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 9CQ
To determine
Incidence of tax.
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Generally speaking, how do taxes affect markets?
What affect does legal incidence have on economic incidence?
What effect does elasticity have on the economic incidence of taxes?
The government is considering imposing an excise tax on the following set of items. If the government wants to minimize the deadweight loss (DWL) of taxation, which of the following items are good candidates for an excise tax
Choose one or more:
A. Tangerines
B. Gasoline
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D. Ford trucks
Daniel Patrick Moynihan, the late senator from New York, once introduced a bill that would levy a 10,000 percent tax on certain hollow-tipped bullets.
A 10,000 percent tax on bullet ___ is not/is___ likely to generate a lot of revenue.
Why might Senator Moynihan have proposed it?
To boost the manufacturing industry of hollow-tipped bulletsTo raise revenue to support law enforcementTo discourage the use of hollow-tipped bullets
Chapter 4 Solutions
Microeconomics: Private and Public Choice (MindTap Course List)
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- What is the nature of the deadweight loss accompanying taxes? Why is it often referred to as an excess burden?arrow_forwardThe demand for beer is more elastic than the demand for milk. Would a tax on beer or a tax on milk have a larger deadweight loss? Why?arrow_forwardSuppose 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 Some economists believe that a sales tax, in general, is undesirable. Explain. Despite this, why do most countries still impose a tax on cigarette? Explain plausible arguments.arrow_forward
- If tax incidence is not affected by whether the government makes buyers or sellers pay the tax then which factors determine the tax incidence?arrow_forwardWhat is an indirect tax give two examples in economicsarrow_forwardDoyle and Samphantharak (2008) find that when a 5% gas tax is implemented, prices consumers pay for gas increase by about 4%. What role does demand elasticity play in determining the size of this price change? That is, under what demand elasticity cases would the price change be closer to 5%, or closer to 0%? Illustrate and explain using supply-and-demand graph(s)..arrow_forward
- The following graph represents the demand and supply for blinkies (an imaginary product). The black point (plus symbol) indicates the pre-tax equilibrium. Suppose the government has just decided to impose a tax on this market; the grey points (star symbol) indicate the after-tax scenario. PRICE (Dollars per blinkie) 22.00 Demand 28.00– 16.00 A B D F MOI UM I I E 24 36 QUANTITY (Blinkies) Complete the following table, given the information presented on the graph. Result Equilibrium quantity after tax Per-unit tax Price producers receive after tax $ $ Value Supply Concept Deadweight loss after the tax is imposed In the following table, indicate which areas on the previous graph correspond to each concept. Check all that apply. Consumer surplus before the tax is imposed Producer surplus after the tax is imposed A B 000 □ [] 0 OOO DE □ □ C C (?) 00 F □ 0 0arrow_forwardConsider the market for BP gasoline. If the market has a very elastic supply and a very inelastic demand, how would the burden of a tax on BP gasoline be shared between producers and consumers? Draw a graph to support your answer.arrow_forwardSuppose 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.arrow_forward
- 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_forwardSuppose demand for good X is given by QD = 900- p/2 where p is the price and QD the quantity demanded. Supply is given by QS = p/4.Suppose 60 TL tax is imposed on each unit of X that is purchased.What is the burden of the tax? Explain the key factors that determine the incidence of the tax.arrow_forwardThe following graph shows the market for the long-distance bus rides. In the absence of taxes, the equilibrium price of a ride is $5 and the equilibrium quantity is 10 million rides. Suppose that regulator levies an excise tax on bus service providers. The amount of excise tax equals $2 per ride. How much will buyers pay for a bus ticket after the tax is imposed? $4.50 $6 $5.50 $5arrow_forward
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