chapter 6: taxes, price controls, quantity regulation

Tax on buyers

shift in the demand curve, Decrease in demand (shifts left), Equilibrium price shifts down by the amount of tax added, Decline in quantity sold, new demand curve intersects at a lower point on the supply curve, Increases the price buyers pay and decreases the price sellers receive

Statutory burden

burden of being assigned by the government to send a tax payment

Economic burden

burden created by the change in after-tax prices faced by buyers and sellers

Tax incidence

the division of the economic burden of a tax between buyers and sellers, Side of the market that is less elastic bears more of the tax

Tax on sellers

shift in the supply curve, Tax represents a marginal cost for sellers, Decrease in supply (shifts left/up), Decline in quantity sold, new supply curve intersects demand curve at a lower quantity demanded, higher prices leads to lower sales, Increases the price buyers pay and decreases the price sellers receive, Equilibrium price increases, but sellers do not keep all of the price

Subsidy

payment given by the government to those who make a specific choice, the equilibrium quantity increases, equilibrium price lowers for consumers and increases for producers

Price ceiling

a maximum price that sellers can charge

Binding price ceiling

set below the equilibrium price, causes shortages (decreases price, increases quantity sold)

Price floor

a minimum price that sellers must charge

Binding price floor

set above the equilibrium price, causes surplus (increases price, decreases quantity sold)

Quantity regulation

a minimum or maximum quantity that can be sold

Quota

limit on the maximum quantity of a good that can be sold

Mandate

a requirement to buy or sell a minimum amount of a good

Binding mandate

set above equilibrium quantity