Chapter 9: Taxes

Question 1

taxes create a wedge between the price ___ ___ and the price ____ ___
ie

Answer 1

buyers pay
sellers receive
ie inc the price consumers pay, dec price businesses receive

Question 2

taxes ___ the quantity bought and sold

Answer 2

lower

Question 3

a tax on BUYERS shifts the ___ curve ___ by ___

Answer 3

demand curve down by the amount of the tax

Question 4

a tax on SELLERS shifts the ___ curve ___ by ___

Answer 4

supply curve up by the amount of the tax

Question 5

the burden of the tax goes to whichever is more ____

Answer 5

inelastic (steepest curve)
ie. if supply curve is steep (inelastic) & demand curve is flat (elastic) the sellers will bear most of the burden of the tax

Question 6

the incidence of a tax=

Answer 6

how the burden of a tax is shared among buyers/ sellers

Question 7

a price floor below the eq price is _____

Answer 7

not binding

has no effect on market outcomes

Question 8

a price floor above eq is ____ and causes a ___

Answer 8

binding

surplus

Question 9

t/f

shortages caused by price ceilings can get larger over time

Answer 9

true
normally a shortage doesn’t last forever, but this may not be true when there are price controls in place
why?
b/c in the long run, supply and demand are more price elastic- so the shortage gets larger

Question 10

a price ceiling above the eq price is ___

Answer 10

not binding

has no effect on the market outcome

Question 11

a price ceiling below the eq price is a ____ ___ on the price and causes a ____

Answer 11

binding constraint

shortage