1. Give an example of a price ceiling and an example of a price floor.
2. Which causes a shortage of a good—a price ceiling or a price floor? Justify your answer with a graph.
3. What mechanisms allocate resources when the price of a good is not allowed to bring supply and demand
into equilibrium?
4. Explain why economists usually oppose controls on prices.
5. Suppose the government removes a tax on buyers of a good and levies a tax of the same size on sellers of
the good. How does this change in tax policy affect the price that buyers pay sellers for this good, the
amount buyers are out of pocket (including any tax payments they make), the amount sellers receive (net
of any tax payments they make), and the quantity of the good sold?
6. How does a tax on a good affect the price paid by buyers, the price received by sellers, and the quantity
sold?
What determines how the burden of a tax is divided between buyers and sellers? Why?
