Question 1

Suppose the elasticity of demand for Mexican food is 3.00 and the elasticity of supply is 1.20.If the government imposes a sales tax on Mexican food,which of the following occurs?
I.Less Mexican food is purchased by buyers.
Ii.Less Mexican food is produced by sellers.
Iii.The government receives the excess burden as revenue.
Iv.Both the consumer surplus and the producer surplus decrease.

Accepted Answer

I. Less Mexican food is purchased by buyers: This is true as the demand for Mexican food is elastic (Elasticity of demand > 1) and the imposition of a sales tax would increase the price of the food, decreasing the quantity demanded by buyers.

ii. Less Mexican food is produced by sellers: This is also true because the supply of Mexican food is relatively inelastic (elasticity of supply < 1.0), meaning that producers cannot easily increase production in response to the increase in price due to the sales tax.

iii. The government receives the excess burden as revenue: This is incorrect as tax revenue is not considered part of the excess burden. The excess burden, also known as deadweight loss, refers to the loss of consumer and producer surplus due to the imposition of the tax.

iv. Both the consumer surplus and the producer surplus decrease: This is true as the tax increases the price of Mexican food, leading to a decrease in consumer surplus (the difference between the maximum price consumers are willing to pay and the actual price) as well as producer surplus (the difference between the minimum price producers are willing to accept and the actual price).

Question 2

The excess burden of a tax refers to the fact that

Accepted Answer

The excess burden of a tax, also known as the deadweight loss, refers to the economic inefficiency that occurs when the tax discourages mutually beneficial trades that would have occurred in the absence of the tax.

Question 3

-The graph shows the market for textbooks.If the government introduces a tax of $20 a textbook,then the price paid by buyers

Accepted Answer

The answer of 
-The graph shows the market for textbooks.If...

Question 4

-The above figure shows the supply curves in four different markets.If each of the markets has an identical downward sloping demand curve and the same tax is levied on suppliers,which market would produce the largest amount of deadweight loss?

Accepted Answer

The answer of 
-The above figure shows the supply curves...

Question 5

The deadweight loss from a tax

Accepted Answer

The deadweight loss from a tax is the loss of economic efficiency that occurs when a tax is imposed, causing a reduction in the total surplus available to the market participants. This reduction in surplus is called the excess burden of the tax. Therefore, the correct choice is option D - the deadweight loss from a tax is called the excess burden of the tax.

Question 6

-At harvest time the supply of wheat is perfectly inelastic.If the government taxes wheat at $1 a bushel,then

Accepted Answer

The answer of 
-At harvest time the supply of wheat...

Question 7

Tax incidence refers to

Accepted Answer

Tax incidence refers to the distribution of the burden of a tax between the buyer and the seller. It is the analysis of who ultimately carries the economic burden of a tax. This division of burden depends on the relative elasticities of demand and supply for the taxed good or service.

Question 8

Neither the supply of nor demand for a good is perfectly elastic or perfectly inelastic.So,imposing a tax on the good results in ________ in the price received and kept by sellers and a ________ in the price paid by buyers.

Accepted Answer

When a tax is imposed on a good, the price received by sellers falls, and the price paid by buyers rises, as the tax burden is shared between buyers and sellers.

Question 9

When a product is taxed,

Accepted Answer

When a product is taxed, part of the initial consumer surplus goes to the government as revenue (answer A), and part of the initial consumer surplus becomes a deadweight loss (answer B). The producer surplus may also be affected by the tax, as the burden of the tax may be passed on partially or fully to the producer, depending on the elasticity of demand and supply. Therefore, answer C is not correct.

Question 10

-The above figure shows the supply curves in four different markets.If each of the markets has an identical downward sloping demand curve and the same tax is levied on suppliers,which market would produce the smallest amount of deadweight loss?

Accepted Answer

The answer of 
-The above figure shows the supply curves...

Question 11

The size of the deadweight loss,or excess burden,of a tax depends on the

Accepted Answer

The size of the deadweight loss, or excess burden, of a tax depends on the elasticities of demand and supply. Higher elasticities (both demand and supply) lead to a larger deadweight loss as consumers and producers are more responsive to changes in prices. Additionally, the larger the tax revenue collected, the larger the deadweight loss will be. Choice A is incorrect because the deadweight loss is affected by both producer and consumer surplus. Choices B, C, and E may have an impact on the size of the tax revenue collected, but do not directly impact the size of the deadweight loss.

Question 12

Neither the supply of nor demand for a good is perfectly elastic or perfectly inelastic.So,imposing a tax on the good results in a ________ in the price paid by buyers and ________ in the equilibrium quantity.

Accepted Answer

If the supply or demand for a good is perfectly elastic, then any increase in price would result in no one buying the good anymore. If it was perfectly inelastic, then the price increase would not affect the amount of the good purchased.

Since neither condition exists, there will always be some response to a price change. If a tax is imposed on a good, the price paid by buyers will increase (since some of the tax burden is passed on to the consumer), but the equilibrium quantity will decrease (since some consumers will no longer want to pay the higher price).

Option B is the correct answer, as it shows a rise in price paid by buyers and a decrease in equilibrium quantity.

Question 13

-The demand for apple pies is perfectly elastic.If the government taxes apple pies at $1 a pie,then

Accepted Answer

The answer of 
-The demand for apple pies is perfectly...

Question 14

-The above figure shows the demand curves in four different markets.If each of the markets has an identical upward sloping supply curve and the same tax is levied on suppliers,which market would produce the largest amount of deadweight loss?

Accepted Answer

The answer of 
-The above figure shows the demand curves...

Question 15

When a tax is imposed on a good or service,the

Accepted Answer

Deadweight loss is the loss of economic efficiency that occurs when the production of a good or service is not at its socially optimal level. In the case of a tax, it causes a shift in the supply or demand curve, leading to a reduction in the quantity sold and an increase in the price paid by consumers. The difference between the value consumers place on the last unit purchased and what they actually pay is the excess burden or deadweight loss. Therefore, choice (B) correctly identifies the deadweight loss as the excess burden that arises from a tax.

Question 16

The deadweight loss of a tax

Accepted Answer

The deadweight loss of a tax is the loss of social welfare that occurs when the tax reduces the quantity of goods traded below the efficient equilibrium quantity. It is one component of the total burden of a tax, which also includes the revenue transferred from households to the government and any additional costs of compliance or administration associated with the tax. The deadweight loss is not equal to the tax revenue collected by the government (E), nor is it greater than the total burden of the tax (D). It also does not determine the incidence of a tax (B) in and of itself, although it may affect how the burden of the tax is distributed between buyers and sellers depending on the elasticity of supply and demand.

Question 17

-The above figure shows the demand curves in four different markets.If each of the markets has an identical upward sloping supply curve and the same tax is levied on suppliers,which market would produce the smallest amount of deadweight loss?

Accepted Answer

The answer of 
-The above figure shows the demand curves...

Question 18

If a $1 sales tax is imposed on the sale of a CD,and neither the demand nor the supply is perfectly elastic or perfectly inelastic,then the price of a CD paid by consumers will

Accepted Answer

When a tax is imposed on a product, the supply curve shifts upward by the amount of the tax, resulting in a higher equilibrium price and a lower equilibrium quantity. The amount of increase in price will depend on the relative elasticity of demand and supply. Since both the demand and supply are not perfectly elastic or inelastic, the price increase will be less than $1 and fewer CDs will be bought. Therefore, option B is correct.

Question 19

-To determine who bears the greater share of a tax,we compare the

Accepted Answer

The elasticity of supply and demand determines who bears the greater share of a tax. If demand is more elastic than supply, then buyers will bear a smaller burden of the tax. If supply is more elastic than demand, then sellers will bear a smaller burden of the tax. Therefore, we compare the elasticity of supply to the elasticity of demand to determine who bears the greater share of the tax.

Question 20

Suppose the demand for barley is perfectly elastic.The supply curve of barley is upward sloping.If a tax is imposed on barley,

Accepted Answer

The answer of Suppose the demand for barley is perfectly...

Quiz 7: Government Actions in Markets