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Flashcards in Chapter 6 Notes Deck (28):

What are price floors

The legal minimum you can charge i.e. minimum wage


What happens if the legal maximum has been set but the equilibrium price is below the ceiling

The new law would have no effect that is called it is not binding


Why would a government imposes a price ceiling

Because they believe the current market price is too high


What can happen if the government imposes a price ceiling

I shortage will occur the shortage will continue because the ceiling prevents the price from rising to the equilibrium


What happens when there's a legal minimum such as minimum wage

There becomes a surplus of workers

Lots of workers would like to work at that wage however employers can or may not be willing to hire as many workers to work at that wage

It prevents the wages from falling to the equilibrium


When the government interferes insets price ceilings and floors they guarantee that the quantity supplied does what with regards to quantity demanded

That quantity supplied will not equal quantity demanded the equilibrium cannot be reached


What is one of the most common ways the government affects market outcomes

By imposing a tax


Why does a government impose taxes

To raise funds for government operations


What is another reason other than the government is raising funds for operations to impose a tax

Change market prices and quantity exchanged


What happens to the demand curve when we have a tax

The demand curve will stay the same


What happens to the supply curve for me have a tax

The supply curve will shift upward by the amount of tax.

The new equilibrium will move higher along the demand line


What happens to quality and price when it excise taxes in place

1. Quantity is lower

2. Market price becomes higher


When demand is more elastic than supply who pays the tax

The buyer pays more of the sales tax


When demand and supply are equally elastic who paid the sales tax

The buyer and seller pay equal share of the sales tax


When the demand is more elastic then supply who pays the sales tax

The supplier pays more of the sales tax


When the buyers continue to buy the same amount regardless of price what type of demand curve is this and what is the elasticity of demand

The demand curve is a vertical line it is perfectly inelastic demand

The buyers pay the full mount of per unit sales tax


When buyers are willing to buy an unlimited amount at a fixed price even though there is a tax what happens to the demand curve and elasticity

The demand curve is horizontal or perfectly elastic demand

Buyers are not willing to pay more after-tax

Market price stays the same before and after tax

Seller pays the full share a per-unit sales tax


After the tax incidence if there is an equally elastic supply and demand who pays the tax

It's an equal tax share


If the demand is more inelastic then supply and there's a tax what happens

The buyer pays more tax


If there is a perfectly inelastic demand with the tax what happens

Buyer pays entire tax


If there's a perfectly elastic demand and it texts what happens

Seller pays the entire tax


The more elastic demand what happens

The less the buyer pays in tax


The more inelastic the demand what happens

The more the buyer pays and tax


If the tax rate reduce his quantity sold by a lot what happens to tax revenue

Tax revenue would be small


The maximum amount of tax revenue would result when what happens

When either demand or supply of the good is inelastic to price

The quantity demanded is not affected by the tax therefore there is more tax revenue


The demand for since such as cigarettes and alcohol or life-saving drugs are elastic or inelastic

Pretty much any elastic


How does an inelastic demand affect tax revenue

It produces the maximum amount of tax revenue

The tax effect falls completely on the consumer


What is a price ceiling

The legal maximum you can charge i.e. rent prices