CH 6 Flashcards
How do taxes on sellers affect the supply curve?
shift the supply curve back
Statutory burden
the burden of being assigned by the government the responsibility of sending a tax payment; doesn’t matter
Economic burden
who experiences a greater loss as a result of the tax
Tax incidence
the division of the economic burden of a tax between buyers and sellers
How do taxes on buyers affect the demand curve?
They shift it back
Subsidy
a payment made by the government to those who make a specific choice (ex: childcare)
Price ceiling
when the government sets a maximum price
Binding price ceiling
when a price ceiling prevents the market from reaching the equilibrium price because the highest price that sellers can charge is set below the equilibrium price.
Price floors
when the government sets a minimum price
Binding price floor
when a price floor prevents the market from reaching the equilibrium price because the lowest price that sellers can charge is set above the equilibrium price.
Quantity regulation
a maximum or minimum quantity that can be sold
Mandate
requires you to buy/sell a minimum amount of a good
Quotas
set a limit on the maximum quantity of a good that can be sold
Governments impose quotas to _____, which can be applied to _____.
limit the quantity sold; both buyers and sellers
_____ sets a minimum or maximum quantity that can be sold.
Quantity regulation
When the government sets a quota on goods sold, the gap between _____ creates an incentive for potential _____ to find a way around the regulation.
price and marginal cost; sellers
Taxes, price regulations, and quantity restrictions can all be used to:
achieve the same policy objectives.
Example of a price floor
minimum wage
If a price ceiling is placed above the equilibrium price, what will happen in the market?
Nothin
usury laws
a maximum interest rate that can be charged on loans; intent to protect low-income borrowers from high rates when in reality they deny low-income borrowers funds.
Distortion
the fall in quantity as a result of the tax; more distortion = less quantity and therefore less government revenue. More elasticity means more distortion
Suppose that the demand for candy is less elastic than the supply of candy. If a tax is imposed on sellers of candy, which of the following is true?
Sellers will bear a smaller share of the tax burden because supply is more elastic than demand.
