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Exam 6: Taxes and Subsidies

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Question 21

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Reference: Ref 6-2 (Figure: Tax on Sellers of Gadgets) According to the figure, what is the amount of the deadweight loss caused by the imposition of the tax on gadgets?

A) $100
B) $1
C) $0.50
D) $50

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Question 22

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If a tax is imposed on a market with elastic demand and inelastic supply:

A) buyers will bear most of the burden of the tax.
B) sellers will bear most of the burden of the tax.
C) the burden of the tax will be shared equally between buyers and sellers.
D) there is no way to determine how the burden of the tax will be shared.

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Question 23

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Which of the following statements is TRUE? A tax and subsidy are similar in that: I. they both create a deadweight loss. II. the burden of the tax and benefit of the subsidy depend on relative elasticities of demand and supply. III. they both change the equilibrium level of output.

Reference: Ref 6-7 (Figure: Commodity Tax on Suppliers) Refer to the figure. If a tax shifts the supply curve from S1 to S2, tax revenue is:

If a tax is imposed on a market with inelastic demand and elastic supply:

Figure: Tax on Sellers Reference: Ref 6-1 (Figure: Tax on Sellers) Refer to the figure. Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S0 to S1. With the tax, buyers pay ________ and sellers receive ________.

Without taxes, the market price per bag of apples is $5. With a $2 tax per bag of apples, buyers now pay $5.75 per bag. What is the final price per bag of apples received by sellers?

Reference: Ref 6-1 (Figure: Tax on Sellers) Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S0 to S1. Using the figure, calculate the amount of the tax.

Reference: Ref 6-10 (Figure: Supply and Demand with Subsidy) Refer to the figure. What is the total cost of the subsidy for taxpayers?

Explain in your own words why the imposition of a tax results in a deadweight loss. Given this, should we eliminate all taxes on goods/services because they result in deadweight losses? Explain why or why not.

A ________ creates a situation in which the price received by sellers ________ the price paid by buyers.

A tax on sellers of popcorn will:

If the elasticity of supply is 3 and the elasticity of demand is 1 (in absolute value), buyers will bear less of the tax than sellers.

Reference: Ref 6-4 Suppose that there is a tax of $5 per unit, and the demand curve is more elastic than the supply curve. Which of the following statements could be true?

A labor market is described by two very simple equations Qd = 60 - 2W, and Qs = 3W. A subsidy of $10 is installed such that the new demand equation becomes Qd = 70 - 2W. What is the total number of new workers that are hired in this labor market?

Which of the following is correct concerning the burden of a tax imposed on coffee mugs?

If the elasticity of demand is 2 in absolute value, and the elasticity of supply is 1 in absolute value, how much of a tax burden will the buyer bear relative to the seller?

Reference: Ref 6-5 (Figure: Imposition of a Tax) Refer to the figure. Consumer surplus before the $4 tax is ________, and consumer surplus after the $4 tax is ________.

Which of the following statements is TRUE? The buyer will pay more of the tax burden if: I. the good is a luxury good. II. the good is a necessity. III. the good has no substitutes.