Exam 6: Taxes and Subsidies

Suppose there is a tax of $50 on bicycles. The supply curve for bicycles slopes upward. The demand curve for bicycles slopes downward. Sellers are required by law to pay the tax. If the tax is reduced from $50 to $10 per bicycle, then the:

A market is described by the equations Q_d = 40 - 2P, and Q_s = -20 + 4P. A tax of $3 is placed on the seller of the product such that the new supply equation becomes Q_s = -20 + 4(P - T), where T is the tax in dollars. What is the new price paid by buyers and the new take-home price for the sellers? What is the total amount of the deadweight loss created in this market?

Suppose that there is a tax of $1 per unit, and the elasticity of supply is 3 and the elasticity of demand is 2 (in absolute value). How much of the $1 tax is paid by sellers?

A market is described by the equations Q_d = 100 - P, and Q_s = P. A subsidy of $10 is awarded to the seller of the product such that the new supply equation becomes Q_s = (P + S). What is the quantity of nonbeneficial trades that take place in this market? What is the total cost of the subsidy for taxpayers? What is the total amount of the deadweight loss in this market as a result of the installation of the subsidy?

Assume that cigarettes sell for $7 per pack in New Jersey and $3 per pack in South Carolina, and New Jersey taxes cigarettes at $3.00 per pack and South Carolina taxes cigarettes at $0.10 per pack. How might cigarette sellers respond to the after-tax price differential between the two states?

The government paying farmers to plant more corn is an example of a subsidy.

Use the following to answer questions: Figure: Tax on Sellers of Gadgets -(Figure: Tax on Sellers of Gadgets) According to the figure, what is the tax revenue that the government collects from the tax on gadgets?

Use the following to answer questions: Figure: Supply and Demand with Subsidy -(Figure: Supply and Demand with Subsidy) Refer to the figure. The quantity traded with a $2 subsidy is:

Which of the following statements is TRUE? I. A $0.50 tax on each fishing lure sold raises the price per lure by $0.50. II. A tax on sellers is equivalent to a tax on buyers. III. A tax on buyers is analyzed by shifting the demand curve up by the amount of the tax.

Use the following to answer questions: Figure: Tax on Consumers of Gadgets -(Figure: Tax on Consumers of Gadgets) Refer to the figure. What is the tax revenue that the government collects from the tax on gadgets?

Figure: Commodity Tax Use the figure to answer the following questions. a. What is the size of the tax? b. What is the equilibrium quantity before the tax? c. What is the equilibrium quantity with the tax? d. What is the price consumers pay before taxes? e. What is the price consumers pay with the tax? f. What is the price sellers receive before taxes? g. What is the price sellers receive with the tax? h. What is the deadweight loss of the tax? i. What is the government tax revenue? j. What is consumer surplus before the tax? k. What is consumer surplus with the tax? l. What is producer surplus before the tax? m. What is producer surplus with the tax?

If it previously existed, a tax decreases both consumer and producer surplus.

Use the following to answer questions: Figure: Consumer and Producer Surplus -(Figure: Consumer and Producer Surplus) According to the figure, what is the value of the deadweight loss?

If there is a tax on both medicine and sugar, ceteris paribus, how will the deadweight losses in each market compare?

Which of the following statements is correct?

Use the following to answer questions: Figure: Consumer and Producer Surplus -(Figure: Consumer and Producer Surplus) According to the figure, what would happen to the deadweight loss if the tax increased to $2 per basket of apples?

A government's decision to subsidize the production of insulin for people with diabetes would mostly benefit the:

Use the following to answer questions: Figure: Tax on Sellers -(Figure: Tax on Sellers) The size of the tax in the diagram is:

Use the following to answer questions: Figure: Tax Imposed on Sellers -(Figure: Tax Imposed on Sellers) According to the figure, the price that buyers pay AFTER the tax is imposed is:

Subsidies must ultimately be paid for through taxes.