EBK ESSENTIALS OF ECONOMICS
7th Edition
ISBN: 8220102452107
Author: Mankiw
Publisher: CENGAGE L
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Question
Chapter 8, Problem 1QCMC
To determine
The deadweight loss of tax on a commodity.
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A government intervenes in a market and as a result the demand curve shifts to the right. Which government measure could cause this effect? Pick a,b,c, or d
a. A subsidy granted to producers of the product
b. A subsidy granted to consumers of the product
c. The imposition of an indirect tax
d. The imposition of a direct tax
Figure 8-1
P'
P"
P""
Price
K
L
M
N
A
Supply
Demand
Refer to Figure 8-1. Suppose the government imposes a tax of P' - P"". The area
measured by K+L represents
tax revenue.
consumer surplus before the tax.
producer surplus after the tax.
total surplus before the tax.
Quantity
Question 6
Knowledge Booster
Similar questions
- Only typed answerarrow_forward. Draw a diagram to show the effect of a tax on producers. Show one demand curve and two supply curves (one before and one after the tax). Show the old and new prices and quantities. Use shading to show who gets the different parts of the surplus and indicate if there is any deadweight loss. Comment on implications for tax policy.arrow_forwardQuestion 5arrow_forward
- What happens to consumer and producer surplus when the sale of a good is taxed? How does the change in consumer and producer surplus compare to the tax revenue? Cite Examples and Explainarrow_forwardHelp please 33arrow_forwardQuestion 27 When the government places a tax on the producer of a good or service O both the supply and demand curves for the good or service shifts to the left. the supply curve for the good or service shifts to the right. O the demand curve for the good or service shifts to the right. the supply curve for the good or service shifts to the left. the demand curve for the good or service shifts to the left.arrow_forward
- Question 5: Consumer and Producer surplus Consumer and Producer surplus Stax P $500 S $200 $120 $X $50 80 150 Q Assume an excise tax of $130 per-unit tax has resulted in a decrease in Supply as shown on the graph above. Show all your work. a. How much is the value of X (intercept of the_green line). How do you describe what that value is? b. How much is the consumer surplus before the tax? c. How much is producer surplus before the tax? d. How much is the consumer surplus after the tax? e. How much is producer surplus after the tax? f. How much tax revenue was raised by the government as a result of this taxation g. How much is the deadweight loss as a result of the taxarrow_forwarda. What is the deadweight loss of a tax? b. How is the deadweight loss of a tax related to the elasticity of the demand and supply curves? c. Consider a tax on the producers in a market. By using supply and demand curves, show the consumer surplus, producer surplus, the equilibrium price and quantity traded before tax. Now show the consumer surplus, producer surplus, equilibrium price and quantity traded after tax. What happens to consumer surplus, producer surplus, equilibrium price and quantity traded after tax? Finally make sure to show the revenue of the tax and the deadweight loss associated with the tax.arrow_forwardFigure 8-1 PRICE 9 P™ K P M N B QUANTITY Supply consumer surplus after the tax. consumer surplus before the tax. O producer surplus after the tax. O producer surplus before the tax. Demand Refer to Figure 8-1. Suppose the government imposes a tax of P-P". The area measured by L+M+Y representsarrow_forward
- If a constant $1 per unit tax is imposed on producers, A. producers can always pass the tax burden to consumers by raising the price by a dollar. B. producers will pay more than $0.5 tax for each unit of the good sold if supply is less elastic than demand. C. producers will pay less than $0.5 tax for each unit of the good sold if demand is more elastic than supply. D. producers must absorb the tax themselves and cannot raise the price.arrow_forwardSuppose the following graph depicts the supply and demand for a good after a tax is imposed. How much surplus is lost because of the tax? Price None Pi P₁ An amount equal to the tax. 9 Demand Curve Tax Supply Curve plus tax Supply Curve Quantity both producers and consumer lose all surplus. Othere is no way to tell since the demand curve is odd looking.arrow_forwardQuestion 6 When a tax per unit is placed on the buyer of a good: a the equilibrium price falls and the total amount spent by the buyer decreases if demand is elastic. b when prices increase from the tax, the supply increases because of the higher price. c the buyer and seller share the burden of the tax with the seller receiving relatively less and the buyer paying relatively more. d the seller charges all of the tax to the buyer since the tax was not placed on the seller.arrow_forward
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