chapter 6

Question 1

government policies that alter market outcomes

Answer 1

control on price, taxes

Question 2

price controls

Answer 2

used when policy makers believe the market price is unfair to buyers or sellers, price floors, price ceilings

Question 3

price floor

Answer 3

legal minimum on the price at which a good can be sold

Question 4

price ceiling

Answer 4

legal maximum on the price at which a good can be sold

Question 5

how price ceiling can affect market outcomes

Answer 5

below equilibrium: binding, QD>Qs, shortage and non-price rationalizing
above equilibrium: not binding, no effect

Question 6

non price rationalizing

Answer 6

use of a method other than price controls which limit output

Question 7

how price floors affect market outcomes

Answer 7

above equilibrium: binding QD<QS, surplus
below equilibrium: not binding, no effect

Question 8

evaluating price controls

Answer 8

economists tend to oppose price ceilings and floors, governments attempt to improve market outcomes, often hurt those who they are trying to help

Question 9

how taxes affect market outcome

Answer 9

use taxes to raise revenue for projects, discourages market activity, quantity of good sold decreases, buyers and seller share tax burden (impact is same)

Question 10

tax incidence

Answer 10

how the burden of a tax is shared among buyers and sellers, falls more heavily on the side which is less elastic