Econ 101: Chapter 6 Flashcards
a tax on buyers…
shifts the demand curve down.
a tax on buyers means that…
the marginal benefit of buying is reduced.
taxes..
increase the price buyers pay and decrease the amount sellers receive.
taxes lead to a…
decline in the quantity demanded.
Statutory burden
the burden of being assigned by the government to send a tax payment.
economic burden
the burden created by the after-tax prices faced by buyers and sellers as a result of the tax.
the economic burden is…
shared by both buyers and sellers.
tax incidence
the division of the economic burden of a tax between buyers and sellers.
a tax on sellers..
shifts the supply curve up.
a tax on sellers means that…
there is an increased marginal cost
does statutory burden matter?
No, whether the tax is on buyer or seller does not matter.
The extra amount paid/loss is the same. Same shifts.
the factor (supply/demand) that is more elastic will (tax)
have the smaller share of the economic burden of a tax.
subsidy
a payment made by the government to those who make a specific choice.
Think of subsidies as…
negative taxes
Subsidies…
lower the price buyers pay and increase the price sellers receive.
Subsidies given to buyers…
shift the demand curve up (increased marginal benefits)
the economic benefit of subsidies is…
shared by both buyers and sellers.
the factor (supply/demand) that is more inelastic (subsidies)…
will capture more of the subsidy.
subsidies: when price elasticity of demand = 0,
buyers will capture the entire subsidy
price ceiling
the maximum price that sellers can charge.
binding price ceiling
prevents market from reaching equilibrium price, as max price is set below the equil. price.
price ceilings…
lower prices, but cause shortages.
price ceiling (elasticities)…
the more elastic supply, the greater supply is reduced.
the more elastic demand, the greater the shortage created.
Usury laws
prevent payday loan companies from charging excessively high interest rates.
Price floor
the minimum price that sellers can charge.
binding price floor
prevents the market from reaching equilibrium because the lowest price is set above equilibrium.
price floors result in…
decline in the quantity demanded; can result in surplus.
quantity regulation
the minimum or maximum quantity that can be sold
mandate
a requirement to buy/sell a minimum amount of good
binding mandate
buyers - increases the quantity demanded
sellers - increases the quantity supplied
w/o binding mandate, equilibrium quantity would be lower.
Quotas
a limit on the maximum quantity of a good that can be sold
quotas that limit the quantity sellers can sell..
results in higher prices.
binding quota
consumers want to buy more, and sellers want to sell more (but quota limits)
quotas that limit the demand of buyers..
results in lower prices.
taxes, price controls, and quantity regulations…
all achieve the same policy objective.
