Consider the competitive market for with the usual assumptions. Demand is downward sloping and supply is upward sloping. At the market price and quantity the (absolute) elasticity of demand is Jep| = 0.25 and the elasticity of supply is es = 0.75 . A per-unit tax of $10 is imposed which is paid by the consumer. Which of the following statements is TRUE of the economy with the tax? O We have excess supply with the tax as supply is more elastic and market price rises. O Producer Surplus falls as market price falls. O Market price rises by less than $10. O Consumer surplus rises as demand is less elastic than supply. O The producer bears the larger burden of the tax.

Consider the competitive market for with the usual assumptions. Demand is downward sloping and supply is upward sloping. At the market price and quantity the (absolute) elasticity of demand is Jep| = 0.25 and the elasticity of supply is es = 0.75 . A per-unit tax of $10 is imposed which is paid by the consumer. Which of the following statements is TRUE of the economy with the tax? O We have excess supply with the tax as supply is more elastic and market price rises. O Producer Surplus falls as market price falls. O Market price rises by less than $10. O Consumer surplus rises as demand is less elastic than supply. O The producer bears the larger burden of the tax.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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