Set at a price above the eq'm, and causes a surplus.
question
If the government removes a binding price floor from a market, then the price paid by buyers will:
answer
Decrease, and the quantity sold in the market will increase.
question
A tax on the sellers of coffee will increase the price of coffee paid by buyers,
answer
decrease the effective price of coffee received by sellers, and decrease the eq'm quantity of coffee.
question
Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle.
answer
-This tax causes the supply curve for liquor to shift upward by $1.00 at each quantity of liquor.
-The effective price received by sellers is $0.20 per bottle less than it was before the tax
- & Eighty percent of the burden of the tax falls on the buyers.
question
If the government passes a law requiring buyers of college textbooks to send $5 to the government for every textbook they buy, then:
answer
The demand curve for textbooks shifts downward by $5.
question
The term tax incidence refers to:
answer
The distribution of the tax burden between buyers and sellers.
question
How is the burden of a tax divided?
answer
Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden.
question
Tax incidence:
answer
Depends on the elasticities of supply and demand.
question
Suppose that in a particular market, the supply curve is highly elastic and the demand curve is highly inelastic. If a tax is imposed in this market, then the:
answer
Buyers will bear a greater burden of the tax than the sellers.
question
A tax burden falls more heavily on the side of the market that:
answer
Is more inelastic
question
Price Ceiling
answer
a legal maximum on the price of a good or service.
Example: Rent Control
question
Price Floor
answer
a legal minimum on the price of a good or service.
Example: Minimum Wage
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