Chapter 6

Question 1

A government regulation that makes it illegal to charge a price higher than a specific level

Answer 1

Price ceiling/ price cap

Question 2

Equilibrium price

Answer 2

quantity demand = quantity supplied

Question 3

A price ceiling set _____ the equilibrium price has no effect on the market

Answer 3

above

Question 4

A price ceiling set ______ the equilibrium has powerful effect on the market

Answer 4

below

Question 5

When a price ceiling is applied to the housing market it is called

Answer 5

rent ceiling

Question 6

A rent ceiling set below the equilibrium creates:

Answer 6

• A housing shortage
• Increased search activity
• A black market

Question 7

The time spend looking for someone with whom to do business is called

Answer 7

Search activity (checking alternatives available before making a choice.

Question 8

Opportunity cost

Answer 8

potential benefits or loss that a business or an individual consumer misses out on when choosing one alternative over another. (The value of option not taken)

Question 9

The opportunity cost of housing is equal to

Answer 9

rent + time spend on search activity

Question 10

A rent ceiling controls only the ____ proportion of the cost of housing

Answer 10

rent

Question 11

An illegal market in which equilibrium price exceeds the price ceiling

Answer 11

Black market

Question 12

Scalper

Answer 12

A person who buys large quantities of in-demand items, and sell them to make profit

Question 13

The level of the black market depends on the price ceiling, loose enforcement black market price is close to _______. With strict enforcement, market rent is equal to _______ price a consumer is willing to pay.

Answer 13

unregulated (rent), maximum

Question 14

Deadweight loss

Answer 14

• Value of trades that doesn’t occur because of tax
• supply and demand are not in equilibrium
• leads to market inefficiency
• often because of tax (the government does not earn the revenue)

Question 15

Market inefficiency

Answer 15

occurs when goods within the market are either overvalued or undervalued

Question 16

Producer surplus

Answer 16

difference between the price producers sell the product and the minimum price they accept to sell the product

• surplus comes from what they earn from selling products beyond their minimum price

Question 17

Consumer surplus

Answer 17

difference between the price consumers are willing to pay and what they actually have to pay.

Question 18

Full loss from rent ceiling =

Answer 18

deadweight loss + increased cost of search

Question 18

When rent is not permitted to allocate scarce housing, some possible mechanics (unfair) are:

Answer 18

• Lottery
• first come first serve
• discrimination

Question 18

Anything that blocks voluntary exchange is unfair

Answer 18

fair-rules

Question 18

A method that allocates resources based on views and self-interest of the owner

Answer 18

discrimination

Question 19

the fairest outcome is allocating resources (scarce housing) to the poorest is a result of what rule

Answer 19

fair-result view

Question 19

The lower the wage rate, the greater the quantity of labour ________

Answer 19

Demanded

Question 19

A method that allocates resources to the luckiest

Answer 19

lottery

Question 19

Market that influence the jobs we get and wages we earn

Answer 19

Labour market

Question 20

The ______ the wage rate, the greater the quantity of labour supplied

Answer 20

higher

Question 21

A government regulation that makes it illegal to charge a price lower than a specific level

Answer 21

price floor

Question 22

A price floor set _____ the equilibrium price has no effect on the market

Answer 22

lower

Question 23

A price floor set _____ the equilibrium price has powerful effect on the market

Answer 23

higher

Question 24

A price floor applied to a labour market

Answer 24

Minimum wage

Question 25

Minimum wage brings __________

Answer 25

unemployment

Question 26

A minimum wage set above the equilibrium wage results in a ________

Answer 26

surplus of labour

Question 27

According to both views of fairness, it minimum wage fair?

Answer 27

No - unfair result, unfair rule

Question 28

The minimum wage is unfair because: It imposes an unfair rule because:

Answer 28

- only those who have a job and continue to work receive the minimum wage - increase job search activity -blocks voluntary exchange - companies are willing to hire more, people are willing to work more

Question 29

In labour market, the ______ measures the worker's marginal social cost of labour.

Answer 29

supply curve

Question 30

______ of demand and supply determines who pays the tax

Answer 30

Elasticity

Question 31

The division of burden of a tax between buyers and sellers is called

Answer 31

Tax incidence

Question 32

If the price paid by buyers rises by the full amount of the tax, the burden of tax _______

Answer 32

falls entirely on the buyer

Question 33

If the price paid by buyers rises by a lesser amount than the tax, the burden of tax _______

Answer 33

falls partly on both buyers and sellers

Question 34

If the price paid by buyers doesn't change, the burden of tax _______

Answer 34

falls entirely on the seller

Question 35

True or false : Tax incidence depends on the tax law

Answer 35

False, Tax incidence does not depends on the tax law

Question 36

Tax result in

Answer 36

inefficient underproduction

Question 37

Perfectly inelastic demand means

Answer 37

buyers pay

Question 38

perfectly elastic demand means

Answer 38

sellers pay

Question 39

Total loss of minimum wage =

Answer 39

deadweight loss + increased cost of job search

Question 40

A tax on buyers decreases ________, and shifts demand curve ________

Answer 40

demand, leftwards

Question 41

Perfectly inelastic is a _______ line on the graph (demand curve)

Answer 41

vertical

Question 42

perfectly elastic is a ________ line on the graph (demand curve)

Answer 42

horizontal

Question 43

There is underproduction and deadweight loss when it is a perfectly _____ demand

Answer 43

elastic

Question 44

Economists propose two conflicting principles of fairness to apply to a tax system:

Answer 44

 The benefits principle  The ability-to-pay principle

Question 45

The principle that people should pay taxes equal to the benefits they receive from the services provided by the government.

Answer 45

The benefits principle - it is fair because people with more benefits pay most taxes

Question 46

A principle that people should pay taxes according to how easily they can bear the burden of the tax.

Answer 46

The ability-to-pay principle - justifies high rates of income tax on high incomes. (rich pays more)

Question 47

Perfectly inelastic supply means

Answer 47

seller pays

Question 48

Perfectly elastic supply means

Answer 48

buyers pay

Question 49

More elasticity the supply, the larger is the amount of tax paid by the ______

Answer 49

buyers

Question 50

More inelasticity the demand, the larger is the amount of tax paid by the ______

Answer 50

buyers

Question 51

protection quota

Answer 51

Limit of quantity of goods

Question 52

intervention in markets for farm products takes two main forms:

Answer 52

 Production quotas  Subsidies

Question 53

subsidy

Answer 53

A payment made by the government to a producer.

Question 54

A production quota set below the equilibrium quantity has big effects including the following:

Answer 54

- A decrease in supply - A rise in price - A decrease in marginal cost - Inefficient underproduction - An incentive to cheat and overproduce

Question 55

A subsidy has effects such as:

Answer 55

- An increase in supply - A fall in price - An increase in marginal cost - Inefficient overproduction

Question 56

Marginal social benefit is equal to the market price is due to what case

Answer 56

subsidy

Question 57

All the things you can afford to buy

Answer 57

consumption possibilities

Question 58

The choices you make as a buyer of goods and service

Answer 58

Consumption choices

Question 59

Consumption choices are influenced by two factors:

Answer 59

- Consumption possibilities - preferences