3. Refer to the figure. Tax Revenue 0 M Tax Size a. What is curve from the figure called? b. If the economy is at point M on the curve, then a small increase in the tax rate will increase or decrease tax revenue? Increase or decrease deadweight loss? C. If the economy is at point N on the curve, then a decrease in the tax rate will increase or decrease tax revenue? Increase or decrease deadweight loss?

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The government raises taxes on cigarettes from $1 per to $2 per pack. Prior to the tax increase, 5 million packs were sold each year. The new equilibrium quantity is 4 million packs. a. If demand is elastic, an increase in the level of a tax will _______ tax revenue.  - increase, decrease or not change.    b. All other things equal, a tax on ________ (hamburgers, breakfast cereal, luxury watches, or cigerattes) would be likely to raise the greatest revenue because demand is most _________ (elastic, inelastic or unit elastic).    c. All other things equal, a tax on  ________ (hamburgers, breakfast cereal, luxury watches, or cigerattes)  would cause the greatest deadweight loss.

Taxes and Subsidies: End of Chapter Problem Let's see if we can formulate any real laws about the economics of taxation. Which of the following must be true? More than one may be true. If there is a tax: Must occur a. The equilibrium quantity must fall, and the price that buyers pay must rise. b. The equilibrium quantity must rise, and the price that sellers pay must rise. Will not occur c. The equilibrium quantity must fall, and the price that sellers receive must fall. Answer Bank d. The equilibrium quantity must rise, and the price that buyers receive must fall.

9. Effect of a tax on buyers and sellers The following graph shows the daily market for wine when the tax on sellers is set at $0 per bottle. Suppose the government institutes a tax of $40.60 per bottle, to be paid by the seller. (Hint: To see the impact of the tax, enter the value of the tax in the Tax on Sellers field and move the green line to the after-tax equilibrium by adjusting the value in the Quantity field. Then, enter zero in the Tax on Sellers field. You should see a tax wedge between the price buyers pay and the price sellers receive.) Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. 200 PRICE (Dollars per bottle) 160 Supply 140 120 100 14 80 Demand 60 40 20 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Bottles of wine) 180 0 Before Tax After Tax Graph Input Tool…

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Government levied a tax on good A. The less elastic the demand is, the greater or the smaller the tax burden consumers bear? Also, is the after-tax equilibrium quantity the greater or smaller? Consumers’ tax burden: After-tax equilibrium quantity:

Economics

macro question 12