Chapter 6

Question 0

Price floor

Answer 0

Legislated minimum price

Equilibrium price above floor is not binding
Equilibrium price below floor is binding

Question 1

Price ceiling

Answer 1

Legislated maximum on price

Equilibrium price below ceiling is not binding
Equilibrium price above ceiling is binding

Question 2

Binding price ceiling =

Answer 2

Shortage

Sellers must ration the good

Question 3

Rent control

Answer 3

Short-run: small shortage
Long-run: large shortage

Supply and demand of housing more elastic in the long run

Question 4

Binding price floor =

Answer 4

Surplus

Question 5

Minimum wage

Answer 5

Causes a surplus bc it’s a price floor: quantity of labor supplied exceeds quantity of labor demanded –> unemployment

Question 6

Why economists generally oppose price ceilings and floors

Answer 6

Prices balance supply and demand and coordinate economic activity. When policy makers set prices they obscure the signals that normally guide the allocation of society’s resources

Question 7

Tax incidence

Answer 7

Refers to how the burden of a tax is distributed among members of an economy

Question 8

Tax on sellers

Answer 8

Initially affects supply curve: shifts to the left bc decreases QS at each price
Decreases demand
Size of market decreases
Buyers and sellers share the burden

Question 9

Tax on buyers

Answer 9

Initially impacts demand: curve shifts to left bc buyers demand a smaller quantity at each price
Buyers and sellers share burden

Question 10

Taxes levied on sellers and taxes levied on buyers are

Answer 10

Equivalent

Tax incidence depends of the forces of supply and demand; lawmakers only decide who the tax comes from

Question 11

Tax burden falls more heavily on

Answer 11

The side of the market that is less elastic