Economics: Chapter 6
Taxes on Buyers
-a tax of buyers shifts the demand curve downward by the size of the tax -price buyers pay rises -price sellers receive falls -eq'm quantity falls
Taxes on Seller
-a tax on sellers shifts the supply curve upward by the size of the tax -price buyers pay rises -price sellers receive falls -eq'm quantity falls
Inelastic supply and elastic demand (tax burden falls more heavily on the side of the market that is less elastic)
-sellers are not very responsive to changes in price -buyers are very responsive -price paid by buyers does not rise much, but the price received by sellers falls -sellers bear most of the burden of the tax
Elastic supply and inelastic demand (tax burden falls more heavily on the side of the market that is less elastic)
-sellers are very responsive to changes in price -buyers are not very responsive -price received by sellers does not fall much, so sellers bear only a small burden -the price paid by buyers rises, so buyers bear most of the burden of the tax
Economists generally believe that rent control is -an efficient and equitable way to help the poor. -not efficient, but the best available means of solving a serious social problem. -a highly inefficient way to help the poor raise their standard of living. -an efficient way to allocate housing, but not a good way to help the poor.
a highly inefficient way to help the poor raise their standard of living.
When government imposes a price ceiling or --a price floor in a market, price no longer serves as a rationing device. -efficiency in the market is enhanced. -shortages and surpluses are eliminated. -buyers and sellers both become better off.
a price floor in a market, price no longer serves as a rationing device.
A legal minimum price at which a good can be sold is -exemplified by rent-control laws. -usually intended to enhance efficiency in a market.. -called a price ceiling. -called a price floor.
called a price floor.
Price Ceiling - Binding
eq'm is above price ceiling which causes shortages
Price Floor - Binding
eq'm is below the price floors which causes surplus
Tax Incidence
how the burden of a tax is shared among market participants
Over time, housing shortages caused by rent control -increase, because the demand for, and supply of, housing are less elastic in the long run. -increase, because the demand for, and supply of, housing are more elastic in the long run. -decrease, because the demand for, and supply of, housing are less elastic in the long run. -decrease, because the demand for, and supply of, housing are more elastic in the long run.
increase, because the demand for, and supply of, housing are more elastic in the long run.
Price Ceiling
legal maximum on the price of a good/service Ex: rent control
Price Floor
legal minimum of the price of a good/service Ex: minimum wage
Suppose a tax is imposed on the buyers of a good or service. The burden of the tax will fall -entirely on the buyers. -entirely on the sellers. -entirely on the government. -on both the buyers and the sellers.
on both the buyers and the sellers.
Market Power
organization's ability to control the price of a product by manipulating its supply, its demand, or both.
Price Ceiling - Not Binding
price ceiling is above eq'm price (has no effect on the market outcome)
Price Floor - Not Binding
price floor is below the eq'm price (has no effect on the market outcome)
Tax Revenue Formula
price w/tax - price sellers receive X quantity
A tax imposed on the sellers of a good will -raise the price paid by buyers and lower the equilibrium quantity. -raise the price paid by buyers and raise the equilibrium quantity. -raise the effective price received by sellers and raise the equilibrium quantity. -raise the effective price received by sellers and lower the equilibrium quantity.
raise the price paid by buyers and lower the equilibrium quantity
An example of a price floor is -the regulation of gasoline prices in the U.S. in the 1970s. -rent control. -the minimum wage. -any restriction on price that leads to a shortage.
the minimum wage.
At a minimum wage that exceeds the equilibrium wage -the quantity demanded of labor will exceed the quantity supplied. -the quantity supplied of labor will exceed the quantity demanded. -the minimum wage will not be binding. -the market for skilled workers is affected, but the market for unskilled workers remains unaffected.
the quantity supplied of labor will exceed the quantity demanded.
The effects of price, quantity and tax incidence are...
the same whether the tax is imposed on buyers or seller
