Exam 7: Taxation and Government Intervention

Demonstrate graphically and explain verbally how the incentive to restrict supply (and rent-seeking activities)by suppliers is stronger the less elastic the demand.

Refer to the graph shown. Assume the market is initially in equilibrium at point b in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The welfare loss triangle from this tax is represented by area:

Refer to the graph shown. Assume the market is initially in equilibrium at point j in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The amount of revenue the government will collect from this tax is equal to the area of:

Suppose there are 1,825 taxi medallions in Boston, each valued at about $250,000. Assume the price elasticity of demand for taxi rides is 1; the current price for a taxi ride is $4.75 per mile, and the cost of the ride is $3.00 per mile. How much would a person be willing to pay for a new medallion if the city increased the number of medallions to 2,000? (Hint: The price of the medallions is equal to the total profit from the average total number of miles each medallion will accumulate. )

Refer to the graph shown. Initial market equilibrium is at the intersection of the demand curve and S₀. When government imposes a per-unit tax, supply shifts from S₀ to S₁. The deadweight loss associated with this tax is represented by area:

Refer to the graph shown. With an effective price ceiling at Pc, total surplus is reduced by:

Refer to the graph shown. An effective price ceiling at $3 imposes a deadweight loss of:

Refer to the graph shown. The segment of the demand curve between the initial equilibrium price of $5.00 and the new equilibrium price of $3.00 is:

Refer to the graph shown. Assume the market is initially in equilibrium at point b in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The effect of the tax is to raise equilibrium price from:

When supply and demand are both elastic, a price floor will cause a:

Refer to the graph shown. With an effective price ceiling at Pc, the quantity supplied:

A per-unit tax will result in a deadweight loss unless the tax causes no change in:

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, producer surplus will fall from:

Suppose the equilibrium price of organic almond butter is $10 a jar. At that price, quantity of almond butter demanded and supplied is 100,000. If a $6 tax per jar paid by suppliers increases the equilibrium price to $14 per jar and reduces the equilibrium quantity sold to 90,000:

If sellers bear 1/3 of the tax burden and elasticity of demand is 2, what is the elasticity of supply?

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, the equilibrium price will change to:

Refer to the graph shown. If the price were at the market equilibrium price, the total surplus would be equal to:

Refer to the graph shown. If the price were somehow held at $8.15 per unit, consumer surplus would then equal:

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. If the government imposes a $4 per-unit tax on this product, consumer surplus will fall from:

Refer to the graph shown. If the government imposed a price ceiling of $4, the quantity purchased by consumers in this market would: