Price ceiling Correct Answer--a legal maximum on the price
of a good or service
-Example: Rent Control
Price Floor Correct Answer--legal minimum on the price of
a good or service
-Example: Minimum Wage
A price ceiling above the equilibrium price is _____ Correct Answer-Not Binding, has no...
Econ 201 Exam #2 Questions with Correct Answers
Price ceiling Correct Answer--a legal maximum on the price
of a good or service
-Example: Rent Control
Price Floor Correct Answer--legal minimum on the price of
a good or service
-Example: Minimum Wage
A price ceiling above the equilibrium price is _____ Correct Answer-
Not Binding, has no effect on the market outcome
The ceiling is a _______ on the price, which causes a shortage Correct
Answer--Binding Constraint
-Causes a shortage
For supply and demand, price is more elastic in the ______(long
run/short run) Correct Answer-Long run
Tax on Buyers Example:
Original Equilibrium: 500 units, $10
Tax: $1.50 ($1 on buyers, $.50 on sellers) Correct Answer--Buyers pay
$11, quantity demanded goes to 450
-Sellers receive $9.50, quantity produced goes to 450
, Tax on Sellers Example:
Original Equilibrium: 500 units, $10
Tax raises sellers cost to $11.50 Correct Answer--Sellers will supply 500
pizzas ONLY if the price of pizza rises to $11.50 to compensate for cost
increase
-Tax on sellers shift supply curve up by amount of the tax
Minimum Wage Correct Answer--Does not effect highly skilled workers
-Effects teen workers
-An increase in minimum wage raises unemployment
A price floor below the equilibrium price is ______, has no effect on the
market outcome Correct Answer--Not binding
-has no effect on market outcome
A price floor above the equilibrium wage is illegal, it creates Correct
Answer--a binding constraint which leads to a surplus
-Example: unemployment
Tax on a good Correct Answer-places a wedge between the price buyers
pay and the price sellers receive, and causes the equilibrium quantity to
fall, whether the tax is imposed on buyers or sellers
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