Question 1

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 middle class workers who produce luxury goods may face job loss or reduced wages if demand for luxury goods decreases due to a luxury tax. Meanwhile, the rich who can afford luxury goods may still buy them despite the tax. Therefore, the burden of the tax ultimately falls on the workers rather than the wealthy consumers.

Question 2

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 3

Most labor economists believe that the supply of labor is much more elastic than the demand.

Accepted Answer

Most labor economists believe that the demand for labor is more elastic than the supply of labor, primarily because workers have limited flexibility in adjusting the number of hours they work in response to wage changes, whereas employers can more easily adjust the amount of labor they demand as wages or the economic conditions change.

Question 4

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 5

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

Accepted Answer

When a tax is imposed, the price of the good or service increases, and the quantity demanded typically decreases. The extent of this decrease in demand depends on the price elasticity of demand for that good or service. If the demand is elastic, a small increase in price will lead to substantial decreases in quantity demanded. On the other hand, if the demand is inelastic, the quantity demanded will not decrease significantly even if the prices go up. Therefore, when a tax is imposed, the burden falls more heavily on the side of the market that is more inelastic, because they will bear a larger portion of the tax as they continue to purchase the product at higher prices.

Question 6

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 a luxury tax is imposed, the price of the good increases, which ultimately reduces the quantity demanded due to the higher price. As a result, demand becomes more elastic, meaning a small change in price can have a significant effect on the quantity demanded. On the other hand, the supply of luxury goods is usually more inelastic, as it is difficult to increase the production of luxury goods quickly to match changes in demand. Therefore, luxury tax tends to fall more on the seller, as they have to bear the tax burden by reducing their profits or passing on the increased cost to the consumers through higher prices.

Question 7

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 burden of a payroll tax refers to the overall impact of the tax on both employers and employees, regardless of the specific percentage allocated to each party.

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 the demand curve is very elastic, a tax imposed on the buyers will cause them to decrease their quantity demanded significantly, leaving the sellers with a surplus of goods that they are unable to sell. As a result, the sellers will have to shoulder the burden of the tax because they will have to lower their prices to sell the surplus. On the other hand, if the supply curve is very inelastic, the sellers will not be able to increase their quantity supplied in response to the decrease in demand, so they will have to lower their prices to sell the same quantity, resulting in a greater tax burden on them.

Question 9

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

Accepted Answer

This statement is true. If supply is more elastic, producers can shift the burden of the tax onto consumers by increasing the price less or lowering it more in response to the tax. If demand is more elastic, consumers can shift the burden onto producers by reducing their purchases more or demanding lower prices in response to the tax.

Question 10

Rent controls only affect the demand side of the rental market.
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Accepted Answer

Rent controls also affect the supply side of the rental market as landlords may be less willing to offer their properties for rent due to the restrictions on rent increase. This can lead to a decrease in the quantity and quality of available rental units.

Question 11

Long lines and gasoline shortages during the 1970's can be attributed completely to the decision by OPEC to raise crude oil prices.

Accepted Answer

While the decision by OPEC to raise crude oil prices was a significant factor, the long lines and gasoline shortages during the 1970s were also caused by other factors such as U.S. government policies on price controls, panic buying, and reduced refinery output, making the situation not solely attributable to OPEC's actions.

Question 12

Price ceilings are never binding when set above the equilibrium price.

Accepted Answer

When a price ceiling is set above the equilibrium price, it does not affect the market since the market price is already below the ceiling. Therefore, it is never binding.

Question 13

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 disproportionately on either the workers or the firms, despite the requirement for both to pay half. Factors such as the job market, bargaining power, and competition can affect how much of the tax burden each party ultimately bears.

Question 14

Since half of the FICA tax is paid by firms and the other half is paid by workers,the burden of the tax must fall equally on firms and workers.

Accepted Answer

Although both firms and workers contribute to the FICA tax, economists generally agree that the burden falls more heavily on workers because the tax is taken out of their wages and reduces their take-home pay. However, the exact distribution of the burden varies based on factors such as labor market conditions and the elasticity of supply and demand for labor in different industries.

Question 15

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

Accepted Answer

This is because inelastic goods have fewer substitutes and therefore consumers are less likely to change their buying habits in response to a price increase caused by taxes. In contrast, if a good has many substitutes, consumers can easily switch to other products if the price becomes too high, and suppliers are more likely to absorb part of the tax in order to maintain their market share.

Question 16

Figure 6-36 
-Refer to Figure 6-36.If the government places a $2 tax in the market,the seller bears $1 of the tax burden.

Accepted Answer

The tax burden is shared between buyers and sellers depending on the elasticity of demand and supply. If the seller bears $1 of the $2 tax, it indicates that the burden is split equally, which can occur if both demand and supply are equally elastic.

Question 17

FICA is an example of a payroll tax,which is a tax on the wages that firms pay their workers.

Accepted Answer

FICA (Federal Insurance Contributions Act) is a payroll tax that is applied to wages paid by employers to employees in order to fund Social Security and Medicare benefits.

Question 18

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

Accepted Answer

Payroll taxes are taxes that are paid on salaries and wages. While these taxes are typically split between employers and employees, research has shown that workers ultimately bear most of the burden of payroll taxes, as firms may pass on the costs to employees in the form of lower wages and/or fewer benefits.

Question 19

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

A tax on a market with elastic demand and elastic supply will have a greater effect on the equilibrium quantity than a tax on a market with inelastic demand and inelastic supply. This is because the more responsive demand and supply are to price changes (i.e. the more elastic they are), the more they will react to a tax and cause a greater reduction in quantity. In contrast, a tax on a market with inelastic demand and inelastic supply will have a smaller effect on the equilibrium quantity because both buyers and sellers are less responsive to price changes.

Question 20

Since one effect of rent controls is to reduce the supply of available rental properties,rent controls can contribute to the problems of homelessness in cities with rent controls.
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Accepted Answer

Rent controls may discourage landlords from renting out their properties or investing in new rental properties, leading to a decreased supply of available rental units. This can drive up competition for available units and result in higher rent prices for those who are able to secure housing. As a result, individuals who are unable to afford rising rent prices may be at a higher risk of homelessness.

Quiz 6: Supply Demand and Government Policies: Part B