Price Controls L4

Question 1

Binding Price Ceiling

Answer 1

BELOW equilibrium price Pro: rent control (affordable housing)
Con: shortages

Question 2

Price Ceiling

Answer 2

legal maximum price which a good can be sold

Question 3

Price Floor

Answer 3

Legal minimum price at which a good can be sold

Question 4

Binding Floor

Answer 4

ABOVE equilibrium price Pro: ensures minimum wage
Con: surpluses

Question 5

Tax Incidence

Answer 5

The study of who bears the burden of taxes
General Rule: “The burden of tax falls more heavily on the side of the market which is less elastic (graphically vertical)”

Question 6

Tax on Sellers

Answer 6

Shifts supply UP by amount equal to the tax

Question 7

Tax on Buyers

Answer 7

Shifts demand DOWN by amount equal to tax

Question 8

Impact of Taxes

Answer 8

Discouraged market activity
Buyers pay more and sellers receive less

Question 9

Subsidies

Answer 9

A payment from the government to consumers and sellers for each unit of good that is sold

Question 10

Subsidy to Sellers

Answer 10

Shifts the supply curve down by the amount of the subsidy
Buyers pay less and sellers receive more