ECON 1000 Lecture Notes - Lecture 6: Price Ceiling, Price Floor, Tax Incidence

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amberdog154

11 Dec 2016

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Sometimes lobby groups advocate for the government to raise or lower the price of a good (with specific laws) Price floor: a legal minimum on the price at which a good can be sold: how price ceilings affect market outcomes. If legislation puts the price ceiling above the equilibrium, it is non-binding. If the price ceiling is below the equilibrium, it creates a shortage: some people who want to buy ice-cream cannot , an ice cream ration will be created. This will help more people afford ice cream, but not necessarily receive it. They might only sell to their friends/family/ethnicity. People line up early to get goods. Wastes (cid:271)uyers" ti(cid:373)e: e. g. controlling rent. Landlords find it harder to maintain their buildings. Go(cid:448)er(cid:374)(cid:373)e(cid:374)t pays so(cid:373)e of poor peoples" re(cid:374)ts: how price floors affect market outcomes. If the price floor is below the legislation, it is non-binding. When the floor is about equilibrium, the quantity supplied exceeds demand.

Related Questions

1. A price floor set above the market equilibrium price results in

A. a surplus at the floor price.

B. a shortage at the floor price.

C. no impact on quantity that will be put on sale in that market.

D. The most efficient use of our scarce resources.

2. Because of government price controls, a business must now sell soft-serve ice cream at half its original price. This business might respond by:

A. offering smaller servings of ice cream.

B. skimping on toppings of nuts, fudge sauce, and cherries.

C. reducing hours of operation.

D. All of the answers are correct.

3. GlaxoSmithKline owns a government grant of temporary monopoly rights on the AIDS drug Combivir due to:

A. patents.

B. laws preventing entry of competitors.

C. economies of scale.

D. innovation.

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.

mauveyellowjacket715

"Shortages, price controls, and queuesDuring the late 1980s and early 1990s, economic reforms initiated by Soviet president Mikhail Gorbachev began to raise consumer incomes; however, the Soviet government continued to impose price ceilings on basic goods like food, clothing, and household goods. As higher income led to increased demand, severe shortages of many goods and long lines at all kinds of stores became common. Finally, in January 1992, a new Russian government under president Boris Yeltsin removed retail price controls on most goods. Within a month, prices more than doubled on average, and lines disappeared. Analyze these events using the supply and demand model. First draw a supply and demand diagram for some normal good such as butter. Show the market in equilibrium at a price of 1 ruble per kilo before the beginning of the Gorbachev reforms. Draw a horizontal line at that level to represent the price ceiling; no butter can be sold for more than 1 ruble per kilo. Next show the effect of rising income. Does it shift the supply curve? Does it shift the demand curve? What is the shortage or surplus at the controlled price? After the price control ends, assuming no further shift in the supply and demand curve, what happens to the price? What happens to the shortage or surplus?"

crimsongerbil60

ECON 1000 Lecture Notes - Lecture 6: Price Ceiling, Price Floor, Tax Incidence

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