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False
answer
A rent ceiling always lowers the rent paid.
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False
answer
When a rent ceiling is higher than the equilibrium rent, a black market emerges.
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True
answer
The opportunity cost of a dorm room is equal to its rent plus the value of the search time spent finding the dorm room.
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False
answer
Rent ceilings are efficient because they lower the cost of housing to low-income families.
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Above some specified level
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A price ceiling is a government regulation that makes it illegal to charge a price.
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is less than; a shortage
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When a price ceiling is set below the equilibrium price, the quantity supplied _____ the quantity demanded and _____ exists.
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a shortage of apartments occurs
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A rent ceiling on housing creates a problem of allocating the housing units because
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increase search activity
answer
Rent ceilings
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an illegal; exceeds
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Suppose that the government imposes a price ceiling on gasoline that is below the equilibrium price. The black market for gasoline is ___ market in which the price ___ the ceiling price.
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False
answer
Firms hire labor, so they determine how much labor to supply in a market.
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True
answer
A minimum wage has an impact when it is set above the equilibrium wage rate.
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True
answer
A minimum wage law can lead to increased job search activity and illegal hiring.
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Price floor
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The lowest price at which it is legal to trade a particular good, service, or factor of production.
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A minimum wage set above the equilibrium wage rate
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increases the quantity of labor services supplied.
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a surplus of lifeguards in Houston
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Suppose the current equilibrium wage rate for lifeguards in Houston is $7.85 an hour. A minimum wage law that creates a price floor of $8:50 an hour leads to
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job search activity increases
answer
If a minimum wage is introduced that is above the equilibrium wage rate
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True
answer
In order to have an effective price support, the government isolates the domestic market from the world market by restricting imports
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False
answer
A price support sets the maximum price for which farmers may sell their crop.
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True
answer
In order to keep the price of a crop above the equilibrium price and equal to the supported price, the government must buy some of the crop
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False
answer
Because they decrease production, price supports decrease farmers' total revenue
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Agricultural markets
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Price supports are generally used in
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lowest price for which the good may be solf
answer
A price support directly sets the
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only producers
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With a price support program, who receives a subsidy?
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benefits; creates
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A price support ____ producers and _____ a deadweight loss.
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Price Ceiling
answer
The max price that can be legally be charged
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Minimum Wage Law
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a gov. regulation that makes hiring labor for < a specified wage illegal
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Price support
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a combination of a price floor + a govt. guarantee to buy any surplus at that price
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Subsidy
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payment by the govt. to a producer to over part of the production cost
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Tax Incidence
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The division of the tax burden between the buyer and the seller
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Tax Burden
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the tax revenue + the DWL
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Excess Burden
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the DWL of a tax
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buyers pay more
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If PED < PES
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sellers pay more
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If PES < PED
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tax is evenly shared
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If PED = PES
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Taxable Income
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total income - a personal exemption & a standard deduction (or other allowable deductions)
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Marginal Tax Rate
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% change in taxes pd/% change income
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Average Tax Rate
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Taxes pd/income
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Progressive Tax
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a tax whose avg. rate INCREASES as income INCREASES
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Proportional Tax
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a tax whose avg. rate is CONSTANT at all income levels
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Regressive Tax
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a tax avg. rate DECREASES as income INCREASES
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Buyers Share
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After Tax - Before Tax
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Seller's Share
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Before Tax - After Tax
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Social Security Tax
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The ____ laws say that the tax is to be shared equally by workers & employers
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Payroll Tax
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a tax on employers based on the wages they pay their workers
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The Benefit Principle
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the proposition that those who have more money should pay more taxes
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The Ability-to-Pay Principle
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people should pay taxes according to their ability to pay
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Marriage Tax Problem
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if they each earn the same income before marriage they will be taxed more once married
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Per Unit Tax
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Vertical distance between supply curve
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incidence
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The tax _____ is the division of the burden of a tax between the buyer and the seller.
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an increase
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A tax is like _____ in suppliers' costs.
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inelastic
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For a given elasticity of supply, the buyer pays a larger share of the tax the more ____ is the demand for the good.
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inelastic
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If the supply is perfectly _____, the seller pays the entire tax.
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create
answer
Taxes ____ a deadweight loss.
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deadweight loss; more
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The excess burden of a tax is the ____ from the tax and is larger the _____ elastic the demand for the good being taxed.
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False
answer
When the government imposes a tax on the sale of a good, the burden of the tax falls entirely on the buyer.
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False
answer
For a given elasticity of supply, the more inelastic the demand for a good, the smaller the share of the tax paid by the buyer.
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True
answer
When the government taxes a good that has a perfectly elastic supply, the buyer pays the entire tax.
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rise; a decrease
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Neither the supply of nor demand for a good is perfectly elastic or perfectly inelastic. So imposing a tax on the good results in a ____ in the price paid by buyers and ____ in the equilibrium quantity.
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decreases; decreases
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A sales tax imposed in tires _____ consumer surplus and ____ producer surplus.
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less is produced and consumed
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A sales tax creates a deadweight loss because
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elasticity of supply to the elasticity of demand
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To determine who bears the greater share of a tax, we compare the
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barley sellers pay the entire tax
answer
Suppose the demand for barley is perfectly elastic. The supply curve of barley is upward sloping. If a tax is imposed on barley,
question
True
answer
When Hank earns an additional dollar, he pays 30 cents in additional tax. Hank's marginal tax rate is 30%.
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True
answer
If the tax average rate increases as income increases, the tax is a progressive tax.
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False
answer
Sam has $40,000 of taxable income and pays $4,000 income tax. Bert has $50,000 of taxable income and pays $4,500 income tax. Sam and Bert live in a county with a progressive income tax.
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True
answer
An income tax on labor creates a deadweight loss.
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decreases the quantity employed because the supply of labor decreases
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A tax on labor income
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shared but not necessarily equally between workers and employers
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The incidence of an income tax on labor income is generally that the tax is
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paid entirely by firms that demand capital
answer
If the supply of capital is perfectly elastic, the incidence of a tax on capital income is
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decreases; decreases
answer
When a social security tax is imposed on workers, employment ____ and when a social security tax is imposed on employers, employment ____.
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