PRIN.OF MACROECON.(LL)-W/ACCESS>CUSTOM<
8th Edition
ISBN: 9781337888059
Author: Mankiw
Publisher: CENGAGE C
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Question
Chapter 8, Problem 6CQQ
To determine
The impact of taxes on the elasticity of demand and supply.
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If a policymaker wants to raise revenue by taxinggoods while minimizing the deadweight losses, heshould look for goods with _________ elasticities ofdemand and _________ elasticities of supply.a. small; smallb. small; largec. large; smalld. large; large
Microeconomics
Question 1: True or False. Explain.
a. When the demand curve of a good shift to
the left, it becomes more inelastic at every level
of price.
b. If the tax burden falls entirely on buyers a
good (tax in per unit imposed on seller), the
demand of that good should be perfectly
elastic.
Question 2: Suppose the demand and supply
for gasoline are given by =20-2P and Q -4+10
where P is the price in $ per gallon, and
quantity is measured in millions of gallons per
day
a. Find the equilibrium price/quantity for this
market
b. How much is the price elasticity of demand
and price elasticity of supply at this
equilibrium?
c. Suppose that the state government decides
to tax $2/gallons on consumers. Find the new
equilibrium prices and the new equilibrium
quantity
d. What is total tax payment in dollars to the
state government? How much is the share of
tax paid by consumers
e Graph your results
14
K
You are a policy maker who is interested in increasing tax
revenues in order to reduce the Federal budget deficit. One proposal that has been suggested
is increase excise taxes on certain goods. Some of the options suggested are:
• vacation travel such as cruises
• liquor and cigarettes
• gasoline
. theater and concert tickets
Based on your knowledge of elasticity of demand, which items would you choose? Explain.
Chapter 8 Solutions
PRIN.OF MACROECON.(LL)-W/ACCESS>CUSTOM<
Ch. 8.1 - Prob. 1QQCh. 8.2 - The demand for beer is more elastic than the...Ch. 8.3 - Prob. 3QQCh. 8 - Prob. 1CQQCh. 8 - Prob. 2CQQCh. 8 - Prob. 3CQQCh. 8 - Prob. 4CQQCh. 8 - Prob. 5CQQCh. 8 - Prob. 6CQQCh. 8 - Prob. 1QR
Ch. 8 - Prob. 2QRCh. 8 - Prob. 3QRCh. 8 - Why do experts disagree about whether labor taxes...Ch. 8 - What happens to the deadweight loss and tax...Ch. 8 - Prob. 1PACh. 8 - Prob. 2PACh. 8 - Prob. 3PACh. 8 - Prob. 4PACh. 8 - Prob. 5PACh. 8 - Prob. 6PACh. 8 - Prob. 7PACh. 8 - Prob. 8PACh. 8 - Prob. 9PACh. 8 - Prob. 10PA
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- Suppose we observe that when the market price of a good rises dramatically (e.g., the price of houses during the pandemic) the quantity traded increases only slightly, This would be because Answers A - D A.supply has increased and demand is very elastic. B.supply has decreased and demand is very elastic. C.supply has increased and demand is very inelastic. D. demand has increased and supply is very inelastic.arrow_forwardWhen supply curve is horizontal, elasticity of the supply would be ___________?arrow_forwarda. Describe and briefly explain the importance of the concept of elasticity.b. Explain and demonstrate using appropriate examples how elasticity when it is zero is applied at the level of the government with respect to the setting of prices for various types of goods and services.arrow_forward
- Suppose that in Australia the price elasticity of steel demand of -1.5 and the price elasticity of steel supply is 1.2. If a tax of $50 per tonne of steel is applied, then: a. The tax burden on consumers will be greater than the tax burden on suppliers. b. The tax burden on suppliers will be greater than the tax burden on consumers. c. The tax burden on consumers will be equal to the tax burden on suppliers. d. The steel price is unlikely to be substantially affected.arrow_forwarda. If price elasticity of demand is -1.3 and price increases by 2 percent, quantity demanded (increases/decreases) by (< 2 percent> 2 percent−2 percent.) b. If price elasticity of demand is -0.3 and price decreases by 2 percent, quantity demanded will (decreases/increases) by (< 2 percent−2 percent> 2 percent.) c. If price elasticity of demand is -1.3 and price increases by 2 percent, quantity demanded will (increases/decreases) by (> 2 percent−2 percent< 2 percent.) d. If price elasticity of demand is -0.3 and price decreases by 2 percent, quantity demanded will (increases/decreases) by (< 2 percent−2 percent> 2 percent.)arrow_forwardAn increase in demand will have a ____ effect on price and a ____ effect on output when supply is relatively elastic.a. larger; smallerb. larger; largerc. smaller; largerd. smaller; smallerarrow_forward
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- The Ramesy rule suggest that society should a. All of these answers are correct b. tax a few goods with elastic demand at high rates. c. tax goods with relatively inelastic demand at lower rates than goods with relatively elastic demand. d. tax lots of goods at low tax rates.arrow_forwardA sales tax will be divided so that buyers pay the full amount if Select one: a. supply is perfectly inelastic. b. supply has unitary elasticity. c. demand is perfectly inelastic. d. demand has unitary elasticity.arrow_forwardA. Option 1: Sensitive, Infinitley Sesitive or Insensitive Option 2: Elastic Demand, Inelastic Supply, Elastic Supply, or Ineleastic Demand B. Option 1: Sensitive, Infinitley Sesitive or Insensitive Option 2: Elastic Demand, Inelastic Supply, Elastic Supply, or Ineleastic Demandarrow_forward
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