Macroeconomics: Private and Public Choice
15th Edition
ISBN: 9781285453545
Author: Russell Sobel; Richard Stroup; James Gwartney; David Macpherson
Publisher: South-Western College Pub
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Chapter 4, Problem 5CQ
To determine
Tax on cigarettes.
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Suppose the price elasticity of demand for smartphones is 0.5 (absolute value), while the price elasticity of supply is 1.9. If the government imposes a per-unit tax of $100 on the sellers of smartphones, how will the price and quantity transacted of smartphones change? Will the sellers or the buyers bear a larger tax burden? Will the market be able to achieve economic efficiency after the tax is imposed? Explain with a diagram.
If a tax of $1.20 is imposed on consumers in this market, what is the tax revenue?
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 of $45 on the cigarette sellers. By how much would buyers share the tax burden respectively? Show your calculation.
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Macroeconomics: Private and Public Choice
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- A local government is seeking to impose a specific tax on hotel rooms. The price elasticity of supply of hotel rooms is 3.5, and the price elasticity of demand is 0.3. If the new tax is imposed, who will bear the greater burden-hotel suppliers or hotel consumers? The hotel consumers pay percent and hotel suppliers pay percent of the tax. (Enter your responses rounded one decimal place.)arrow_forwardThe article described shortcomings of using CAFE standards to improve fuel economy and emissions of carbon from automobiles: “Taxing carbon emissions or gasoline directly, as Europe does, would be far more cost-efficient.” The federal gasoline tax is 18.4 cents per gallon. The impact of an increase in the gasoline tax depends on the reaction of consumers to the tax. A research study found that the price elasticity of demand for gasoline is -0.06. Holding everything else constant, assume that an increase in the federal tax on gasoline results in a 5 percent increase in the price of a gallon of gasoline. If the price elasticity of demand for gasoline is -0.06, how much will the quantity demanded for gasoline change? Explain how you derived your answer.arrow_forwardThe price elasticity of demand is -3, the price elasticity of supply is 1. The government imposes a per-unit tax of 80 Cents on the sale of a cup of coffee in paper cups. Compute how much of the 80 Cents per cup is actually borne by the consumer and how much is borne by the seller.arrow_forward
- How does a sugar tax that increases the final price of non-alcoholic beverages with sugar address the problem? Using the concept of price elasticity of demand, is a tax on non-alcoholic beverages with sugar the best way of addressing the problem?arrow_forwardPlease answer the following, a diagram and one paragraph should help support your answer. With consideration for elasticity (especially PED), what would be one industry in which the government instituting a subsidy would make sense and why? EXAMPLE: It would make sense for the government to subsidize the fashion industry because it is generally elastic in terms of PED, and it would benefit both producers and consumers due to etc.arrow_forwardSuppose an economist estimates the price elasticity of demand for sugary drinks is -4.2, while its price elasticity of supply is 1.2. If the government decides to impose a per-unit tax of $9 per can of sugary drinks sold, how would the market price of sugary drinks be affected? Show your calculationarrow_forward
- Who does elasticity matter to the most? The government, the firm/business, or the individual/consumer.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_forwardUnder which circumstances does the tax burden fall entirely on consumers?arrow_forward
- I tried to graph in part 1 but I am unsure how I did. I would appreciate it if you can correct me and I don't understand part 2 3. Relationship between tax revenues, deadweight loss, and demand elasticity The government is considering levying a tax of $80 per unit on suppliers of either leather jackets or smartphones. The supply curve for each of these two goods is identical, as you can see on each of the following graphs. The demand for leather jackets is shown by DLDL (on the first graph), and the demand for smartphones is shown by DSDS (on the second graph). Suppose the government taxes leather jackets. The following graph shows the annual supply and demand for this good. It also shows the supply curve (S+TaxS+Tax) shifted up by the amount of the proposed tax ($80 per jacket). On the following graph, use the green rectangle (triangle symbols) to shade the area that represents tax revenue for leather jackets. Then use the black triangle (plus symbols) to shade the area that…arrow_forwardAccording to the article, after the city of Berkeley imposed a $0.01 per ounce tax on sugar-sweetened beverages (SSBs), by what percent did consumption of SSBs fall among Berkeley's low-income residents? Who was Berkeley's tax levied on in city law? Buyers or sellers? Assume that the price elasticity of supply for SSBs is elastic and the price elasticity of demand for SSBs is inelastic. What would be the outcome of the sales tax on sugary drinks if the law says that the tax is levied on sellers of the drinks? Who will pay the tax? Assume that the price elasticity of supply for SSBs is elastic and the price elasticity of demand for SSBs is inelastic. What would be the outcome of the sales tax on sugary drinks if the law says that the tax is levied on buyers of the drinks? Who will pay the tax? Explain why your answers to #3 and #4 are different or similar. What determines who pays the tax? What is your opinion of a tax on sugary drinks in your community? Would you be in favor or…arrow_forwardIn a country the Government determines to increase the tax on gasoline by $0.20 per gallon. The price of gasoline after taxes though only goes up by $0.15. Does this mean the gas station is not collecting the correct amount of taxes?arrow_forward
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