Exam 6: Taxes and Subsidies

Use the following to answer questions: Figure: Supply Tax -(Figure: Supply Tax) In the accompanying pizza market, with a $2 tax imposed on the sellers, how much do buyers pay for a pizza?

According to economic theory, consumers should support taxes on the producer, and producers should support taxes on the consumer.

Which of the following statements is TRUE? A tax and subsidy are similar in that: I. they both create a deadweight loss. II. the burden of the tax and benefit of the subsidy depend on relative elasticities of demand and supply. III. they both change the equilibrium level of output.

Let the price elasticity of supply for a good be 1.5, and the absolute value of the price elasticity of demand be 2.0. Which of the following is TRUE in this case?

Use the following to answer questions: Figure: Imposition of a Tax -(Figure: Imposition of a Tax) Refer to the figure. After the imposition of a $4 tax, the government collects revenues of:

If the goal is to reduce cigarette consumption per smoker through taxation, a federal tax is ______ effective than a state tax.

If the government taxes walnuts at 50 cent a package, who pays the tax?

When supply and demand are equally elastic,

As long as neither supply nor demand is perfectly elastic, both suppliers and demanders will pay part of any tax.

Figure: Commodity Tax with Elastic Supply According to the figure, who bears the greater burden of the tax?

Let the price elasticity of supply for a good be 2.0, and the absolute value of the price elasticity of demand be 1.5. Which of the following is TRUE in this case?

A tax that creates the smallest deadweight loss occurs in markets with inelastic demand and inelastic supply curves.

A ________ creates a situation in which the price received by sellers ________ the price paid by buyers.

When the government subsidizes driving by building roadways, the demand for gasoline:

On June 23, 2011, Honduras announced new taxes on various industries including the telephone industry. If local consumers have access to the Internet independent of telephones, and the local phone industry's main consumer base is in Honduras, who will bear most of burden of this tax and why?

The supply of labor is not very internationally mobile, in part because people in different countries speak different languages. If everyone learned the same language, worker mobility would increase and:

Suppose the government is attempting to discourage consumption of two goods: Good X and Good Y. Good X has a very elastic demand and Good Y has a very inelastic demand. The government plans to implement a tax on the suppliers of both goods. If the elasticity of supply for both goods is perfectly elastic, which tax will be more effective at reducing consumption and why?

With a tax on producers, demand:

The burden of a tax rests most heavily with the party who can better "escape" the tax.

Use the following to answer questions: Figure: Soda Market -(Figure: Soda Market) After the imposition of a per-unit tax on production, consumers pay $5.00 per unit and producers receive $4.95 per unit. What is the value of the per unit tax?