Bundle: Essentials Of Economics, Loose-leaf Version, 8th + Lms Integrated Mindtap Economics, 1 Term (6 Months) Printed Access Card
8th Edition
ISBN: 9781337368087
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 8, Problem 3QR
To determine
The taxes and the
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How do the relative elasticities of supply and demand determine tax or subsidy incidence?
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Using a graph, discuss how the elasticity of demand influences the incidence of a tax
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Bundle: Essentials Of Economics, Loose-leaf Version, 8th + Lms Integrated Mindtap Economics, 1 Term (6 Months) Printed Access Card
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- The 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_forwardWhat is the nature of the deadweight loss accompanying taxes? Why is it often referred to as an excess burden?arrow_forwardWhat happens to the deadweight loss and taxrevenue when a tax is increased?arrow_forward
- Assume that the elasticity of demand for fanta is -0.8 while the elasticity of supply is 0.4. What is the pass-through fraction of a tax on fanta to consumers?arrow_forwardWould consumer or producer carry the burden of tax if good is inelastic? Show on a grapharrow_forwardBased on your knowledge of the price elasticity of demand, do you think the deadweight loss of a soda/junk-food tax would be relatively large or relatively small?arrow_forward
- Suppose the price elasticity of demand for luxury boats is zero. Explain, with the use of a diagram, what the effect of imposing an indirect tax would be on price, quantity sold, and tax revenue gained from the sale of luxury boats.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_forwardThe 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 C. Salt D. Ford trucksarrow_forward
- Suppose that the supply of oil is elastic and demand for oil is inelastic. If the government taxes oil, who will bear most of the tax burden?arrow_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_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_forward
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