# Chapter 6

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### 6-3 Conclusion

The economy is governed by two kinds of laws: the laws of supply and demand and the laws enacted by governments. In this chapter, we have begun to see how these laws interact. Price controls and taxes are common in various markets in the economy, and their effects are frequently debated in the press and […]

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### Case Study: Who Pays the Luxury Tax?

In 1990, Congress adopted a new luxury tax on items such as yachts, private airplanes, furs, jewelry, and expensive cars. The goal of the tax was to raise revenue from those who could most easily afford to pay. Because only the rich could afford to buy such extravagances, taxing luxuries seemed a logical way of […]

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### 6-2c Elasticity and Tax Incidence Case Study: Who Pays the Luxury Tax?

When a good is taxed, buyers and sellers of the good share the burden of the tax. But how exactly is the tax burden divided? Only rarely will it be shared equally. To see how the burden is divided, consider the impact of taxation in the two markets in Figure 9. In both cases, the […]

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### Case study: Can Congress Distribute the Burden of a Payroll Tax?

If you have ever received a paycheck, you probably noticed that taxes were deducted from the amount you earned. One of these taxes is called FICA, an acronym for the Federal Insurance Contributions Act. The federal government uses the revenue from the FICA tax to pay for Social Security and Medicare, the income support and […]

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### 6.2. Taxes

All governments—from the federal government in Washington, D.C., to the local governments in small towns—use taxes to raise revenue for public projects, such as roads, schools, and national defense. Because taxes are such an important policy instrument, and because they affect our lives in many ways, we return to the study of taxes several times […]

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### 6-1c Evaluating Price Controls

One of the Ten Principles of Economics discussed in Chapter 1 is that markets are usually a good way to organize economic activity. This principle explains why economists usually oppose price ceilings and price floors. To economists, prices are not the outcome of some haphazard process. Prices, they contend, are the result of the millions […]

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