Question

Refer to the Figure. Which of the following statements is correct? 

A Aprice floor set at $9 would result in a surplus 

B A price floor set at $6 would be binding, but a price floor set at $8 would not be binding 

C Aprice ceiling set at $9 would result in a surplus. 

D Aprice ceiling set at $10 would be binding, but a price ceiling set at $6 would not be binding

Refer to the Figure. How is the burden of the tax shared between buyers and sellers? Buyers bear 

A one-third of the burden, and sellers bear two-thirds of the burden. 

B all of the burden, and sellers bear none of the burden. 

C two-thirds of the burden, and sellers bear one-third of the burden. 

D one-half of the burden, and sellers bear one-half of the burden.

Answer 1

A price floor is a minimum price can a producer charge, and it is effective or binding if it is above equilibrium price and creates a surplus
A price ceiling is a maximum price can a producer change, and it is effective or binding if it is below the equilibrium price
The equilibrium is at Qd=Qs
where
P=$8
there is a surplus if the price floor is above $8

Option A
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ANswer

before tax equilibrium at Qd=Qs or S1=D
where
P=$3 and Q=120 units
after tax, the supply shifts to the left and the new equilibrium is at S2=D
where
price paid by buyer =$5, received by a producer is $2
tax =5-2=$3

The tax burden on consumer =after tax price paid by buyer- before tax price
=5-3
=$2
it means 2/3 of tax on the buyer
tax burden on producer =tax -Tax burden on consumer
=3-2
=$1
it means 1/3 of tax on producers

option C