You are an economist in the Internal Revenue System and just heard of a plan to increase the sales tax on a certain widget by $.06. Last year customers purchased about 10 million widgets. The demand curve in the last year was such that a $.01 increase in price decreases sales by 100,000. A study showed that a $.01 increase in price resulted in producers willing to provide 50,000 more widgets to the market. Congress stated that this $.06 tax will increase government revenues by $600,000 and raise the price of each widget by $.06. Is this correct? If so, explain why this is the case and, if not, what is the increase in prices and revenues?

The government's policy goal is to reduce sugar consumption since consuming a lot of sugar is linked with negative health outcomes such as diabetes and hearth disease. In order to discourage consumers from consuming sugary soft drinks, the government is considering placing a sales tax on soda. Government economists have estimated the price elasticity of demand is -2.Which of the following statements is true? a.The tax on sugary soft drinks will likely decrease the demand for sugar-free soft drinks. b.Since consumers' demand for sugary soft drinks is elastic, the tax on sugary soft drinks will likely raise considerable revenue but likely will not reduce the consumption of sugary soft drinks by consumers. c.Since consumers' demand for sugary soft drinks is elastic, the tax will likely work to discourage sugary soft drink consumption. d.Taxes do not discourage consumers from consuming products.

If the demand for automobiles is price elastic and an excise tax is levied on sellers of automobiles that causes a 10% increase in the price of automobiles paid by buyers, then: The quantity demanded of automobiles will decrease by more than 10% and buyers will bear a proportionally larger share of the direct burden of the tax than sellers. The quantity demanded of automobiles will decrease by more than 10% and sellers will bear a proportionally larger share of the direct burden of the tax than buyers. The quantity demanded of automobiles will decrease by less than10% and total revenues from auto sales will increase. The quantity demanded of automobiles will decrease by less than 10% and total revenues from auto sales will decrease.

A local government is seeking to impose a specific tax on hotel rooms. The price elasticity of supply of hotel rooms is 3.5, and the price elasticity of demand is 0.3. If the new tax is imposed, who will bear the greater burden-hotel suppliers or hotel consumers? The hotel consumers pay percent and hotel suppliers pay percent of the tax. (Enter your responses rounded one decimal place.)