Question 1

If the demand curve is very inelastic and the supply curve is very elastic in a market,then the sellers will bear a greater burden of a tax imposed on the market,even if the tax is imposed on the buyers.

Accepted Answer

The answer of If the demand curve is very inelastic...

Question 2

Workers,rather than firms,bear most of the burden of the payroll tax.

Accepted Answer

Payroll taxes are taxes on the wages and salaries paid by employers to their employees. However, economists generally believe that the burden of the payroll tax falls primarily on the workers because employers are likely to pass some or all of the tax onto their employees in the form of lower wages or fewer benefits. Therefore, workers ultimately bear most of the burden of the payroll tax.

Question 3

Using a supply and demand diagram,show a labor market with a binding minimum wage.Use the diagram to show those who are helped by the minimum wage and those who are hurt by the minimum wage.

Accepted Answer

The answer of Using a supply and demand diagram,show a...

Question 4

The true burden of a payroll tax has nothing to do with the percentage of the tax that employers are required to pay.

Accepted Answer

The true burden of a payroll tax falls on both the employer and the employee, as the tax may result in reduced wages and benefits for the employee and increased costs for the employer. The percentage of the tax paid by each party is merely a matter of legal arrangement and does not determine the actual burden of the tax.

Question 5

A tax burden falls more heavily on the side of the market that is less elastic.

Accepted Answer

If a market is more elastic, it means that consumers are more sensitive to changes in prices and are likely to switch to substitutes if prices increase due to a tax. Therefore, the burden of the tax falls more heavily on the market that is less elastic, where consumers are less likely to adjust their behavior in response to price changes.

Question 6

Using the graph shown,in which the vertical distance between points A and B represents the tax in the market,answer the following questions.
a.What was the equilibrium price and quantity in this market before the tax?
b.What is the amount of the tax?
c.How much of the tax will the buyers pay?
d.How much of the tax will the sellers pay?
e.How much will the buyer pay for the product after the tax is imposed?
f.How much will the seller receive after the tax is imposed?
g.As a result of the tax,what has happened to the level of market activity?

Accepted Answer

The answer of Using the graph shown,in which the vertical...

Question 7

The burden of a luxury tax most likely falls more heavily on sellers because demand is more elastic and supply is more inelastic.

Accepted Answer

When demand is more elastic (meaning consumers are more likely to cut back on buying the product when the price increases), sellers have less power to pass on the tax to consumers and end up bearing more of the burden themselves. On the other hand, when supply is more inelastic (meaning it's difficult to quickly increase the quantity supplied in response to price changes), sellers also have less ability to adjust to the tax and may end up shouldering more of the cost.

Question 8

If the demand curve is very elastic and the supply curve is very inelastic in a market,then the sellers will bear a greater burden of a tax imposed on the market,even if the tax is imposed on the buyers.

Accepted Answer

When demand is very elastic, even a small increase in price would lead to a significant drop in demand. On the other hand, when the supply is very inelastic, the sellers would find it difficult to increase the quantity supplied with an increase in price. In such a scenario, when a tax is added to the buyers, the buyers would demand a lesser quantity, and the sellers would have to lower their price to clear the market. Therefore, the sellers, in this case, end up absorbing a higher portion of the tax burden.

Question 9

Using the graph shown,answer the following questions.
a.What was the equilibrium price in this market before the tax?
b.What is the amount of the tax?
c.How much of the tax will the buyers pay?
d.How much of the tax will the sellers pay?
 How much will the buyer pay for the product after the tax is imposed?
 How much will the seller receive after the tax is imposed?
 As a result of the tax,what has happened to the level of market activity?

Accepted Answer

The answer of Using the graph shown,answer the following questions.
a.What...

Question 10

The tax burden falls more heavily on the side of the market that is more inelastic.

Accepted Answer

This is known as the principle of tax incidence, which suggests that the more inelastic side of the market cannot easily change their consumption behavior in response to a tax increase, and therefore end up bearing a greater burden of the tax. On the other hand, a more elastic side of the market can more easily adjust their behavior and are less burdened by the tax.

Question 11

Using the graph shown,answer the following questions.
a.What was the equilibrium price in this market before the tax?
b.What is the amount of the tax?
c.How much of the tax will the buyers pay?
d.How much of the tax will the sellers pay?
e.How much will the buyer pay for the product after the tax is imposed?
f.How much will the seller receive after the tax is imposed?
g.As a result of the tax,what has happened to the level of market activity?

Accepted Answer

The answer of Using the graph shown,answer the following questions.
a.What...

Question 12

Even though federal law mandates that workers and firms each pay half of the total FICA tax,the tax burden may not fall equally on workers and firms.

Accepted Answer

The burden of the FICA tax may fall more heavily on one party or the other, depending on various economic factors such as labor market conditions and the elasticity of demand for labor.

Question 13

The burden that results from a tax on yachts falls more heavily on the buyers of yachts than on the sellers of yachts.

Accepted Answer

The burden of a tax on yachts, or any luxury good, typically falls more heavily on the sellers because the demand for such goods is often more elastic. This means consumers can more easily forego purchasing these high-priced items, leading sellers to absorb a larger portion of the tax to maintain sales.

Question 14

How does elasticity affect the burden of a tax? Justify your answer using supply and demand diagrams.

Accepted Answer

The answer of How does elasticity affect the burden of...

Question 15

Most of the burden of a luxury tax falls on the middle class workers who produce luxury goods rather than on the rich who buy them.

Accepted Answer

The cost of a luxury tax is usually passed on to the consumers, which means that the price of luxury goods increases. This increase in price affects the demand for the product, which in turn affects production and the workers involved in producing the goods. Therefore, the burden of a luxury tax falls on the middle class workers who produce the luxury goods, rather than the rich who buy them.

Question 16

A tax on a market with elastic demand and elastic supply will shrink the market more than a tax on a market with inelastic demand and inelastic supply will shrink the market.

Accepted Answer

When both demand and supply are elastic, a tax will cause both the quantity demanded and supplied to decrease significantly, resulting in a larger reduction in the market size. On the other hand, when both demand and supply are inelastic, a tax will cause a relatively small reduction in market size as there is less sensitivity to price changes.

Question 17

Who bears the majority of a tax burden depends on the relative elasticity of supply and demand.

Accepted Answer

The more elastic (responsive to price changes) side of the market will bear less of the tax burden, while the less elastic side will bear more. This is because the side that is more elastic will have an easier time adjusting to the tax by either reducing their consumption or increasing their production, while the less elastic side will have a harder time adjusting and end up absorbing more of the tax cost.

Quiz 6: Supply, Demand, And Government Policies.