Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506893
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 4, Problem 14CQ
To determine
Explain the policy makers seek to set the tax on an economic activity.
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If tax incidence is not affected by whether the government makes buyers or sellers pay the tax then which factors determine the tax incidence?
If the government imposes a tax of 8% on luxury cars that the consumer must pay, why does the consumer not actually pay the full 8%? How is it determined how much the consumer will pay and how much the producer will pay?
Is it possible for an 8% tax the government imposes on the consumer to actually have 1% paid by the consumer and 7% by the producer? Why or why not?
Suppose the government imposes a tax of 20% on automobile production for cars that use fossil fuels, and scientists estimate that the environmental cost of these automobiles is about 10%, please show in a demand and supply framework how this tax is going to increase or reduce social welfare?
Chapter 4 Solutions
Microeconomics: Private and Public Choice (MindTap Course List)
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- The government taxes both clothing and tobacco. For a similarly sized tax, would you expect the quantity demanded of clothing or tobacco to be more affected?arrow_forwardTrue or false: Granting subsidy on food will increase social welfare. Explain your answer with a graph.arrow_forwardIs it true, as many people claim, that taxes assessed on producers are passed along to consumers? That is, do consumers pay for the entire tax?arrow_forward
- Suppose 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_forwardPlease answer these two questions using the information from above: The government wants to increase production of this good. Would it make more sense to offer a subsidy or a tax? Based on your previous answers, would the government plan to increase production be likely to be effective or ineffective? Explain your answer.arrow_forwardAt the current market equilibrium, the price elasticity of supply for a certain good is much lower than the price elasticity of demand. if the government imposes a $5 specific tax on this good, who will bear more of the burden of the tax?arrow_forward
- The local government decides to impose a sales tax on some selected items. On item X the final prices increases almost the full amount of the tax, demand does not change much and the tax revenues collected are quite high. On item Y the price increases very little but demand falls quite a bit and very little tax revenue is collected. Is this a violation of the law of demand or something else? Explain.arrow_forwardLet’s say that Marianne is a politician who promises cheaper gasoline for everyone in the country if she is elected. Once she is elected, she makes gas cheaper by imposing a price ceiling that is one full dollar less than the market’s equilibrium price. Would she expect to be reelected in the long run?arrow_forwardDuring the Summer of 2022, gas prices rose well over $5.00 per gallon. In response, President Biden called for a 3-month Federal Gas Tax Holiday, which would remove the $0.18 per gallon federal tax on gasoline. Under what circumstances would you expect consumers to reap the majority of the benefits from the removal of the gasoline tax? Under what circumstances would you expect gasoline retailers to reap the majority of the benefits from the removal of the gasoline tax?arrow_forward
- Consider rent control (a price ceiling). Who does rent control intend to benefit? Discuss some of the potential unintended consequences of rent control.arrow_forwardSuppose that the local government of Tulsa decides to institute a tax on cider producers. Before the tax, 40,000 cases of cider were sold every week at a price of $9 per case. After the tax, 34,000 cases of cider are sold every week; consumers pay $12 per case, and producers receive $5 per case (after paying the tax). The amount of the tax on a case of cider is $ that falls on producers is $ per case. True or False: The effect of the tax on the quantity sold would have been larger if the tax had been levied on consumers. True per case. Of this amount, the burden that falls on consumers is $ False per case, and the burdenarrow_forwardSuppose that policymakers are considering placing a tax on either of two markets. In Market A, the tax will have a significant effect on the price consumers pay, but it will not affect equilibrium quantity very much. In Market B, the same tax will have only a small effect on the price consumers pay, but it will have a large effect on the equilibrium quantity. Other factors are held constant. In which market will the tax have a larger deadweight loss? Market A Market B The deadweight loss will be the same in both markets. There is not enough information to answer the question.arrow_forward
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