Untitled Flashcards Set

What is a price floor?

A government-imposed minimum price for a good or service, often leading to surpluses if set above equilibrium.

How does a minimum wage affect the labor market for unskilled workers?

It can increase wages but may cause unemployment if set above the equilibrium wage.

When does a minimum wage eliminate only a small number of jobs?

When demand for labor is inelastic or close to equilibrium.

How do price floors affect competition in labor markets?

They can reduce hiring of less-skilled workers and increase employer discrimination.

What are agricultural price supports?

Price floors for farm products that keep prices above equilibrium, often leading to government-purchased surpluses.

How does Congress deal with agricultural surpluses?

By purchasing excess goods, storing them, exporting them, or distributing them domestically.

What is a price ceiling?

A government-imposed maximum price, leading to shortages if set below equilibrium.

How does a price ceiling affect rental housing?

It lowers rents but may reduce housing availability and lead to discrimination.

How does a price ceiling affect gasoline markets?

It creates shortages, long lines, and possible black markets.

How does supply elasticity affect surpluses from price floors?

The more elastic the supply, the larger the surplus.

How does demand elasticity affect shortages from price ceilings?

The more inelastic the demand, the smaller the shortage.

What is tax incidence?

The distribution of a tax burden between buyers and sellers.

What is tax liability?

The legal responsibility to pay a tax.

What is the difference between progressive and regressive taxes?

Progressive taxes take a larger percentage from high incomes, while regressive taxes take a larger percentage from low incomes.

What is tax shifting?

When the party legally responsible for a tax passes the burden to another party (e.g., businesses passing taxes to consumers via higher prices).

What is the deadweight loss of a tax?

The economic inefficiency caused by a tax reducing the quantity of trade.

What is the Laffer Curve?

A curve showing that increasing tax rates beyond a certain point reduces total tax revenue.

What happens when the government imposes a per-unit tax on a good?

The price buyers pay increases, the price sellers receive decreases, and quantity sold decreases.

Why do payroll and income taxes mainly burden workers?

Because labor supply is relatively inelastic, so employers shift most of the tax burden to employees.

Why is a land tax considered efficient?

Because land supply is perfectly inelastic, meaning taxation does not distort supply or create deadweight loss.

If the demand for oil is perfectly elastic, will a tax on oil be efficient?

No, because any tax would cause buyers to completely stop purchasing.

How does an oil tax affect workers in the oil industry?

It reduces wages and may lead to job losses.

What is more efficient: an agricultural subsidy or a price floor?

A subsidy, because it increases supply without causing a surplus.

How do you calculate tax revenue?

Tax per unit × Quantity sold.

How do you calculate deadweight loss (DWL)?

½ × Tax per unit × Reduction in quantity.

What is the effect of lowering tax rates on tax revenue?

If taxes are too high, lowering rates can increase revenue due to increased economic activity (Laffer Curve).