Principles of Microeconomics
7th Edition
ISBN: 9781305156050
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 6.2, Problem 2QQ
To determine
The impact of tax.
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The current market price of bananas is $1 per pound. Use a graph and words to show the effect of a ten cent tax on each pound of bananas. Insert your own numbers into your graph. Be sure to indicate the new price paid by consumers, the new price received by sellers, and the new quantity sold.
Congress and the president decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $ 0.50 tax for each gallon of gasoline sold.
Should they impose this tax on producers or consumers? Explain carefully using a supply-and-demand diagram.
If the demand for gasoline were more elastic, would this tax be more effective or less effective in reducing the quantity of gasoline consumed? Explain with both words and a diagram.
Are consumers of gasoline helped or hurt by this tax? Why?
Are workers in the oil industry helped or hurt by this tax ? Why ?
Suppose the price of gasoline that drivers pay at the pump is $4 and stations pay a tax of $1 to the government and keep $3. Draw a diagram to show this. Then there is a tax switch: The tax on stations is ended, and drivers are required to keep receipts and pay the government a $1 tax for each gallon they consume. On the same diagram, show what happens to the pump price. What is the impact of the switch on drivers? On stations?
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Principles of Microeconomics
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- The following graph shows the daily market for wine. Suppose the government institutes a tax of $23.20 per bottle. This places a wedge between the price buyers pay and the price sellers receive. Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Using the data you entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. The burden of the tax falls more heavily on the ___ elastic side of the market.arrow_forwardDoes a tax on buyers affect the demand curve?arrow_forwardThe following graph shows the weekly market for craft beer in some hypothetical economy. Suppose the government levies a tax of $40.60 per case. The tax places a wedge between the price buyers pay and the price sellers receive. PRICE (Dolars per case) 200 180 160 140 120 100 80 60 40 20 0 + Buyers Sellers Demand Before Tax After Tax Tax Wedge Supply 0 100 200 300 400 500 600 700 800 900 1000 QUANTITY (Cases of craft beer) Complete the following table by filling in the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity Price Buyers Pay (Cases of craft beer) (Dollars per case) Price Sellers Receive (Dollars per case) Using your answers from the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. Tax Burden (Dollars per case) Elasticity The tax burden…arrow_forward
- The government is in need of tax revenue and has narrowed down the choice of markets to tax to two: cigarettes or t-shirts. The markets are summarised below. Cigarettes Demand: P = 100 – 4Q Supply: P = Q T-shirts Demand: P = 35 – ½Q Supply: P = 5 + ½Q Graph the two markets and calculate the equilibrium price and quantity. If the government implemented a $5 tax on each market, how much tax revenue could each market generate? If you were an economic advisor, which market would you suggest taxing and why?arrow_forwardThe following graph shows the weekly market for craft beer in some hypothetical economy. Suppose the government levies a tax of $11.60 per case. The tax places a wedge between the price buyers pay and the price sellers receive. PRICE(Dollars per case) 50 45 40 35 30 25 20 15 10 0 Tax Wedge 0 10 20 30 Before Tax After Tax Buyers Sellers 40 SO 60 QUANTITY (Cases of craft beer) Demand 70 80 90 100 Complete the following table by filling in the quantity sold, the price buyers pay, and the price sellers receive before and after the tax. Quantity Price Buyers Pay (Cases of craft beer) (Dollars per case) Price Sellers Receive (Dollars per case) Supply Tax Burden (Dollars per case) Using your answers from the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. Enter your results in the following table. Elasticity ? The tax burden falls more heavily…arrow_forwardUse the following graph of the market for cases of beer to answer the questions that follow. (Note: You will not be graded on any changes you make to the graph.) 10 Demand Supply Scratch points 8 7 1 2 3 4 5 7 10 Quantity of Beer (Thousands of cases) Complete the first row of the following table by entering the price paid by consumers, the price received by producers, and the quantity of beer sold in the absence of a tax on this market. Тax Price Paid by Consumers Price Received by Producers Quantity of Beer Sold (Dollars per case) (Dollars per case) (Dollars per case) (Thousands of cases) 4 Suppose the federal government requires beer drinkers to pay a $4 tax on each case of beer purchased. (In fact, both the federal and state governments impose beer taxes of some sort.) Complete the second row of the above table by entering the price paid by consumers, the price received by producers, and the quantity of beer sold when beer drinkers pay a $4 tax on each case of beer. True or False:…arrow_forward
- Answer quick in 30 minutes....arrow_forwardSuppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased. (a) Draw a supply-and-demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? (b) Now draw a supply-and-demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased?arrow_forwardCurrently, the market price for a gallon of ice cream is $5. a. Draw a supply-and-demand diagram of the market for ice cream WITHOUT the tax. On your diagram, indicate the price paid by consumers, the price received by producers, and the quantity of ice cream sold. NOTE: YOU DO NOT NEED TO CALCULATE ANY SPECIFIC VALUES. SIMPLY INDICATE THESE ITEMS ON YOUR DIAGRAM (WHERE THEY WOULD BE IN RELATION TO EACH OTHER). b. What is the difference between the price paid by consumers and received by producers? Now, suppose the federal government requires buyers of ice cream to pay a $2 tax on each gallon of ice cream sold. C. Draw a supply-and-demand diagram of the market for ice cream with the tax. On your diagram, indicate the tax per gallon of ice cream, the price paid by consumers, the price received by producers, and the quantity of ice cream sold. NOTE: YOU DO NOT NEED TO CALCULATE ANY SPECIFIC VALUES. SIMPLY INDICATE THESE ITEMS ON YOUR DIAGRAM (WHERE THEY WOULD BE IN RELATION TO EACH…arrow_forward
- Please answer all parts of the question and show your work.arrow_forwardThe following graph shows the weekly market for craft beer in some hypothetical economy. Suppose the government levies a tax of $40.60 per case. The tax places a wedge between the price buyers pay and the price sellers receive. Demand Supply 140 120 K 100 Tax Wedge 80 PRICE (Dollars per case) 200 180 160 60 40 20 0 0 400 500 600 700 800 QUANTITY (Cases of craft beer) 100 200 300 900 1000arrow_forwardIn the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax isarrow_forward
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