Exam 6: Supply Demand and Government Policies: Part B

When free markets ration goods with prices,it is both efficient and impersonal.

The wedge between the buyers' price and the sellers' price is the same,regardless of whether the tax is levied on buyers or sellers.

A price ceiling is a legal minimum on the price at which a good or service can be sold.

Policymakers use taxes to raise revenue for public purposes and to influence market outcomes.

A binding minimum wage creates a surplus of labor.

If a price floor is not binding,then it will have no effect on the market.

Figure 6-35 -Refer to Figure 6-35.A price ceiling set at $70 would create a shortage of 40 units.

A tax on sellers and an increase in input prices affect the supply curve in the same way.

When a tax is imposed on a good,the result is always a shortage of the good.

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

A tax on buyers decreases demand.

Figure 6-36 -Refer to Figure 6-36.If the government places a $2 tax in the market,the seller receives $4.

Figure 6-36 -Refer to Figure 6-36.If the government places a $2 tax in the market,the buyer bears $1 of the tax burden.

A tax on sellers 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 gasoline shortages during the 1970's can be attributed completely to the decision by OPEC to raise crude oil prices.

FICA is an example of a payroll tax,which is a tax on the wages that firms pay their workers.

If the demand curve is very elastic and the supply curve is very inelastic in a market,then the sellers will bear a greater burden of a tax imposed on the market,even if the tax is imposed on the buyers.

Renters of rent-controlled apartments will likely benefit from both lower rents and higher quality of apartments.

A tax on sellers shifts the supply curve but not the demand curve.

Buyers and sellers always share the burden of a tax equally.