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Questions and Answers
What is one consequence of establishing a price floor?
What is one consequence of establishing a price floor?
- Increase in quantity demanded
- Complete market efficiency
- Higher quality of goods automatically
- Deadweight loss from inefficiently low quantity (correct)
How do price floors typically affect sellers in the market?
How do price floors typically affect sellers in the market?
- They guarantee sellers a profit on every sale.
- They lead to inefficient allocation of sales among sellers. (correct)
- They eliminate the need for any competition.
- They ensure all sellers can sell their goods.
Which scenario illustrates an inefficiency created by a price floor?
Which scenario illustrates an inefficiency created by a price floor?
- Market equilibrium is achieved without intervention.
- Sellers only offer the minimum quality to maximize sales.
- Sellers provide high-quality goods at higher prices than buyers want. (correct)
- Buyers always purchase the cheapest option available.
What legal consequence might sellers face due to price floors?
What legal consequence might sellers face due to price floors?
Which of the following statements about minimum wage as a price floor is true?
Which of the following statements about minimum wage as a price floor is true?
What happens to the demand price and supply price under a quota system?
What happens to the demand price and supply price under a quota system?
What is the quota rent?
What is the quota rent?
Under a quota, what is typically the impact on the market?
Under a quota, what is typically the impact on the market?
Which price reflects the highest quantity demanded for sugar?
Which price reflects the highest quantity demanded for sugar?
What happens to consumer prices when a quota is imposed?
What happens to consumer prices when a quota is imposed?
How does a quota affect the quantity of products available in the market?
How does a quota affect the quantity of products available in the market?
What is indicated by point E in the sugar market graph?
What is indicated by point E in the sugar market graph?
What can be inferred about the relationship between quantity demanded and price based on the information?
What can be inferred about the relationship between quantity demanded and price based on the information?
When considering both demand and supply, where does the market for sugar typically reach equilibrium?
When considering both demand and supply, where does the market for sugar typically reach equilibrium?
What does it mean when the burden of a tax falls more heavily on the side of the market that is less price elastic?
What does it mean when the burden of a tax falls more heavily on the side of the market that is less price elastic?
What is a consequence of implementing a price ceiling?
What is a consequence of implementing a price ceiling?
Which of the following describes the effects of a price floor?
Which of the following describes the effects of a price floor?
What is the role of a quota in a market?
What is the role of a quota in a market?
What consequence arises from implementing quantity controls like fishing quotas?
What consequence arises from implementing quantity controls like fishing quotas?
What typically happens to the equilibrium quantity when a tax is levied on a good?
What typically happens to the equilibrium quantity when a tax is levied on a good?
How does a tax on sellers typically affect the market outcome?
How does a tax on sellers typically affect the market outcome?
What happens when a tax is introduced on a good?
What happens when a tax is introduced on a good?
What is one potential effect of quantity controls or quotas in a market?
What is one potential effect of quantity controls or quotas in a market?
Which types of goods should be taxed from an efficiency perspective?
Which types of goods should be taxed from an efficiency perspective?
What is the tax incidence in a market?
What is the tax incidence in a market?
What unintended consequence can arise from price controls?
What unintended consequence can arise from price controls?
What effect do fishing quotas have on fish stock?
What effect do fishing quotas have on fish stock?
What is a potential illegal consequence of quantity control measures?
What is a potential illegal consequence of quantity control measures?
What is the result of a 10 cent tax per unit on producers?
What is the result of a 10 cent tax per unit on producers?
What typically occurs in the short term as a result of quotas on fish catches?
What typically occurs in the short term as a result of quotas on fish catches?
In a scenario with price elastic supply and price inelastic demand, who bears more of the tax burden?
In a scenario with price elastic supply and price inelastic demand, who bears more of the tax burden?
When demand is more price elastic than supply, who experiences a heavier incidence of the tax?
When demand is more price elastic than supply, who experiences a heavier incidence of the tax?
What does a deadweight loss represent in terms of economic surplus?
What does a deadweight loss represent in terms of economic surplus?
What shape represents the total loss of surplus depicted in the scenario?
What shape represents the total loss of surplus depicted in the scenario?
Which statement is true when discussing tax incidence?
Which statement is true when discussing tax incidence?
If supply is inelastic and demand is elastic, who primarily bears the tax burden?
If supply is inelastic and demand is elastic, who primarily bears the tax burden?
Which geometric representation is used to indicate the price buyers pay after a tax has been imposed?
Which geometric representation is used to indicate the price buyers pay after a tax has been imposed?
What is the likely result of a tax when demand is more elastic than supply?
What is the likely result of a tax when demand is more elastic than supply?
Study Notes
Price Floors
- A price floor is a minimum market price above the equilibrium price
- Price floors benefit successful sellers, but create persistent surplus
- They lead to inefficiencies such as:
- Deadweight loss from inefficiently low quantity
- Inefficient allocation of sales among sellers
- Wasted resources
- Inefficiently high quality
- They also encourage illegal activity and black markets
- Minimum wage is the most well-known example of a price floor.
Quantity Controls
- A quantity control or quota is a restriction on the quantity of a good bought or sold
- The government issues licenses to sell a given quantity of the good
- A quota drives a wedge between the demand price and the supply price
- This wedge is equal to the quota rent
- They lead to deadweight loss and encourage illegal activity
Taxes
- Governments levy taxes to raise revenue
- Taxes encourage market activity
- When goods are taxed, the quantity sold is smaller
- The burden of tax is generally shared by buyers and sellers
- The tax incidence is the manner in which the burden of a tax is shared among participants in a market
Price Elasticity and Tax Incidence
- The burden of a tax falls more heavily on the side of the market that is less price elastic
- The more inelastic the demand or supply, the lower the deadweight loss.
Efficiency Concerns
- The burden of taxes should fall on goods with inelastic supply or demand
- This is from an efficiency perspective, equity and politics may influence this approach
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Description
This quiz covers the concepts of price floors, quantity controls, and their effects on the market. Explore how price floors can lead to surpluses and inefficiencies, as well as the implications of quantity controls and taxation on market behavior. Test your understanding of these fundamental economic principles.
