Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Question
Chapter 6, Problem 20P
To determine
The effect of incidence of tax and tax revenue raised in short run and long run for the given tax over time.
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Students have asked these similar questions
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
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.
How does elasticity impact the incidence of a tax?
Which of the following statements about the relationship between elasticity and tax incidence are true ?
Choose one or more:A.
A tax on a good for which both demand and supply are relatively inelastic will cause a relatively large transfer of welfare from consumers and producers to the government.
B.The incidence of a tax depends on who the tax is placed on.
C.If a tax is imposed on a good with a perfectly inelastic demand, then consumers bear the full incidence of the tax.
D.When demand is more inelastic than supply, producers bear more of the incidence of a tax.
E.When demand is more inelastic than supply, consumers bear more of the incidence of a tax.
Chapter 6 Solutions
Exploring Economics
Ch. 6 - Prob. 1PCh. 6 - Prob. 2PCh. 6 - Prob. 3PCh. 6 - Prob. 4PCh. 6 - Prob. 5PCh. 6 - Explain why using the midpoint formula for...Ch. 6 - Prob. 7PCh. 6 - If the elasticity of demand for hamburgers equals...Ch. 6 - Evaluate the following statement: Along a...Ch. 6 - If the midpoint on a straight-line demand curve is...
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- why do comsumers pay the tax on goods if the elasticity of demand is less than the elasticty of supply?arrow_forwardSuppose producers bear most of the burden of a specific tax of 20 cents on staplers. Which ONE statement best describes the supply and demand for staplers? Suppose sandals have an elastic own-price elasticity of demand. If price goes up by 2%, then what happens to quantity demanded?arrow_forwardDemand for a good is perfectly ELASTIC while supply is regularly shaped. Suppose the government taxes the good. Which of the following statements is true: A. The tax will create deadweight loss B. The tax will NOT create deadweight lossarrow_forward
- Suppose the government applies a specific tax to a good where the demand elasticity is -0.8, and the supply elasticity is 1.4. If a specific tax of $3.25 was placed on the good, to the arest cent, what is the price increase that consumers would pay? What is the tax incidence? Iarrow_forwardIf a tax of $1.20 is imposed on consumers in this market, what is the tax revenue?arrow_forwardA 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_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_forwardSuppose an economist estimates that the price elasticity of supply for red wine is2.4 while its price elasticity of demand is -4.0.If the government decides to impost a per-unit sales tax of $40 per bottle of redwine, how would the market price for red wine be affected? Show yourcalculation.arrow_forwardQuestion 28 As part of a health program, a city imposes a tax on soda pop. We would expect consumers to pay almost all of this tax if demand is what? a inelastic and supply is inelastic b inelastic and supply is elastic c elastic and supply is elastic d elastic and supply is inelasticarrow_forward
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