Econ 101: Chapter 6

Question 1

a tax on buyers…

Answer 1

shifts the demand curve down.

Question 2

a tax on buyers means that…

Answer 2

the marginal benefit of buying is reduced.

Question 3

taxes..

Answer 3

increase the price buyers pay and decrease the amount sellers receive.

Question 4

taxes lead to a…

Answer 4

decline in the quantity demanded.

Question 5

Statutory burden

Answer 5

the burden of being assigned by the government to send a tax payment.

Question 6

economic burden

Answer 6

the burden created by the after-tax prices faced by buyers and sellers as a result of the tax.

Question 7

the economic burden is…

Answer 7

shared by both buyers and sellers.

Question 8

tax incidence

Answer 8

the division of the economic burden of a tax between buyers and sellers.

Question 9

a tax on sellers..

Answer 9

shifts the supply curve up.

Question 10

a tax on sellers means that…

Answer 10

there is an increased marginal cost

Question 11

does statutory burden matter?

Answer 11

No, whether the tax is on buyer or seller does not matter.

The extra amount paid/loss is the same. Same shifts.

Question 12

the factor (supply/demand) that is more elastic will (tax)

Answer 12

have the smaller share of the economic burden of a tax.

Question 13

subsidy

Answer 13

a payment made by the government to those who make a specific choice.

Question 14

Think of subsidies as…

Answer 14

negative taxes

Question 15

Subsidies…

Answer 15

lower the price buyers pay and increase the price sellers receive.

Question 16

Subsidies given to buyers…

Answer 16

shift the demand curve up (increased marginal benefits)

Question 17

the economic benefit of subsidies is…

Answer 17

shared by both buyers and sellers.

Question 18

the factor (supply/demand) that is more inelastic (subsidies)…

Answer 18

will capture more of the subsidy.

Question 19

subsidies: when price elasticity of demand = 0,

Answer 19

buyers will capture the entire subsidy

Question 20

price ceiling

Answer 20

the maximum price that sellers can charge.

Question 21

binding price ceiling

Answer 21

prevents market from reaching equilibrium price, as max price is set below the equil. price.

Question 22

price ceilings…

Answer 22

lower prices, but cause shortages.

Question 23

price ceiling (elasticities)…

Answer 23

the more elastic supply, the greater supply is reduced.

the more elastic demand, the greater the shortage created.

Question 24

Usury laws

Answer 24

prevent payday loan companies from charging excessively high interest rates.

Question 25

Price floor

Answer 25

the minimum price that sellers can charge.

Question 26

binding price floor

Answer 26

prevents the market from reaching equilibrium because the lowest price is set above equilibrium.

Question 27

price floors result in…

Answer 27

decline in the quantity demanded; can result in surplus.

Question 28

quantity regulation

Answer 28

the minimum or maximum quantity that can be sold

Question 29

mandate

Answer 29

a requirement to buy/sell a minimum amount of good

Question 30

binding mandate

Answer 30

buyers - increases the quantity demanded

sellers - increases the quantity supplied

w/o binding mandate, equilibrium quantity would be lower.

Question 31

Quotas

Answer 31

a limit on the maximum quantity of a good that can be sold

Question 32

quotas that limit the quantity sellers can sell..

Answer 32

results in higher prices.

Question 33

binding quota

Answer 33

consumers want to buy more, and sellers want to sell more (but quota limits)

Question 34

quotas that limit the demand of buyers..

Answer 34

results in lower prices.

Question 35

taxes, price controls, and quantity regulations…

Answer 35

all achieve the same policy objective.