Chapter 5

Question 1

What determines price?

Answer 1

The invisible hand is not the only factor in determining prices; social and political forces also determine price.
Price ceilings and price floors
Excise taxes and tariffs
Quantity restrictions
Third-party-payer markets

Question 2

What is a price ceiling?

Answer 2

A price ceiling is a government-imposed limit on how high a price can be charged

Price ceilings create shortages
Price ceilings below equilibrium price will have an effect on the market
With price ceilings, existing goods are no longer rationed entirely by price so other methods of rationing arise

Question 3

What is a price floor?

Answer 3

A price floor is a government-imposed limit on how low a price can be charged

Question 4

what do price floors create?

Answer 4

Price floors create excess supply

Question 5

What is minimum wage?

Answer 5

A minimum wage is a type of price floor, it is the lowest wage a firm can legally pay an employee

Question 6

What is an excise tax?

Answer 6

An excise tax is a tax that is levied on a specific good

Question 7

what is a tariff?

Answer 7

A tariff is an excise tax on an imported good

Question 8

Quantity restrictions

Answer 8

The results of limited number of licenses in a market are increases in wages and increases in the price of obtaining the license