Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 5, Problem 2DQ
To determine
The special interest and the collective-action problem.
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Suppose George made $20,000 last year and that he lives in the country of Harmony. The way Harmony levies income taxes, all
citizens must pay 10 percent in taxes on their first $10,000 in earnings and then 50 percent in taxes on anything else they might earn.
Given that George earned $20,000 last year, his marginal tax rate on the last dollar he earns will be
rate for his entire income will be
and his average tax
O 10 percent; 50 percent
O 50 percent; less than 50 percent
O 10 percent; less than 50 percent
O 50 percent; 50 percent
Question 5:
Combined state and federal taxes on gasoline average around 50 cents per gallon, and these taxes are statutorily levied on gasoline sellers. Because
the demand for gasoline is relatively inelastic compared to the supply of gasoline:
buyers likely do not bear much of the actual burden because it is statutorily levied on sellers who must submit the tax payments.
sellers likely bear most of the actual burden of the tax through lower gasoline prices.
O the net price received by sellers after they pay taxes likely falls by almost the full amount of the tax.
O buyers likely bear most of the actual burden of the tax through higher gasoline prices.
Suppose George made $20,000 last year and that he lives in the country of Harmony. The way Harmony levies income taxes, each citizen must pay 10 percent in taxes on their first $10,000 in earnings and then 50 percent in taxes on anything else they might earn. So given that George earned $20,000 last year, his marginal tax rate on the last dollar he earns will be __________ and his average tax rate for his entire income will be _________________. a. 50 percent; 50 percent. b. 50 percent; less than 50 percent. c. 10 percent; 50 percent. d. 10 percent; less than 50 percent.
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- Suppose that a country has 20 million households. Ten million are poor households that each have labor market earnings of $20,000 per year and 10 million are rich households that each have labor market earnings of $80,000 per year. If the government enacted a marginal tax of 10 percent on all labor market earnings above $20,000 and transferred this money to households earning $20,000 or less, would the incomes of the poor rise by $8,000 per year? O A. No. Workers in rich and poor households would work less because of the marginal tax. O B. Yes. 10% of $80,000 is $8,000; therefore, $8,000 from each rich household would be transferred to each poor household. O C. There is not enough information to determine household behavior in this case. O D. No. Only workers in rich households would work less because of the marginal tax.arrow_forwardWhich of the following statements is correct? Choose an answer: O 1. Regardless of which side of the market the tax is levied on, the more inelastic side of the market bears the higher tax burden. O 2. If the supply is more elastic than the demand, then the suppliers bear the greater tax burden than the buyers. 3. The tax burden is incurred on the side of the market where the tax is levied. O 4. The tax burden is always borne half by the supplier and half by the customer. O 5. If the demand is more inelastic than the supply, then the providers bear the greater tax burden than the buyers. O00arrow_forwardSuppose that the demand and supply functions for a good are given as follows: Demand: 0 = 600-5P Supply: 0 Suppose now that government imposes $27 tax per unit of output on sellers. What is the burden on sellers? =-300+4P O 27 12 15arrow_forward
- Suppose demand is represented by P = 100 - 2Q, and supply is represented by P = 5 + 3Q. If the government imposes a $5 per unit tax, to be collected from the buyers, what is the change in total surplus between the pre- and post-tax equilibriums? O-$87.5 O-$2.5 O-$5 O-$92.5arrow_forwardSuppose that the for every 10% increase in the price of gasoline, consumers will decrease the quantity demanded by 1%, and suppliers will increase their supply of gasoline by 9%. Next, suppose that there is a $0.50 per gallon tax on gasoline, and after the tax quantity exchanged in the market is 15 billion gallons of gasoline. Given this information, what is the total government revenue from the tax? What is the consumer and producer tax incidence (how much of the tax revenue would have come from consumers, and how much from suppliers)? Search entries or author Reply. Unread ↓ 5 5 Replies are only visible to those who have posted at least one reply.arrow_forwardImagine that the demand curve for beer is given by P=9-Q and supply for beer is given by P=1+Q. What is the deadweight loss associated with a tax of $3 per unit? 12 O 2.25 O None of the above. O 6.25arrow_forward
- Suppose that the U.S. government decides to charge wine producers a tax. Before the tax, 20 million bottles of wine were sold every month at a price of $5 per bottle. After the tax, 13 million bottles of wine are sold every month; consumers pay $6 per bottle, and producers receive $3 per bottle (after paying the tax). The amount of the tax on a bottle of wine is ____ per bottle. Of this amount, the burden that falls on consumers is ____ per bottle, and the burden that falls on producers is _____ per bottle. (Answer all) True or False: The effect of the tax on the quantity sold would have been larger if the tax had been levied on consumers.arrow_forward20 18 S 16 14 12 10 8 D 4 2 0 + 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity Suppose that supply and demand at a market are represented by curves S and D at the figure above (notice that the vertical axis grid has increments of $2) and then a tax of $6 dollars per unit is imposed on buyers. What is the tax burden on the sellers? $8 $6 $4 $2 Pricearrow_forwardSuppose that the U.S. government decides to charge cola consumers a tax. Before the tax, 15 million cases of cola were sold every month at a price of $5 per case. After the tax, 9 million cases of cola are sold every month; consumers pay $6 per case (including the tax), and producers receive $2 per case. The amount of the tax on a case of cola is _____ per case. Of this amount, the burden that falls on consumers is _____ per case, and the burden that falls on producers is _____ per case. True or False: The effect of the tax on the quantity sold would have been the same as if the tax had been levied on producers.arrow_forward
- Consider the market for rubber bands,a. Lf this market has very elastic supply andvery inelastic demand, how would the burdenol a tax on rubber bands be shared betweenconsumers and producers? Use the tools ofconsumer surplus and producer surplus in youranswer.b. II this market has very inelastic supply and veryelastic demand, how would u,c burden of a taxon rubber bands be shared between consumersand producers? Contrast your answer with youranswer to part (a).arrow_forward4 l 51% a 12:02 O Worksheet (25%) Suppose that the governrnent irmposes a tax oni cigarettes. Use the diagram below to answer the questions D is the demand curve before tax S is the supply curve before tax and S is the supply curve after the tax. Price 18 12 10 10 12 Qua (a) For the market for cigarettes without the tax indicate: () Price paid by consumers (1i) Price paid by producers () Quantity of cigarettes sold (iv) Buyer's reservation pricearrow_forwardQUESTION 16 16. Is the total expenditure of revenue on a government program (revenue collected by a tax) the full measure of the program's cost to society? O a) Yes. O b) No, because the benefit to society always exceeds the dollar cost of government programs. O c) No, because this does not include the efficiency cost of collecting the tax revenue. O d) No, because it does not include the cost of program administration and losses due to corruption.arrow_forward
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