CH 6 Flashcards
(22 cards)
How do taxes on sellers affect the supply curve?
shift the supply curve back
Statutory burden
the burden of being assigned by the government the responsibility of sending a tax payment; doesn’t matter
Economic burden
who experiences a greater loss as a result of the tax
Tax incidence
the division of the economic burden of a tax between buyers and sellers
How do taxes on buyers affect the demand curve?
They shift it back
Subsidy
a payment made by the government to those who make a specific choice (ex: childcare)
Price ceiling
when the government sets a maximum price
Binding price ceiling
when a price ceiling prevents the market from reaching the equilibrium price because the highest price that sellers can charge is set below the equilibrium price.
Price floors
when the government sets a minimum price
Binding price floor
when a price floor prevents the market from reaching the equilibrium price because the lowest price that sellers can charge is set above the equilibrium price.
Quantity regulation
a maximum or minimum quantity that can be sold
Mandate
requires you to buy/sell a minimum amount of a good
Quotas
set a limit on the maximum quantity of a good that can be sold
Governments impose quotas to _____, which can be applied to _____.
limit the quantity sold; both buyers and sellers
_____ sets a minimum or maximum quantity that can be sold.
Quantity regulation
When the government sets a quota on goods sold, the gap between _____ creates an incentive for potential _____ to find a way around the regulation.
price and marginal cost; sellers
Taxes, price regulations, and quantity restrictions can all be used to:
achieve the same policy objectives.
Example of a price floor
minimum wage
If a price ceiling is placed above the equilibrium price, what will happen in the market?
Nothin
usury laws
a maximum interest rate that can be charged on loans; intent to protect low-income borrowers from high rates when in reality they deny low-income borrowers funds.
Distortion
the fall in quantity as a result of the tax; more distortion = less quantity and therefore less government revenue. More elasticity means more distortion
Suppose that the demand for candy is less elastic than the supply of candy. If a tax is imposed on sellers of candy, which of the following is true?
Sellers will bear a smaller share of the tax burden because supply is more elastic than demand.
