Exam 6: Taxes and Subsidies

Use the following to answer questions: Figure: Soda Market -(Figure: Soda Market) Suppose the U.S. Congress passes a tax of $0.70 on each can of soda. Using the diagram and the "wedge shortcut," determine how much deadweight loss this would create.

Figure: Tax Refer to figure. After instituting a $2 tax on the market in this figure, calculate the loss in consumer surplus, the loss in producer surplus, the government's revenue from the tax, and the area of deadweight loss.

Who bears the majority of the burden in the case of a state cigarette tax?

Figure: Two Demand Curves In the figure, demand curve _____ is the least elastic demand curve, and the lost gains from trade because of a tax are greater with demand curve _____.

Which of the following statements is TRUE? I. Buyers bear the majority of the tax burden if the tax is originally imposed on buyers. II. Buyers bear the majority of the tax burden if the tax is originally imposed on sellers. III. Buyers and sellers will always bear equal amounts of the tax burden. IV. Buyers and sellers will jointly bear the tax.

Whether buyers or sellers bear the majority of the tax burden depends on who initially imposed the tax.

Use the following to answer questions: Figure: Commodity Tax on Suppliers -(Figure: Commodity Tax on Suppliers) Refer to the figure. If a tax shifts the supply curve from S₁ to S₂, tax revenue is:

Which of the following statements is NOT true regarding subsidies?

Use the following to answer questions: Figure: Tax on Supply and Demand -(Figure: Tax on Supply and Demand) According to the figure, if the tax is placed on sellers, the equilibrium is at Point:

Use the following to answer questions: Figure: Imposition of a Tax -(Figure: Imposition of a Tax) Refer to the figure. Consumer surplus before the $4 tax is ________, and consumer surplus after the $4 tax is ________.

A subsidy will cause the biggest deadweight loss when:

Figure: Supply and Demand If the government places a tax on sellers of $0.67 per unit in this market, who will bear the burden of the tax?

The effects of taxing demanders are the same as taxing suppliers.

If instead of a per-unit subsidy, the government offered to pay for half the good's price, no matter the price:

Whether a buyer or a seller pays more of a commodity tax depends on:

A tax targeted to reduce consumption of a good by a specific quantity will raise the most revenue when:

Unlike price floors, subsidies:

With a subsidy, the price paid by the buyers exceeds the price received by the sellers.

Every summer, Matt travels by air to see his grandmother. Matt's maximum willingness to pay for an airline ticket is $260, but the airline only requires a minimum of $100 to fly him. Normally, Matt pays the airline the going market price of $250 per ticket. If the government places a $50 tax on each ticket, raising ticket prices to $270, and causing Matt not to go, what is the deadweight loss created by this tax?

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 amount of the deadweight loss caused by the imposition of the tax on gadgets?