Government Intervention in the Market Place

Question 1

Price Ceilings=

Answer 1

are regulations that make it illegal to charge a price higher than a specified level

Question 2

Rent ceilings set below competitive equilibrium price prevent:

Answer 2

the price from regulating the quantities supplied and demanded.

Question 3

Where Price ceilings crosses the supply is now where:

Answer 3

The price is set

Question 4

Price floors=

Answer 4

regulations that make it illegal to charge a price lower than a specified level.

Question 5

Price floors set above competitive equilibrium price prevent:

Answer 5

the price from regulating the quantities supplied and demanded.

Question 6

The 4 R’s=

Answer 6

Revenue, redistribution. repricing, representation

Question 7

Direct taxes vs indirect taxes:

Answer 7

direct taxes may be adjusted to the individual characteristics of the taxpayer, whereas indirect taxes are levied on transactions irrespective of the circumstances of buyer or seller.

Question 8

What is tax incidence:

Answer 8

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

Question 9

Three types of tax incidence:
If the price rises by the full amount of the tax:
If the price rise by a lesser amount than the tax:
If the price doesn’t rise at all

Answer 9

• buyers pay the tax.
• buyers and sellers share the burden of the tax
• sellers pay the tax.

Question 10

The tax burden on buyers and sellers demand on elasticity:
Perfectly inelastic:
Perfectly elastic:

Answer 10

buyers
sellers
(Rarely perfect in eitgher direction so it is often split between them)

Question 11

To minimize the efficiency costs of taxation:

Answer 11

one should choose to tax only those goods for which demand or supply, or both, is relatively inelastic