Economics For Today
Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Chapter 5, Problem 25SQ
To determine

The implication of the more elastic demand curve in the supply-demand analysis.

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Identify whether the statements about the economics of taxes are true or false. a. An excise tax can distort incentives and create missed opportunities for mutually beneficial transactions.    b. When demand is elastic and supply is inelastic, the burden of a tax falls mainly on consumers.    c. When demand is inelastic and supply is elastic, the burden of a tax falls mainly on producers.    d. The incidence of a tax is determined by which group – buyers or sellers – must actually pay the gov
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Suppose the market for cigarette is competitive. An economist estimates the price elasticity of demand and supply for cigarette are -0.6 and 0.8 respectively. a. 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.  b. Suppose the government imposes a per-unit tax of $40 on the cigarette sellers. By how much would buyers and sellers of cigarettes share the tax burden respectively? Show your calculation.  c. Suppose many small sellers, such as newsstands, complain the heavy tax burden borne by them. Would it be better to these small sellers if the government decides to impose a $20 per-unit tax on both the buyers and the sellers of cigarette? Explain.

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