Chapter 6 Notes Flashcards
What are price floors
The legal minimum you can charge i.e. minimum wage
What happens if the legal maximum has been set but the equilibrium price is below the ceiling
The new law would have no effect that is called it is not binding
Why would a government imposes a price ceiling
Because they believe the current market price is too high
What can happen if the government imposes a price ceiling
I shortage will occur the shortage will continue because the ceiling prevents the price from rising to the equilibrium
What happens when there’s a legal minimum such as minimum wage
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
When the government interferes insets price ceilings and floors they guarantee that the quantity supplied does what with regards to quantity demanded
That quantity supplied will not equal quantity demanded the equilibrium cannot be reached
What is one of the most common ways the government affects market outcomes
By imposing a tax
Why does a government impose taxes
To raise funds for government operations
What is another reason other than the government is raising funds for operations to impose a tax
Change market prices and quantity exchanged
What happens to the demand curve when we have a tax
The demand curve will stay the same
What happens to the supply curve for me have a tax
The supply curve will shift upward by the amount of tax.
The new equilibrium will move higher along the demand line
What happens to quality and price when it excise taxes in place
- Quantity is lower
2. Market price becomes higher
When demand is more elastic than supply who pays the tax
The buyer pays more of the sales tax
When demand and supply are equally elastic who paid the sales tax
The buyer and seller pay equal share of the sales tax
When the demand is more elastic then supply who pays the sales tax
The supplier pays more of the sales tax
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
The demand curve is a vertical line it is perfectly inelastic demand
The buyers pay the full mount of per unit sales tax
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
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
After the tax incidence if there is an equally elastic supply and demand who pays the tax
It’s an equal tax share
If the demand is more inelastic then supply and there’s a tax what happens
The buyer pays more tax
If there is a perfectly inelastic demand with the tax what happens
Buyer pays entire tax
If there’s a perfectly elastic demand and it texts what happens
Seller pays the entire tax
The more elastic demand what happens
The less the buyer pays in tax
The more inelastic the demand what happens
The more the buyer pays and tax
If the tax rate reduce his quantity sold by a lot what happens to tax revenue
Tax revenue would be small
The maximum amount of tax revenue would result when what happens
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
The demand for since such as cigarettes and alcohol or life-saving drugs are elastic or inelastic
Pretty much any elastic
How does an inelastic demand affect tax revenue
It produces the maximum amount of tax revenue
The tax effect falls completely on the consumer
What is a price ceiling
The legal maximum you can charge i.e. rent prices
