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Econ > Topic 6- Government Policies > Flashcards

Topic 6- Government Policies Flashcards

1
Q

Why are price controls engaged in a country?

A

Because the govt thinks that the market price is unfair to buyers or sellers

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2
Q

two types of price controls

A

Price cieling

Price floor

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3
Q

Why do buyers and sellers have conflicting interests

A

Buyers want lower price

Sellers want higher pirce

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4
Q

What happens if price ceiling is above the Market equilibrium price?

A

If above market equilibrium orice, then the price cieling is not binding, bc laws of supply nd demand will bring prices to equilibrium!

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5
Q

What happens if price ceiling is below market equilibrium price?

A

A shortage! The price ceiling is binding and quantity demanded is more than quantity supplied; PEOPLE WHO WANT GOOD CANT HAVE IT!

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6
Q

Do Price Ceilings help all consumers?

A

Though thas the intention, ultimately some are better off while others are worse off!!!

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7
Q

Price ceilings are for,,,,,,,,
Price floors are for………

A

Consumers

Suppliers

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8
Q

what can happen with price ceilings and price floors?

A

create discrimination! sometimes w price ceilings sellers onlyy sell to those they prefer

w price floors buyers only buy from those they prefer

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9
Q

important example of price floor

A

MINIMUM WAGE

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10
Q

What happens with price floors

LABOUR MARKET
-benefits
-drawbacks

A

SURPLUS! Because more people selling then people buying

LABOUR MAREKT: when price ceiling on minimum wage less firms buy labour so MASSIVE UNEMPLOYMNET

benefits those with jobs bc better money
damages those without bc more unemployment

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11
Q

Can govvernments legislate who pays how much tax?

EX: Can govt levy a tax on just buyers? just sellers?

A

Nope, because the amount of taxes paid by buers/sellers is determined by the elasticity of the uspply and demand curves!!

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12
Q

If supply curve is inelastic, and demand curve is elastic, who will pay the tax?

A

SUPPLIERS!!! BECAUSE SUPPLIERS NEED TO SELL NO MATTER WHAT

WHOEVER IS INELASTIC PAYS

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13
Q

If demand curve is inelastic and supply curve is elastic, who will pay the tax?

A

BUYERS!!! BECAUSE THE DEMAND IS NEEDED AND ENCCESARY

WHOEVER IS INELASTIC PAYS

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14
Q

Who pays the tax burden?

A

Who ever has INELASTIC CURVE!

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15
Q

The incidence of a tax (that is, the division of the tax burden) does not depend on whether the tax is levied on buyers or sellers.

A

!!!!!!!!!!

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16
Q

How are prices brought into equilibrium when price controls in effect?

A

BLACK MARKETS! AND diwcrimination

17
Q

what happens when price cieling on housing market

A

-housing shortage!
-low quality housing
-black market ot make up for lost profits

18
Q

when is a price floor common?

A

when the amount of buyers is ore than amount of sellers ~~~ LABOUR

19
Q

Why does placing a tax on jus the consumers or jus the producers not work?

A

because both suffer regardles, ONLY DIFFERENCE IS WHO SENDS THE MONEY OT GOVT!

20
Q

HOW to do tax questions?

A
  1. determine which curve moves
  2. determine which direction (left=down) (right=up)
  3. determine the tax wedge
21
Q

TAX WEDGE WHERE IS THE NEW EQUILIBRIUM quantity

A

Where the tax wedge (vertical gap in between the shifted curve) is equal to the size of the tax

22
Q

If demand is perfectly inelastic (I) who pays the tax?

A

Buyers pay the whole tax!

market price increases by the total amount of the tax

23
Q

If demand is perfectly Elastic (-) who pays the tax?

A

Sellers pay the whole tax!

market price does not rise at all bc sellers must cover it

24
Q

If supply is perfectly inelastic who pays?

A

SELLERS PAY

25
Q

If supply is perfectly elastic who pays?

A

BUYERS PAY

26
Q

tax incidence

A

the actual division of the burden of a tax between
buyers and sellers in a marke

27
Q

When there is a price cieling and a shortage, what is the method of rationing products for the shortage?

A

Because not enough for everyone either
1) first come first serve
2) dsicrimination
3)black market/bribes

28
Q

Why is rent control not bad in beginnning but really bad in lon run

A

jELASTICITY! Short run the supply of houing is inelastic (this Perfectly inelastic LETTTER I), so when price cieling is below market equilibrium, only lil shortage

LONG TERM: supply is more elastic so when price cieling below market equilirbium, there is a great shortage!!!

29
Q

WHAT ARE PRICE FLOORS AND PRICE CEILINGS BASICALLY?

A

An attempt to keep the prices in an economy at levels that are not equilibrium levles

30
Q

What sort of discrimination can happen wtih price floors?

A

Since there is such a significant surplus, buers can choose to buy from those they have a racial bias with

31
Q

If there is a subsidy (opposite of tax, govt pays you to buy) what is the effect on consumers and sellers?

A

Consumers pay less, Sellers gain more

32
Q

How to do the tax as a wedge method?

A
  1. Which curve is shifting? Which direction?
  2. How much? By full size of the tax!!!!
  3. Shift the curve and keep the old curve!!!!!
  4. Draw a line for the equilibrium price (dont use this in next steps)
    4.5) then draw an F!!!! SHAPE!! A line from the point where the newly shifted curves intersect, and where at THIS SAME QUANTITY, the old non shifted curve is!!!
  5. This will show you what price is now paid by consumers (the higher up intersection) and what pirce sellers recieve (the lower intersection)
33
Q

At equilibrium price what price do sellers recieve and what price do buyers pay

A

the equilibrium price

34
Q

Why are price floors less common than price cielings

A

POLITICAL: govts want voter support!! price floors means prcies can only go up and this doesnt help consumers much unlesssss,,,

LABOUR MARKET!

35
Q

Why Do Governments Enact Price Controls

A

Price controls might be justified if there are strong equity effects to
override the efficiency loss.

I Political reasons

36
Q

In this unit we use PER UNIT TAXES

A

Taxes as a dollar amount not as apercetnage

37
Q

How to determine who paid the tax from change in market price?

A

A) Market price rises full amount of tax: buyers paid it all (demand curve inelastic)

B)Market price rises less than full tax (Shared taxes)

C)Market price rises not one bit: SELLERS PAID IT FULL (Supply curve inelastic)

38
Q

min wage law resukt

A

Minimum wage laws create higher rates of unemployment for teenage
and low-skilled workers.

Econ (20 decks)

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