bear most of the burden of the payroll tax.
Minimum wage laws
may encourage some teenagers to drop out and take jobs.
In the housing market, supply and demand are
more elastic in the long run than in the short run, and so rent control leads to a larger shortage of apartments in the long run than in the short run.
When a tax is placed on the sellers of a product, buyers pay
more, and sellers receive less than they did before the tax.
Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect
most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.
When OPEC raised the price of crude oil in the 1970s, it caused the United States'
nonbinding price ceiling on gasoline to become binding.
A legal minimum on the price at which a good can be sold is called a
price floor
Rent control
serves as an example of a price ceiling.
After a binding price floor becomes effective, a
smaller quantity of the good is bought and sold.
when a binding price floor is imposed on a market to benefit sellers,
some sellers will not be able to sell any amount of the good.
A minimum wage that is set above a market's equilibrium wage will result in an excess
supply of labor, that is, unemployment.
A payroll tax is a
tax on the wages that firms pay their workers.
The minimum wage has its greatest impact on the market for
teenage labor.
1970s, long lines at gas stations in the United States were primarily a result of the fact that
the U.S. government maintained a price ceiling on gasoline.
The term tax incidence refers to
the distribution of the tax burden between buyers and sellers.
Price controls are usually enacted
when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
Lawmakers designed the burden of the FICA payroll tax to be split evenly between workers and firms. Labor economists believe that
workers bear most of the burden of the tax.
