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Exam 6: Taxes and Subsidies

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Question 41

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Let the price elasticity of supply for a good be 1.8, and the absolute value of the price elasticity of demand be 1.8. Which of the following is TRUE in this case?

A) Producers carry the majority of the tax burden.
B) Consumers carry the majority of the tax burden.
C) Producers and consumers carry an equal amount of the tax burden.
D) Consumers carry the entire tax burden.

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Question 42

Multiple Choice

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If consumers pay 100 percent of a commodity tax, what could one conclude?

A) Suppliers have more effective lobbying in Washington than consumers.
B) The commodity in question has a perfectly elastic supply curve.
C) The commodity in question has a perfectly elastic demand curve.
D) Neither side has a perfectly elastic curve but the supply side is more elastic than the demand side.

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Question 43

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In a market with a downward-sloping demand curve and an upward sloping supply curve, a tax placed on sellers will cause sellers to receive a lower price and buyers to pay a higher price.

Use the following to answer questions: Figure: Supply and Demand with Subsidy -(Figure: Supply and Demand with Subsidy) Refer to the figure. The deadweight loss from a $2 subsidy is:

When a payroll tax is enacted or a mandate requires firms to provide health insurance the wage paid to workers ______ and the wage paid by firms ______.

With a tax on consumers, supply:

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.

Taxes reduce the gains from trade, despite increasing consumer and producer surplus.

The supply of financial capital is very internationally mobile. People can move their bank and brokerage accounts around the world and invest in foreign corporations with a click of the mouse. The supply of labor is less internationally mobile. People have strong ties to the countries in which they live. Assuming that the demand for labor and for financial capital have similar elasticities, which of the following is TRUE?

A tax imposed on sellers will:

The difference between what buyers pay for a unit of a good and what sellers receive is known as the:

Use the following to answer questions: Figure: Imposition of a Tax -(Figure: Imposition of a Tax) Refer to the figure. With a $4 tax, the deadweight loss is:

Figure: Supply and Demand with Tax on Suppliers Using the graph shown, answer the following questions. a. What was the equilibrium price in this market before the tax? b. What is the amount of the tax? c. How much of the tax will the buyers pay? d. How much of the tax will the sellers pay? e. How much will the buyer pay for the product after the tax is imposed? f. How much will the seller receive after the tax is imposed? g. As a result of the tax, what has happened to the level of market activity?

If the elasticity of demand is 1 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?

Figure: Soda Market If Congress imposed a subsidy of the same value instead of the 70-cent tax, how much would consumers pay for one can of soda?

Use the following to answer questions: Figure: Deadweight Loss -(Figure: Deadweight Loss) Which of the areas represent the area of government revenue resulting from a $2 tax?

Use the following to answer questions: Figure: Tax on Buyers 2 -(Figure: Tax on Buyers 2) In the diagram, the sellers receive _____ without the tax and receive _____ with the tax.

With a tax on consumers, demand:

Taxes lead to a loss of beneficial trades.

Why do cotton growers spend billions of dollars to dam rivers and transport water hundreds of miles to grow cotton in California deserts?