Exam 6: Taxes and Subsidies

The supply of financial capital is very mobile. People can move their bank and brokerage accounts around the world and invest in foreign corporations with a click of the mouse. Therefore, taxes on financial capital:

In Free Market Environmentalism, economists Terry Anderson and Donald Leal write, "Subsidized irrigation . . . encourages farmers to break prairie sod and plant crops in arid regions. Rather than choosing drought-resistant crops that might be more appropriate in an environment undergoing global warming, farmers intensify the use of pesticides and chemical fertilizers to increase their yields. . ." (pp. 163-164). Which of the following explains the deadweight loss from irrigation subsidies?

Subsidies lead to the existence of nonbeneficial trades.

In the eighteenth century, the British Crown instituted a Stamp Tax, a commodity tax on, among other things, newspapers. During this period in history, newspapers were one of the few ways people could learn about world events, and entering the newspaper industry was relatively easy. With this in mind, who likely paid more of the tax: consumers or producers?

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

Suppose that there is a tax of $5 per unit, and the demand curve is more elastic than the supply curve. Which of the following statements could be TRUE?

Figure: Soda Market Legislators impose a tax of $0.70 on soda that reduces the quantity of soda sold from 130,000 cans of soda to 100,000, cans. How much of the $0.70 tax per can will producers pay?

Suppose that sellers require $6.70 per unit to sell 800 units. If a $2 tax per unit is placed on sellers, the sellers will require _______ per unit to sell 800 units, causing the supply curve ________.

Unlike taxes, who gets the subsidy depends on who gets the check from the government.

Which of the following statements is TRUE regarding subsidy?

When supply is more elastic than demand,

Use the following to answer questions: Figure: Deadweight Loss -(Figure: Deadweight Loss) Which of the areas in this figure represents the deadweight loss resulting from a $2 tax?

Laws requiring employers to provide health insurance to their employees put the burden of health insurance costs:

Use the following to answer questions: Figure: Demand Tax -(Figure: Demand Tax) The figure illustrates a market for gasoline with a $1 tax imposed on the buyers. What price do buyers pay for a gallon of gasoline in this market?

Commodity taxes impose a ______ upon society.

Without taxes, the market price per bag of apples is $5. With a $2 tax per bag of apples, buyers now pay $5.75 per bag. What is the final price per bag of apples received by sellers?

If buyers are required to pay a tax on top of the price, buyers' willingness to pay will:

Use the following to answer questions: Figure: Tax on Sellers -(Figure: Tax on Sellers) Refer to the figure. Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S₀ to S₁. With the tax, buyers pay ________ and sellers receive ________.

Use the following to answer questions: Figure: Taxes and Deadweight Loss -(Figure: Taxes and Deadweight Loss) In the diagram, the deadweight loss is ______ and government tax revenue is ______.

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, the value of deadweight loss is: