Chapter 6

Question 1

subsidy

Answer 1

payment to buyers and sellers to supplement income or lower costs and which thus encourages consumption or provides and advantage to the recipient

Question 2

free market process

Answer 2

at equilibrium price the quantity that buyers want to buy exactly equals the quantity that sellers want to sell

Question 3

price ceiling

Answer 3

a legal maximum on the price at which a good can be sold

Question 4

price ceiling binding and not binding

Answer 4

not binding if set above equilibrium price

binding if set below, leads to shortage

Question 5

price floor

Answer 5

a legal minimum on the price at which a good can be sold

Question 6

price floor binding and not binding

Answer 6

not binding if set below the equilibrium price

binding if set above the equilibrium price, leading to surplus

Question 7

taxes

Answer 7

discourage market activity

- when a good is taxed, the quantity sold is smaller

Question 8

tax incidence

Answer 8

the burden of a tax is hared among participants in a market