On July 1, 1965, the federal ad valorem taxes on many goods and services were eliminated. Comparing prices beforeand after this change, we can determine how much the price fell in response to the tax's elimination. Given an advalorem tax of v, the tax collected on a good that sold for p was vp. If the price fell by vp when the tax was eliminated,consumers must have been bearing the full incidence of the tax. Consequently, consumers got the full benefit ofremoving the tax from those goods. The entire amount of the tax cut was passed on to consumers for all commoditiesand services that were studied for which the taxes were collected at the retail level (except admissions and club dues)and for most commodities for which excise taxes were imposed at the manufacturer level, including face powder, sterlingsilverware, wristwatches, and handbags (Brownlee and Perry, 1967). List the conditions (in terms of the elasticities orshapes of supply or demand curves) that are consistent with 100% pass-through of the taxes. Use graphs to illustrateyour answer.For 100% of a tax cut to benefit customers, the price elasticity of demand must beor the price elasticity ofsupply must beQ, Quantityp, $ per unit

Case1 :- When the demand curve is perfectly inelastic, the whole burden will be born by the…

Answered: On July 1, 1965, the federal ad valorem…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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12. Effect of a tax on buyers and sellers The following graph shows the daily market for wine when the tax on sellers is set at $0 per bottle. Suppose the government institutes a tax of $23.20 per bottle, to be paid by the seller. (Hint: To see the impact of the tax, enter the value of the tax in the Tax on Sellers field and move the green line to the after-tax equilibrium by adjusting the value in the Quantity field. Then enter zero in the Tax on Sellers field. You should see a tax wedge between the price buyers pay and the price sellers receive.) Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. 180 160 140 120 4 100 80 60 Demand 40 20 PRICE (Dollars per bottle) 200 0 0 Supply 50 100 150 200 250 300 350 400 450 500 QUANTITY (Bottles of wine) Graph Input Tool Market for Wine…
Suppose you're trying to compare the year-to-year performance of one of your regional salespeople over a period during which income grew by 3%. If demand for your products has an income elasticity of 2, how would you measure the salesperson's performance?
One of the growers is excited by the price increase caused by the blight because he believes it will increase revenue in this market. As an economics student, you can use elasticities to determine whether this change in price will lead to an increase or decrease in total revenue in this market. Using the midpoint method, the price elasticity of demand for soybeans between the prices of $10 and $12 per bushel is , which means demand is between these two points. Therefore, you would tell the grower that his claim is , because total revenue will as a result of the blight. Confirm your previous conclusion by calculating total revenue in the soybean market before and after the blight. Enter these values in the following table. Before Blight After Blight Total Revenue (Millions of Dollars)
Assume the state of Alaska placed a tax on playing cards of 7 cents per pack. If the state generated $42630 in revenue, how many packs of cards were sold?
Crispies Inc., a player in the breakfast cereals market, sold 20,000 boxes of cereal in the first quarter of the year at a price of $5 per box. Market analysis, however, indicated that Crispies could sell 25,000 boxes in the next quarter if it lowered the price by $1 per box. The firm thus reduced the price to $4 in the second quarter to increase sales to 25,000 boxes. However, after this price reduction, the sales revenue of the firm began to decline long before it hit the target of 25,000 boxes. Which of the following, if true, can best explain this outcome? A. There is a surplus of corn in the domestic economy. B. Crispies' cereals have a high content of Butylated Hydroxytoluene, which according to recent media reports causes extreme hyperactivity in children. C. The output in the fast-food industry shrunk by 2.5 percent this year. D. The rate of inflation in the country is low. E. Crispies' per-unit cost of production is lower than $4.
According to studies undertaken by the U.S. department of agriculture, the price elasticity of demand for cigarettes is about +0.5. Suppose a major brokerage firm advised its clients to buy cigarette stock under the assumption that, if consumer income rise by 50 percent as expected over the next decade, cigarette sales would double. Based on the fundamental economic principles on income elasticity of demand, a reasonable reaction to this investment advice would be?
Paper cups are popular items for schools and are produced in the market. There are equations for the Supply and Inverse Demand of paper cups that model its Supply and Demand graph. These equations are (for supply), P = 2 + 3Qs, and (for Inverse Demand), P = 12 - 2Qd. Likewise, paper cups are inexpensive and not very helpful for companies trying to achieve high profits. As a result, the government placed a price support of $9. (Part I) Draw the market equilibrium with the government intervention (Q**, P**) of the price ceiling. Please label the graph for slopes, equilibrium points, price support, etc. (Part II) What is the market equilibrium with the intervention of the government (Q**, P**)? (Part III) What is the government surplus (GS**)? (Part IV) What is the Dead Weight Loss (DWL**)?
Please helo me with this question There are 50 residents that live in a small town in California. Each resident uses electricity and there is one power station that produces electricity for the residents from coal. Each residents' demand for electricity is Q = 10 - 2P and the supply function for the power plant is Q = 150P. For each unit of electricity that the power station produces, there is a corresponding release of pollution that leads to asthma and other health problems for the 50 residents. The marginal damage of each unit of electricity produced, per person, is $.05. a. What is the market equilibrium price and quantity per unit of electricity? b. What is the efficient Pigouvian tax per unit of pollution? c. The government of this small California town decides to impose the efficient Pigouvian per unit tax on the power station. What is the new social optimum price and quantity per unit of electricity? d. What is the government tax revenue? e. What is the gain in total…
Since the early 1970’s, the U.S. government has had a program called the Earned Income Tax Credit. A simplified version of this program works as follows: The government subsidizes your wages by paying you 50% in addition to what your employer paid you but the subsidy applies only to the first $60 (per day) you receive from your employer. If you earn more than $60 per day, the government gives you only the subsidy for the first $60 earned but nothing for anything additional you earn. For instance, if you earn $100 per day, the government would give you 50% of the first $60 you earned — or $30. Suppose you consider workers 1 and 2. Both can work up to 10 hours per day at a wage of $10 per hour, and after the policy is put in place you observe that worker 1 works 7 hours per day while worker 2 works 5 hours per day. Assume throughout that Leisure is a normal good. (a) Illustrate these workers’ budget constraints with and without the program. (b) Can you tell whether the program has…
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Hula Products has reintroduced the hula hoop to the world and faces a growing demand for its product in two distinct markets: the United States and Europe. Demand in these markets is: PU = 20 - .1QU and PE = 10 - .05QE., where all quantities are expressed in thousands of units (i.e. QU = 50 means 50 thousand units). Hula can produce hoops at no cost. The maximum Hula can produce is 80 thousand hoops. How many should be sent to Europe (QE)? Enter as a value (answer should be between zero and 80).
The consumer purchase decision process typically begins with information search---resulting from the instantaneous receipt of incoming and unexpected marketing based stimuli. A True В False

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