Chapter 6 Notes - Chapter 6 Price ceiling/price floor...

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Chapter 6 Price ceiling/price floor Binding vs. non-binding Can create shortage or surplus Binding ceilings can create problems like rationing as well Or bribes that bring the price closer to equilibrium price Earned income tax credit-supplements incomes of low-wage workers Taxes Tax incidence-the manner in which the burden of the tax is shared among participants in a market When a good is taxed the quantity of the good sold is smaller in a new equilibrium Buyers and sellers share the burden of the taxes; buyers pay more, sellers receive
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Unformatted text preview: less Taxes on buyers and taxes on sellers are equivalent They cannot truly legislate who the tax affects Payroll tax- ie FICA Tax wedge-moves wage received by workers down and wage paid out by employers up When supply is more elastic that demand the incidence of tax falls more heavily on consumers When demand is more elastic that supply the incidence of tax falls more heavily on suppliers A tax burden falls more heavily on the side of the market that is less elastic Labor is generally less elastic...
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