All Flashcards
What is a price ceiling?
A maximum legal price set by the government.
What is a price floor?
A minimum legal price set by the government.
What is an excise tax?
A tax on each unit of a good or service produced.
What is tax incidence?
How the burden of a tax is divided between consumers and producers.
What is a market?
Where buyers and sellers interact.
What is a shortage?
Quantity demanded exceeds quantity supplied.
What is a surplus?
Quantity supplied exceeds quantity demanded.
What is deadweight loss?
Loss of economic efficiency when equilibrium is not achieved.
What is consumer surplus?
The difference between what a consumer is willing to pay and what they actually pay.
What is producer surplus?
The difference between what a producer is willing to accept and what they actually receive.
How does a price ceiling below equilibrium affect the market?
It creates a shortage because quantity demanded exceeds quantity supplied.
How does a price floor above equilibrium affect the market?
It creates a surplus because quantity supplied exceeds quantity demanded.
How does an excise tax affect the supply curve?
It shifts the supply curve to the left, increasing production costs.
How does relatively elastic demand affect tax incidence?
Producers pay more of the tax burden.
How does relatively inelastic demand affect tax incidence?
Consumers pay more of the tax burden.
Rent control is an example of what?
A price ceiling.
Minimum wage is an example of what?
A price floor.
How does a non-effective price ceiling affect the market?
It has no effect; the market operates at equilibrium.
How does a non-effective price floor affect the market?
It has no effect; the market operates at equilibrium.
What is the effect of an excise tax on consumer surplus?
It reduces consumer surplus.
What is the impact of a price ceiling on market efficiency?
It reduces market efficiency due to deadweight loss.
What is the impact of a price floor on market efficiency?
It reduces market efficiency due to deadweight loss.
What is the impact of an excise tax on market efficiency?
It reduces market efficiency due to deadweight loss.
How does rent control affect the availability of housing?
It can lead to a shortage of available housing.
How does minimum wage affect employment?
It can lead to unemployment if set above the equilibrium wage.
What is a potential benefit of excise taxes?
They generate tax revenue for the government.
What is a potential drawback of excise taxes?
They create deadweight loss and reduce economic efficiency.
Does an excise tax reduce consumer surplus?
Yes, it reduces consumer surplus.
Does an excise tax reduce producer surplus?
Yes, it reduces producer surplus.
What happens to the size of deadweight loss when demand or supply is more elastic?
The deadweight loss from a tax is larger when demand or supply is more elastic.