Question 1

Figure 4-8 shows a hypothetical demand and supply of taxi rides in the city of Riyadh. The government imposes a restriction in this market that forces taxi drivers to get a license from the city government in order to be able to drive. The number of licenses is limited. The following question(s) are based on this figure.
-Refer to Figure 4-8. To legally drive a taxicab in Riyadh City, you must have a license issued by the city government. Assume that only 12,187 licenses have been issued. Let's also assume this puts an absolute limit on the number of taxi rides that can be supplied in Riyadh City on any day, because no one breaks the law by driving a taxi without a medallion. Assume as well that each taxi provides 6 trips per day. In that case, the quantity supplied of taxi rides is 73,122 (or 6 rides per taxi × 12,187 taxis). This is shown in the diagram with a vertical line at this quantity. Assume that there are no government controls on the prices that drivers can charge for rides.
a. What would the equilibrium price and quantity be in this market if there were no license requirement?
b. If there were no license requirement, indicate the area that represents consumer surplus.
c. If there were no license requirement, indicate the area that represents producer surplus.
d. If there were no license requirement, indicate the area that represents economic surplus.
e. What are the price and quantity with the license requirement?
f. With a license requirement in place, what area represents consumer surplus?
g. With a license requirement in place, what area represents producer surplus?
h. With a license requirement in place, what area represents the deadweight loss?
i. Based on your answers to parts (c) and (g) are taxicab drivers better off with the license requirement for taxicabs than without?
j. Are consumers better off with or without the license requirement for taxicabs?

Accepted Answer

Without specific details from Figure 4-8, such as the demand and supply curves, equilibrium points, and areas representing consumer surplus, producer surplus, and deadweight loss, it's impossible to accurately answer these questions.

Question 2

-Refer to Figure 4 -10. Suppose the market is initially in equilibrium at price P₀and now the government imposes a tax on every unit sold. Which of the following statements best describe the impact of the tax? For demand curve D₀

Accepted Answer

The answer of 
-Refer to Figure 4 -10. Suppose the...

Question 3

-Refer to Figure 4 -11. Suppose the market is initially in equilibrium at price P₀and then the government imposes a tax on every unit sold. Which of the following statements best describes the impact of the tax?

Accepted Answer

The share of the tax burden between consumers and producers depends on the elasticity of demand and supply. A more inelastic demand curve (D₁) means consumers are less responsive to price changes, thus bearing a greater share of the tax burden.

Question 4

When Egypt passed a law that imposed Social Security tax, it wanted employers and workers to share the burden of the tax equally. Most economists who have studied the incidence of the tax have concluded

Accepted Answer

The incidence of a tax, according to most economists, often falls on the party less able to avoid it, which in the case of Social Security taxes, tends to be the workers. This is because employers can adjust wages or employment levels to offset their share of the tax burden, effectively passing the cost onto employees.

Question 5

Social Security tax is a tax imposed on employers and workers that is used to fund Social Security payments. Which of the following statements regarding the tax is true?

Accepted Answer

Most economists believe that the burden of the Social Security tax falls almost entirely on workers, as it affects their net income directly and can also influence wages indirectly.

Question 6

-Refer to Figure 4 -13. The figure above represents demand and supply in the market for cigarettes. Use the diagram to answer the following questions.
a. How much is the government tax on each pack of cigarettes?
b. What portion of the unit tax is paid by consumers?
c. What portion of the unit tax is paid by producers?
d. What is the quantity sold after the imposition of the tax?
e. What is the after -tax revenue per pack received by producers?
f. What is the total tax revenue collected by the government?
g. What is the value of the excess burden of the tax?
h. Is this cigarette tax efficient?

Accepted Answer

The answer of 
-Refer to Figure 4 -13. The figure...

Quiz 4: Economic Efficiency, Government Price Setting, and Taxes

-Refer to Figure 4 -10. Suppose the market is initially in equilibrium at price P0 and now the government imposes a tax on every unit sold. Which of the following statements best describe the impact of the tax? For demand curve D0

-Refer to Figure 4 -11. Suppose the market is initially in equilibrium at price P0 and then the government imposes a tax on every unit sold. Which of the following statements best describes the impact of the tax?

When Egypt passed a law that imposed Social Security tax, it wanted employers and workers to share the burden of the tax equally. Most economists who have studied the incidence of the tax have concluded

Social Security tax is a tax imposed on employers and workers that is used to fund Social Security payments. Which of the following statements regarding the tax is true?

-Refer to Figure 4 -10. Suppose the market is initially in equilibrium at price P₀and now the government imposes a tax on every unit sold. Which of the following statements best describe the impact of the tax? For demand curve D₀

-Refer to Figure 4 -11. Suppose the market is initially in equilibrium at price P₀and then the government imposes a tax on every unit sold. Which of the following statements best describes the impact of the tax?