ECON 1000 Lecture Notes - Lecture 5: Tax Incidence, Price Ceiling, Economic Equilibrium

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amberdonkey564

22 Sep 2020

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Price ceiling: a legal maximum on the price at which a good can be sold. Price floor: a legal minimum on the price at which a good can be sold. The price ceiling is higher than the price: the price ceiling is not binding on the market and the market price will equal the equilibrium price. The price ceiling is lower than the price: the price ceiling is a binding constraint on the market and the market price will equal the price ceiling -> shortage. When the gov imposes a binding price ceiling on a competitive market, a shortage of the good arises, and sellers must ration (limit) the scarce goods among the large number of potential buyers. The price floor is lower than the price: the price floor is not binding on the market and the market price will equal the equilibrium price.

Related Questions

Do all buyers benefit from a binding price ceiling?

a. Yes, A binding price ceiling benefits all buyers because it allows them to obtain the good in the legal market.

b. No, A binding price ceiling benefits only some buyers because not all are able to obtain the good in the legal market.

c. No, A binding price ceiling benefits no buyers because sellers are unwilling to sell any of their products.

d. No, A binding price ceiling benefits only some buyers because, although the price is initially lower, it eventually increases to the equilibrium price.

e. No, A binding price ceiling benefits no buyers because they are unwilling to buy any of the products at a price higher than the equilibrium.

graywildebeest386

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

QUESTION 16

Positive externalities exist because:

	a.	internal benefits are greater than external benefits.
	b.	internal benefits are greater than social benefits.
	c.	internal benefits are less than external benefits.
	d.	external benefits are greater than social benefits.
	e.	internal benefits are less than social benefits.

QUESTION 17

What is a black market?

	a.	It is an illegal market that emerges when binding price ceilings are in place.
	b.	It is an illegal market that emerges when only binding price ceilings and binding price floors are in place.
	c.	It is an illegal market that emerges when no price controls are present.
	d.	It is an illegal market that emerges when binding and nonbinding price controls are in place.
	e.	It is an illegal market that emerges when binding price floors are in place.

QUESTION 18

The personal decisions of consumers and firms are based on:

	a.	external costs.
	b.	public-good costs.
	c.	third-party costs.
	d.	internal costs.
	e.	social cost.

QUESTION 19

When the price is _________ the equilibrium price, we would expect there to be a _________, causing the market to put _________ pressure on the price until it went back to the equilibrium price.

	a.	below; shortage; downward
	b.	above; shortage; downward
	c.	above; surplus; upward
	d.	above; surplus; downward
	e.	below; surplus; upward

rosewhale311

ECON 1000 Lecture Notes - Lecture 5: Tax Incidence, Price Ceiling, Economic Equilibrium

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