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26 Terms

1
What is a price floor?
A government-imposed minimum price for a good or service, often leading to surpluses if set above equilibrium.
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2
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.
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3
When does a minimum wage eliminate only a small number of jobs?
When demand for labor is inelastic or close to equilibrium.
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4
How do price floors affect competition in labor markets?
They can reduce hiring of less-skilled workers and increase employer discrimination.
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5
What are agricultural price supports?
Price floors for farm products that keep prices above equilibrium, often leading to government-purchased surpluses.
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6
How does Congress deal with agricultural surpluses?
By purchasing excess goods, storing them, exporting them, or distributing them domestically.
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7
What is a price ceiling?
A government-imposed maximum price, leading to shortages if set below equilibrium.
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8
How does a price ceiling affect rental housing?
It lowers rents but may reduce housing availability and lead to discrimination.
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9
How does a price ceiling affect gasoline markets?
It creates shortages, long lines, and possible black markets.
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10
How does supply elasticity affect surpluses from price floors?
The more elastic the supply, the larger the surplus.
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11
How does demand elasticity affect shortages from price ceilings?
The more inelastic the demand, the smaller the shortage.
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12
What is tax incidence?
The distribution of a tax burden between buyers and sellers.
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13
What is tax liability?
The legal responsibility to pay a tax.
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14
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.
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15
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).
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16
What is the deadweight loss of a tax?
The economic inefficiency caused by a tax reducing the quantity of trade.
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17
What is the Laffer Curve?
A curve showing that increasing tax rates beyond a certain point reduces total tax revenue.
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18
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.
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19
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.
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20
Why is a land tax considered efficient?
Because land supply is perfectly inelastic, meaning taxation does not distort supply or create deadweight loss.
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21
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.
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22
How does an oil tax affect workers in the oil industry?
It reduces wages and may lead to job losses.
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23
What is more efficient: an agricultural subsidy or a price floor?
A subsidy, because it increases supply without causing a surplus.
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24
How do you calculate tax revenue?
Tax per unit × Quantity sold.
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25
How do you calculate deadweight loss (DWL)?
½ × Tax per unit × Reduction in quantity.
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26
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).
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