Chapter 6 Notes

Question 1

What are price floors

Answer 1

The legal minimum you can charge i.e. minimum wage

Question 2

What happens if the legal maximum has been set but the equilibrium price is below the ceiling

Answer 2

The new law would have no effect that is called it is not binding

Question 3

Why would a government imposes a price ceiling

Answer 3

Because they believe the current market price is too high

Question 4

What can happen if the government imposes a price ceiling

Answer 4

I shortage will occur the shortage will continue because the ceiling prevents the price from rising to the equilibrium

Question 5

What happens when there’s a legal minimum such as minimum wage

Answer 5

There becomes a surplus of workers

Lots of workers would like to work at that wage however employers can or may not be willing to hire as many workers to work at that wage

It prevents the wages from falling to the equilibrium

Question 6

When the government interferes insets price ceilings and floors they guarantee that the quantity supplied does what with regards to quantity demanded

Answer 6

That quantity supplied will not equal quantity demanded the equilibrium cannot be reached

Question 7

What is one of the most common ways the government affects market outcomes

Answer 7

By imposing a tax

Question 8

Why does a government impose taxes

Answer 8

To raise funds for government operations

Question 9

What is another reason other than the government is raising funds for operations to impose a tax

Answer 9

Change market prices and quantity exchanged

Question 10

What happens to the demand curve when we have a tax

Answer 10

The demand curve will stay the same

Question 11

What happens to the supply curve for me have a tax

Answer 11

The supply curve will shift upward by the amount of tax.

The new equilibrium will move higher along the demand line

Question 12

What happens to quality and price when it excise taxes in place

Answer 12

1. Quantity is lower

2. Market price becomes higher

Question 13

When demand is more elastic than supply who pays the tax

Answer 13

The buyer pays more of the sales tax

Question 14

When demand and supply are equally elastic who paid the sales tax

Answer 14

The buyer and seller pay equal share of the sales tax

Question 15

When the demand is more elastic then supply who pays the sales tax

Answer 15

The supplier pays more of the sales tax

Question 16

When the buyers continue to buy the same amount regardless of price what type of demand curve is this and what is the elasticity of demand

Answer 16

The demand curve is a vertical line it is perfectly inelastic demand

The buyers pay the full mount of per unit sales tax

Question 17

When buyers are willing to buy an unlimited amount at a fixed price even though there is a tax what happens to the demand curve and elasticity

Answer 17

The demand curve is horizontal or perfectly elastic demand

Buyers are not willing to pay more after-tax

Market price stays the same before and after tax

Seller pays the full share a per-unit sales tax

Question 18

After the tax incidence if there is an equally elastic supply and demand who pays the tax

Answer 18

It’s an equal tax share

Question 19

If the demand is more inelastic then supply and there’s a tax what happens

Answer 19

The buyer pays more tax

Question 20

If there is a perfectly inelastic demand with the tax what happens

Answer 20

Buyer pays entire tax

Question 21

If there’s a perfectly elastic demand and it texts what happens

Answer 21

Seller pays the entire tax

Question 22

The more elastic demand what happens

Answer 22

The less the buyer pays in tax

Question 23

The more inelastic the demand what happens

Answer 23

The more the buyer pays and tax

Question 24

If the tax rate reduce his quantity sold by a lot what happens to tax revenue

Answer 24

Tax revenue would be small

Question 25

The maximum amount of tax revenue would result when what happens

Answer 25

When either demand or supply of the good is inelastic to price

The quantity demanded is not affected by the tax therefore there is more tax revenue

Question 26

The demand for since such as cigarettes and alcohol or life-saving drugs are elastic or inelastic

Answer 26

Pretty much any elastic

Question 27

How does an inelastic demand affect tax revenue

Answer 27

It produces the maximum amount of tax revenue

The tax effect falls completely on the consumer

Question 28

What is a price ceiling

Answer 28

The legal maximum you can charge i.e. rent prices