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ECO 1104 Lecture Notes - Lecture 11: Excise, Price Ceiling, Price Floor

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coralhamster639
18 Oct 2017
School
University of Ottawa
Department
Economics
Course
ECO 1104
Professor
Lawrence Harris

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ECO 1104 Full Course Notes
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Document Summary

A law is enacted that impedes or prevents the forces of supply and demand from reaching a free-market equilibrium. Price ceiling: prevents the price from rising to the equilibrium. Price floor: prevents the price from falling to the equilibrium. Motives for government intervention: to raise revenue (in case of some taxes, to c(cid:396)eate (cid:373)o(cid:396)e e(cid:395)uity o(cid:396) (cid:862)fai(cid:396)(cid:374)ess(cid:863) (cid:894)p(cid:396)ice ceili(cid:374)gs a(cid:374)d floo(cid:396)s(cid:895) But often, the policies put in place cause distortions that bring about unintended and bad economic results. Sales taxes also interfere with the free market. Types of sales tax: general sales tax per unit or percent, excise tax sales tax on a specific item, tariff tax on an imported good. This law prohibits landlords from charging the equilibrium price so apartment rents are lower. The artificially-low price causes an excess demand, creating a house shortage, and throwing some people out of their apartment.

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Related Questions

1.) An excise tax on a good typically reduces the net price received by the seller. (TRUE/FALSE)

2.) The burden of an excise tax on gasoline falls entirely on consumers of gasoline. (TRUE/FALSE)

3.) Rent controls are one of the few examples of a price floor in market economies. (TRUE/FALSE)

4.) Imposing a price ceiling below the equilibrium price of a good often leads to_____.

A) A greater supply of the good

B) A black market for the good

C) A rightward shift of the supply curve for the good.

D) A leftward shift of the demand curve for the good.

E) All of these

5.) Which of the following is true of price floors and ceilings?

A) Lead to the same price and quantity as in competitive market.

B) Lead to technical efficiency

C) Cause the demand curve to shift left

D) Usually result from government intervention

E) Cause the supply curve to shift right.

6.) Price ceilings often lead to black markets. (TRUE/FALSE)

7.) When minimum wage is above the equilibrium wage what occurs?

A) There will be a shortage of labor

B) There will be no effect on the number of people employed

C) There will be an increase in unemployment rate

D) There will be a decrease in unemployment rate

8.) An excise tax on a good typically reduces the price paid by the consumer (TRUE/FALSE)

9.) If a price ceiling is below the equilibrium price is imposed on a market, it will cause the quantity demanded to rise and the quantity supplied to fall. (TRUE/FALSE)

10.) Price floors often lead to black markets. (TRUE/FALSE)

11.) If an excise tax is imposed on restaurant meals what occurs?

A) Fewer meals will be produced and sold

B) More meals will be produced and sold

C) Market price of the meals will fall

D) Government tax revenue will fall.


11. A Keynesian economist would be most likely to agree with whichof the following statements?
A) Government policies do not affect economic activity.
B) Government can implement policy proposals that can positivelyimpact the economy.
C) Most government policies would probably make things worse.
D) The economy ought to be left to market forces.

1. A Classical economist would be most likely to agree with whichof the following statements?
A) Government policies do not affect economic activity.
B) Government can implement policy proposals that can positivelyimpact the economy.
C) Most government policies would probably make things worse.
D) Government intervention in the market is necessary for asmoothly operating economy.

2. What event shifted public opinion away from a laissez-faire viewof government towards a more activist view?
A) World War I.
B) The Great Depression.
C) World War II.
D) The Vietnam War and the social turbulence of the 1960s.

3. Classical economists argued that unemployment during theDepression could be reduced by:
A) eliminating labor unions and government policies that kept wagestoo high.
B) strengthening unions and government regulations protectingunions and workers.
C) increasing real wages so that people are encouraged towork.
D) lowering taxes.


4. The level of income an economy can produce without generatinghigher inflation is called:
A) potential income. B) equilibrium income. C) nominal income. D)real income.

5. Keynes believed equilibrium income __________ potentialincome:
A) always equaled C) was always above
B) was always below D) could be above, below, or equal to

6. The aggregate demand, short-run aggregate supply, and long-runaggregate supply curves are based upon the:
A) principle of substitution.
B) principle of opportunity cost.
C) relationship between a single good and its price.
D) relationship between the price level and total output.

7. For some time now, the U.S. has been pressuring Japan toinstitute policies to improve its weak economy. What effect wouldthese policies have on the U.S.?
A) They would cause the U.S. to move up its aggregate demandcurve.
B) They would cause the U.S. to move down its aggregate demandcurve.
C) They would shift the U.S. aggregate demand curve left.
D) They would shift the U.S. aggregate demand curve right.

8. If companies begin to expect an improvement in the businessclimate, this will cause:
A) a movement down the aggregate demand curve.
B) a movement up the aggregate demand curve.
C) a rightward shift of the aggregate demand curve.
D) a leftward shift of the aggregate demand curve.

9. The effect that a change in the distribution of income has onthe aggregate demand curve is based on the observation that:
A) workers are less likely than stockholders to save the incomethey receive.
B) stockholders are less likely than workers to save the incomethey receive.
C) workers and stockholders are equally likely to save the incomethey receive.
D) the distribution of income is always shifting in favor ofworkers.

10. If total income remains the same but wages fall, the aggregatedemand curve will most likely:
A) shift to the right. B) shift to the left. C) become flatter. D)become steeper.