Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 19, Problem 4.1P
(a)
To determine
Identify the role of taxes on externalities.
(b)
To determine
Identify the role of distorting tax on economic welfare.
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Students have asked these similar questions
A tax on umbrellas will most likely
Select one:
a.cause a large decline in the sales of umbrellas because demand is elastic.
b.be an effective way to tax those who don’t earn enough to pay income taxes.
c.fall mostly on the umbrella buyers rather than the producers.
d.raise large amounts of tax revenue for the government.
Can you also show on diagrams please?
Suppose the market for cigarette is competitive. An economist estimates the price elasticity of demand and supply for cigarette are -0.8 and 0.7 respectively.
Suppose the government imposes a per-unit tax on the cigarette sellers. Who, buyers or sellers, would share a heavier tax burden? Explain your answers without calculation.
Chapter 19 Solutions
Principles of Economics (12th Edition)
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- Which of the following statements about corrective taxes is generally NOT true? a. They raise government revenue. b. They reduce the quantity sold in a market. c. They increase what consumers pay for the good. d. They cause deadweight losses.arrow_forwardSuppose the supply curve for cars is more elastic than the demand curve for cars. If the government imposes a tax on car sellers, which party (buyers or sellers) will bear more of the tax burden? How will the tax burden change if the government imposed the tax on car buyers, rather than sellers?arrow_forwardThe demand for a good is XD=1500 - 5P and the supply is XS= 1000 where X is number of units and P is price per unit. In equilibrium without taxes, the price is 100 and the quantity of X that is traded is 1000. A) Find the incidence of a $100 sales tax imposed by law on the demander. Be sure to explain what is meant by incidence and how are you measuring it. B) How would your answer differ if the law said the supplier had to pay the tax? Explain or justify your answer C) What sales tax rate imposed on the demander will produce the same outcome as this per unit ratearrow_forward
- What are pros and cons to increasing the gasoline tax?arrow_forwardSubsidies, unlike taxes, tend to increase the quantities of goods and/or services traded and consumers tend to pay a lower price for the good. From this perspective, the benefits for consumers are evident, while the effects for producers are not so conclusive. In this context, what would be the effect(s) that subsidies have on producers?I. Subsidies positively affect the quantity supplied, but the producer must pay the subsidy.II. Market prices increase.III. Producers increase the quantity offered, but the price they charge is the one that corresponds according to their supply function.Select one:a. II and IIIb. III onlyc. I, II and IIId. I and IIIe. I onlyarrow_forwardThe side of the market with the relatively higher elasticity will face more of the tax burden. Select one: a. True b. Falsearrow_forward
- 1. The equilibrium price of juice was initially $1.80 per bottle, and the equilibrium quantity was 8,000 bottles per day. When the government imposed a tax of $0.50 per bottle, the price went up to $2.18 per bottle, and quantity fell by 12%. A) How much of the tax (in $/bottle) are the buyers paying? B) How much of the tax (in $/bottle) is shouldered by the sellers? C) After the tax is imposed, how many bottles will be consumed?arrow_forwardSuppose legislation is passed stating that a per unit tax of $.50 per gallon of gasoline must be paid by energy suppliers. Assuming demand for gasoline is more inelastic than supply of gasoline, then the tax revenue economically generated by this tax comes from? a. The tax payment by the energy suppliers as they are ordered by law to pay the tax. b. The price disruption caused by the tax and the revenue will economically come from suppliers more so than consumers. c. The price disruption caused by the tax and the revenue will economically come from consumers more so than firms. d. The price disruption caused by the tax and the revenue will economically come from consumers and firms in equal amounts.arrow_forwardi. The elasticity of demand for beer in country A is 1.8 and the elasticity of demand for beer in country B is 1.7. Suppose that the supply of beer is the same in both countries and that both countries impose the same level of tax on beer. Does the consumer in country A share more burden of tax? Suppose the demand curve for sugar is Q = 60-3P and the supply curve is Q=2P. Suppose the government announces a per-unit tax of 1 on the price of sugar. What is the deadweight loss from the tax? Why do you think a policymaker and a consumer might interpret this deadweight loss differently?arrow_forward
- If the purpose of a tax is to decrease the amount of a harmful activity, then the taxwould be most effective when the supply is ________ and the demand is ________A) elastic; elasticB) inelastic; inelasticC) elastic; inelasticD) inelastic; elasticarrow_forwardwhat are the ultimate effects to society of shortfalls of tax collection?arrow_forwardWhich of the following statements about corrective taxes is generally not true? a) Economists prefer them to command-and-control regulation. b) They raise government revenue. c) They cause deadweight losses. d) They reduce the quantity sold in a market.arrow_forward
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