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Questions and Answers
What occurs to producer surplus when a binding price floor is implemented above the equilibrium price?
What occurs to producer surplus when a binding price floor is implemented above the equilibrium price?
- Producer surplus remains unchanged.
- Producer surplus increases due to higher prices. (correct)
- Producer surplus decreases because of reduced demand.
- Producer surplus becomes negative.
What is the outcome of imposing a binding price ceiling below the equilibrium price?
What is the outcome of imposing a binding price ceiling below the equilibrium price?
- It creates a shortage in the market. (correct)
- It causes a decrease in consumer surplus.
- It has no impact on the market equilibrium.
- It results in an increase in total surplus.
What happens to total surplus when a binding price floor is established?
What happens to total surplus when a binding price floor is established?
- Total surplus decreases. (correct)
- Total surplus is eliminated.
- Total surplus increases.
- Total surplus remains the same.
How does a non-binding price ceiling affect a competitive market?
How does a non-binding price ceiling affect a competitive market?
When a tax is imposed on a good, who bears the heavier burden when demand is more elastic than supply?
When a tax is imposed on a good, who bears the heavier burden when demand is more elastic than supply?
What effect does a binding price floor have on consumer behavior?
What effect does a binding price floor have on consumer behavior?
In a competitive market, a binding price ceiling leads to which of the following?
In a competitive market, a binding price ceiling leads to which of the following?
What happens to producer surplus when a binding price ceiling is enacted?
What happens to producer surplus when a binding price ceiling is enacted?
A binding price floor set above equilibrium is likely to cause which of the following?
A binding price floor set above equilibrium is likely to cause which of the following?
What is the main consequence of deadweight loss in the market?
What is the main consequence of deadweight loss in the market?
What is the expected effect on consumer surplus when a $3 tax is imposed on buyers?
What is the expected effect on consumer surplus when a $3 tax is imposed on buyers?
How does a tax on sellers generally affect the total surplus in the market?
How does a tax on sellers generally affect the total surplus in the market?
What impact does a subsidy to buyers have on the equilibrium price received by sellers?
What impact does a subsidy to buyers have on the equilibrium price received by sellers?
What is likely to happen to producer surplus when a $2 subsidy is provided to sellers?
What is likely to happen to producer surplus when a $2 subsidy is provided to sellers?
Which condition is most likely to lead to deadweight loss?
Which condition is most likely to lead to deadweight loss?
After a $3 tax on buyers, how is the new demand curve expected to behave?
After a $3 tax on buyers, how is the new demand curve expected to behave?
What is the anticipated effect on total surplus when a $2 subsidy is given to buyers?
What is the anticipated effect on total surplus when a $2 subsidy is given to buyers?
How does the imposition of a tax on buyers most directly affect the supply curve?
How does the imposition of a tax on buyers most directly affect the supply curve?
When a $2 tax is placed on sellers, what is the likely change in consumer prices?
When a $2 tax is placed on sellers, what is the likely change in consumer prices?
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Study Notes
Taxes, Subsidies, Floors and Ceilings
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A tax imposed on buyers shifts the demand curve down by the amount of the tax.
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A tax imposed on sellers shifts the supply curve up by the amount of the tax.
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A subsidy to buyers shifts the demand curve up by the amount of the subsidy.
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A subsidy to sellers shifts the supply curve down by the amount of the subsidy.
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A binding price floor set above the equilibrium price creates a surplus.
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A binding price ceiling set below the equilibrium price creates a shortage.
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A non-binding price ceiling has no effect on the market outcome.
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The burden of a tax falls more heavily on the side of the market with the less elastic demand/supply.
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