Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506756
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 4, Problem 9CQ
To determine
Incidence of tax.
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How a tax burden is divided between consumers and producers is called tax incidence. Consumers bear most of the tax burden when:
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What is the tax incidence of an excise tax when demand is highly inelastic and highly elastic?
Chapter 4 Solutions
Macroeconomics: Private and Public Choice (MindTap Course List)
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- The government is considering imposing an excise tax on the following set of items. If the government wants to minimize the deadweight loss (DWL) of taxation, which of the following items are good candidates for an excise tax Choose one or more: A. Tangerines B. Gasoline C. Salt D. Ford trucksarrow_forwardThe UK government is considering the introduction of a unit tax on meat to alleviate the impact of meat production on the environment, as suggested by the UK Health Alliance on Climate Change. The likely effect of the introduction of the unit tax is shown in the graph below. 1. Calculate the unit tax on meat and the total tax revenue forecasted to be collected by the UK government if introducing the tax. You are required to show your workings 2. Calculate the incidence of the tax on consumers and on producers (total burden on consumers and total burden on producers) 3. Calculate consumer surplus before and after the implementation of the unit tax 4. What might have been the reasons for the UK government to have had imposed a tax on meat? 5. Surrey Sport Park, where Mohammed works as personal trainer, has experienced an increase in the number of subscriptions after the pandemic. In reward for his commitment and hard work during this period of high demand, Mohammed will receive a 10%…arrow_forwardSuppose the market for cigarette is competitive. An economist estimates the price elasticity of demand and supply for cigarette are -0.8 and 0.7 respectively. Suppose the government imposes a per-unit tax of $45 Some economists believe that a sales tax, in general, is undesirable. Explain. Despite this, why do most countries still impose a tax on cigarette? Explain plausible arguments.arrow_forward
- Suppose the California legislature passed a sweeping law to lower the number of regulations for building homes such as decreasing the parking requirements and setback requirements. Suppose there is a housing tax. What is the effect of this law on the PES for housing? What effect would this law have on the tax burden for buyers?arrow_forwardThe following graph shows the market for the long-distance bus rides. In the absence of taxes, the equilibrium price of a ride is $5 and the equilibrium quantity is 10 million rides. Suppose that regulator levies an excise tax on bus service providers. The amount of excise tax equals $2 per ride. Calculate the tax revenue. $12 million $8 million $16 million $9 millionarrow_forwardCan you explain what happens when a tax is imposed on the buyer of a product and also what would happen if a tax is imposed on the seller? arrow_forward
- Daniel Patrick Moynihan, the late senator from New York, once introduced a bill that would levy a 10,000 percent tax on certain hollow-tipped bullets. A 10,000 percent tax on bullet ___ is not/is___ likely to generate a lot of revenue. Why might Senator Moynihan have proposed it? To boost the manufacturing industry of hollow-tipped bulletsTo raise revenue to support law enforcementTo discourage the use of hollow-tipped bulletsarrow_forwardThe following graph shows the market for the long-distance bus rides. In the absence of taxes, the equilibrium price of a ride is $5 and the equilibrium quantity is 10 million rides. Suppose that regulator levies an excise tax on bus service providers. The amount of excise tax equals $2 per ride. How many rides will be demanded after the introduction of the excise tax? 7 million 10 million 8 million 9 millionarrow_forwardIf tax incidence is not affected by whether the government makes buyers or sellers pay the tax then which factors determine the tax incidence?arrow_forward
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