ECO 1102 Study Guide - Price Ceiling, Economic Equilibrium, Tax Incidence

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ECO 1102 Full Course Notes

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The government prohibits gas stations from selling gasoline for more than 1. 80$ per litre. A price ceiling is a legal maximum price at which a good can be sold. Prohibiting gas stations from selling gasoline for more than . 80 or . 00 are both examples of price ceilings. A binding price ceiling is a price ceiling that is set below the equilibrium price. Since the equilibrium price is , the price has to be . 80, due to the fact that binding price ceilings cause a shortage, while a non- binding price ceiling has no effect on the equilibrium price and quantity. Suppose that the canadian government decides to levy a tax (such as an excise tax) on cola consumers. Before the tax, 20000 cases of cola were sold every week at a price of per case. After the tax, 12000 cases of cola are sold every week; consumers pay per case (including the tax), and producers receive.

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1. The language of price controls

Suppose that, in a competitive market without government regulations, the equilibrium price of gasoline is $3.00 per gallon.

Complete the following table by indicating whether each of the statements is an example of a price ceiling or a price floor and whether it is binding or nonbinding.

Statement	Price Control	Binding or Not
Due to new regulations, gas stations that would like to pay better wages in order to hire more workers are prohibited from doing so.	price ceiling/price floor	binding/non
The government has instituted a legal minimum price of $2.70 per gallon for gasoline.price ceiling/price floor
The government prohibits gas stations from selling gasoline for more than $3.40 per gallon.price ceiling/price floor

Suppose that, in a competitive market without government regulations, the equilibrium price of gasoline is $3.00 per gallon.

Complete the following table by indicating whether each of the statements is an example of a price ceiling or a price floor and whether it is binding or nonbinding.

A. The government prohibits gas stations from selling gasoline for more than $2.50 per gallon.

B. The government has instituted a legal minimum price of $3.40 per gallon for gasoline.

C. There are many teenagers who would like to work at gas stations, but they are not hired due to minimum-wage laws.

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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.

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ECO 1102 Study Guide - Price Ceiling, Economic Equilibrium, Tax Incidence

ECO 1102 Full Course Notes

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