EC120 Chapter 6: Chpt 6 Notes

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carmineduck671

16 Feb 2017

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Price ceiling: a legal maximum on the price at which a good can be sold. Price floor: a legal minimum on the price at which a good can be sold. When the government imposes a binding price ceiling on a competitive market, a shortage of the good arises, and sellers must ration the scarce goods among the large number of potential buyers. A binding price floor causes a surplus. Price are the result of the millions of business and consumer decisions that lie behind the supply and demand curves. Tax incidence: the manner in which the burden of a tax is shared among participants in a market. Step one decide whether the law affects the supply curve or demand curve: Immediate impact of the tax would be on the demand for ice cream. Does not affect supply curve because sellers have the same incentive to provide ice cream to the market. Thereby only shifting the demand curve for ice cream.

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The price paid by buyers in a market will decrease if the government:

A. increases a binding price ceiling in that market.

B. decreases a binding price floor in that market.

C. imposes a binding price floor in that market.

D. increases a tax on the good sold in that market.

emeraldmule11

7. Effect of a tax on buyers and sellers

The following graph shows the daily market for wine. Suppose the government institutes a tax of $23.20 per bottle. This places a wedge between the price buyers pay and the price sellers receive.

Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.

Quantity(bottles of wine) Price buyers pay(Dollars per bottle) Price sellers receive(Dollars per bottle)

Before tax

After tax

Using the data entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. enter your results in the following table.

Tax burden(Dollars per bottle) Elasticity

Buyers

Sellers

The burden of the tax falls more heavily on the ..........elastic side of the market.

champagnehippopotamus285

1.) An excise tax on a good typically reduces the net price received by the seller. (TRUE/FALSE)

2.) The burden of an excise tax on gasoline falls entirely on consumers of gasoline. (TRUE/FALSE)

3.) Rent controls are one of the few examples of a price floor in market economies. (TRUE/FALSE)

4.) Imposing a price ceiling below the equilibrium price of a good often leads to_____.

A) A greater supply of the good

B) A black market for the good

C) A rightward shift of the supply curve for the good.

D) A leftward shift of the demand curve for the good.

E) All of these

5.) Which of the following is true of price floors and ceilings?

A) Lead to the same price and quantity as in competitive market.

B) Lead to technical efficiency

C) Cause the demand curve to shift left

D) Usually result from government intervention

E) Cause the supply curve to shift right.

6.) Price ceilings often lead to black markets. (TRUE/FALSE)

7.) When minimum wage is above the equilibrium wage what occurs?

A) There will be a shortage of labor

B) There will be no effect on the number of people employed

C) There will be an increase in unemployment rate

D) There will be a decrease in unemployment rate

8.) An excise tax on a good typically reduces the price paid by the consumer (TRUE/FALSE)

9.) If a price ceiling is below the equilibrium price is imposed on a market, it will cause the quantity demanded to rise and the quantity supplied to fall. (TRUE/FALSE)

10.) Price floors often lead to black markets. (TRUE/FALSE)

11.) If an excise tax is imposed on restaurant meals what occurs?

A) Fewer meals will be produced and sold

B) More meals will be produced and sold

C) Market price of the meals will fall

D) Government tax revenue will fall.

mauveyellowjacket715

EC120 Chapter 6: Chpt 6 Notes

EC120 Full Course Notes

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