Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 6.4, Problem 3ST
To determine
The government tax revenue and the
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Which of the following statements about the relationship between elasticity and tax incidence are true ?
Choose one or more:A.
A tax on a good for which both demand and supply are relatively inelastic will cause a relatively large transfer of welfare from consumers and producers to the government.
B.The incidence of a tax depends on who the tax is placed on.
C.If a tax is imposed on a good with a perfectly inelastic demand, then consumers bear the full incidence of the tax.
D.When demand is more inelastic than supply, producers bear more of the incidence of a tax.
E.When demand is more inelastic than supply, consumers bear more of the incidence of a tax.
Suppose that the supply of oil is elastic and demand for oil is inelastic. If the government taxes oil, who will bear most of the tax burden?
What is the tax incidence of an excise tax when demand is highly inelastic and highly elastic?
Chapter 6 Solutions
Microeconomics
Ch. 6.1 - On Tuesday, the price and quantity demanded are 7...Ch. 6.1 - What does a price elasticity of demand of 0.39...Ch. 6.1 - Prob. 3STCh. 6.1 - Prob. 4STCh. 6.2 - Prob. 1STCh. 6.2 - Prob. 2STCh. 6.4 - Prob. 1STCh. 6.4 - Prob. 2STCh. 6.4 - Prob. 3STCh. 6.4 - Prob. 4ST
Ch. 6 - Prob. 1QPCh. 6 - For each of the following, identify where demand...Ch. 6 - Prove that price elasticity of demand is not the...Ch. 6 - Prob. 4QPCh. 6 - Prob. 5QPCh. 6 - Suppose a straight-line downward-sloping demand...Ch. 6 - Prob. 7QPCh. 6 - Prob. 8QPCh. 6 - Prob. 9QPCh. 6 - Prob. 10QPCh. 6 - Suppose you learned that the price elasticity of...Ch. 6 - Prob. 12QPCh. 6 - Prob. 13QPCh. 6 - Prob. 14QPCh. 6 - A college raises its annual tuition from 23,000 to...Ch. 6 - As the price of good X rises from 10 to 12, the...Ch. 6 - The quantity demanded of good X rises from 130 to...Ch. 6 - The quantity supplied of a good rises from 120 to...Ch. 6 - In the accompanying figure, what is the price...
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- Suppose the price elasticity of demand for smartphones is 0.5 (absolute value), while the price elasticity of supply is 1.9. If the government imposes a per-unit tax of $100 on the sellers of smartphones, how will the price and quantity transacted of smartphones change? Will the sellers or the buyers bear a larger tax burden? Will the market be able to achieve economic efficiency after the tax is imposed? Explain with a diagram.arrow_forwardNeither the supply of nor the demand for a good is perfectly elastic or perfectly inelastic. Imposing a tax on the good results in a __________ in the price paid by buyers and _________ in the equilibrium quantity.arrow_forwardWould consumer or producer carry the burden of tax if good is elastic? Show on a grapharrow_forward
- Suppose households supply 560 billion hours of labor per year and have a tax elasticity of supply of 0.15. If the tax rate is increased by 10 percent, by how many hours will the supply of labor decline?arrow_forwardDetermine burden of the tax (or the incidence of the tax that falls on consumers and producer). Who gets most of the burden of the tax. Answer on the basis of elasticity. How much tax revenue is expected by the government to be raised for this good per year?arrow_forwardSuppose the supply curve for cars is more elastic than the demand curve for cars. If the government imposes a tax on car sellers, which party (buyers or sellers) will bear more of the tax burden? How will the tax burden change if the government imposed the tax on car buyers, rather than sellers?arrow_forward
- Suppose 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_forwardSuppose the government applies a specific tax to a good where the demand elasticity is -0.8, and the supply elasticity is 1.4. If a specific tax of $3.25 was placed on the good, to the arest cent, what is the price increase that consumers would pay? What is the tax incidence? Iarrow_forwardConsider the market for gasoline, illustrated in the figure to the right. Suppose the government adds a $0.75 per gallon excise tax on gasoline, which shifts the supply curve from S, to S₂, as illustrated. What is the tax incidence? Consumers pay $ of the tax and producers pay $ of the tax. (Enter your responses rounded to two decimal places.) When the demand for a product is more elastic than supply, consumers pay of the tax on the product. the majority a minority Price (dollars per gallon) 5.50- 5.00- 4.50- 4.00- 3.50- 3.00- 2.50 2.00- 1.50- 1.00- 0.50- 0.00- S₂ S₁ 10 12 14 16 18 20 22 24 26 Quantity (billions of gallons)arrow_forward
- The price elasticities of supply and demand affect both the size of the deadweight loss from a tax and the tax incidence. the size of the deadweight loss from a tax but not the tax incidence. the tax incidence but not the size of the deadweight loss from a tax. neither the size of the deadweight loss from a tax nor the tax incidence.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 on the cigarette sellers. By how much would buyers share the tax burden respectively? Show your calculation.arrow_forwardTax revenue is likely to fall due to a higher tax rate if the elasticity of demand is 0.2 and the elasticity of supply isarrow_forward
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