Exam 6: Supply Demand and Government Policies: Part B

Binding price ceilings benefit consumers because they allow consumers to buy all the goods they demand at a lower price.

When the government imposes a binding price ceiling on a competitive market,a surplus of the good arises,and sellers must ration the scarce goods among the large number of potential buyers.

Figure 6-35 -Refer to Figure 6-35.A price floor set at $60 would create a surplus of 20 units.

Price floors are typically imposed to benefit sellers.

A tax on golf clubs will cause buyers of golf clubs to pay a higher price,sellers of golf clubs to receive a lower price,and fewer golf clubs to be sold.

Whether a tax is levied on sellers or buyers,buyers and sellers usually share the burden of taxes.

A large majority of economists favor eliminating the minimum wage.

Who bears the majority of a tax burden depends on whether the tax is placed on the buyers or the sellers.

If a good or service is sold in a competitive market free of government regulation,then the price of the good or service adjusts to balance supply and demand.

A binding minimum wage may not help all workers,but it does not hurt any workers.

The term tax incidence refers to how the burden of a tax is distributed among the various people who make up the economy.

Most of the burden of a luxury tax falls on the middle class workers who produce luxury goods rather than on the rich who buy them.

The effects of rent control in the long run include lower rents and lower-quality housing.

At the equilibrium price,the quantity that buyers want to buy exactly equals the quantity that sellers want to sell.

Workers,rather than firms,bear most of the burden of the payroll tax.

Since half of the FICA tax is paid by firms and the other half is paid by workers,the burden of the tax must fall equally on firms and workers.

Figure 6-36 -Refer to Figure 6-36.If the government places a $2 tax in the market,the buyer bears $2 of the tax burden.

When a free market for a good reaches equilibrium,anyone who is willing and able to pay the market price can buy the good.

A tax on buyers usually causes buyers to pay more for the good and sellers to receive less for the good than they did before the tax was levied.

Long lines and discrimination are examples of rationing methods that may naturally develop in response to a binding price ceiling.