True or False
- The price elasticities of supply and demand affect both the size of the deadweight loss from a tax and the tax incidence.
___________
- Buyers of a product will bear the larger part of the tax burden, and sellers will bear a
smaller part of the tax burden, when the supply of the product is more elastic than the
demand for the product.
__________
- Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the
good, other things equal, the larger is the deadweight loss of the tax.
__________
- A price ceiling is a legal minimum on the price at which a good or service can be sold.
__________
- A price ceiling set below the equilibrium price causes quantity demanded to exceed
quantity supplied.
__________
| Market | Characteristic |
| A | Demand is very inelastic. |
| B | Demand is very elastic. |
| C | Supply is very inelastic. |
| D | Supply is very elastic. |
6. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will allow the government to minimize the deadweight loss(es) from the tax?
| a. | market A only |
| b. | markets A and C only |
| c. | markets B and D only |
| d. | market C only
____________
7. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will maximize the deadweight loss(es) from the tax? | a. | market B only | | b. | markets A and C only | | c. | markets B and D only | | d. | market D only | __________ |
8. The vertical distance between points A and B represents a tax in the market.
- The imposition of the tax causes the quantity sold to increase or decrease by _____ units?
- The imposition of the tax causes the price paid by buyers to increase or decrease by $_____
c) The imposition of the tax causes the price received by sellers to increase or decrease by $____
d) The amount of the tax on each unit of the good is $_________
- The per-unit burden of the tax on buyers is $_________
- The per-unit burden of the tax on sellers is $ _______
- The amount of tax revenue received by the government is $ ________
- The amount of deadweight loss as a result of the tax is $________
- The loss of consumer surplus as a result of the tax is $_______
- The loss of producer surplus as a result of the tax is $______
- Consumer surplus without the tax is $ ______
l) Producer surplus without the tax is $______
- Total surplus without the tax is $_______
9. The vertical distance between points A and B represents a tax in the market.
- The equilibrium price before the tax is imposed is $______ and quantity is _______
- The price that buyers effectively pay after the tax is imposed is $________
- The price that sellers effectively receive after the tax is imposed is $_______
- The per-unit burden of the tax on buyers is $________
- The per-unit burden of the tax on sellers is $_______
f) The amount of tax revenue received by the government is equal to $__________
g) The amount of deadweight loss as a result of the tax is $__________
- The tax results in a loss of consumer surplus that amounts to $_________
- The tax results in a loss of producer surplus that amounts to $_________
10a.
Refer to Figure above: Which of the following price controls would cause a shortage of 20 units of the good?
| a. | a price ceiling of $4 |
| b. | a price ceiling of $5 |
| c. | a price floor of $7 |
| d. | a price floor of $8 |
ANS: ______
10b.
Refer to Figure above: Which of the following price controls would cause a surplus of 20 units of the good?
| a. | a price ceiling of $4 |
| b. | a price ceiling of $5 |
| c. | a price floor of $7 |
| d. | a price floor of $8 |
ANS: ________
10c.
Refer to Figure above. Suppose a price ceiling of $5 is imposed on this market. As a result,
| a. | the quantity of the good supplied decreases by 20 units. |
| b. | the demand curve shifts to the left so as to now pass through the point (quantity = 40, price = $5). |
| c. | buyers’ total expenditure on the good decreases by $100. |
| d. | the price of the good continues to serve as the rationing mechanism. |
ANS: _______
10d.
Refer to Figure above. Suppose a price floor of $7 is imposed on this market. As a result,
| a. | buyers’ total expenditure on the good decreases by $20. |
| b. | the supply curve shifts to the left so as to now pass through the point (quantity = 40, price = $7). |
| c. | the quantity of the good demanded decreases by 20 units. |
| d. | the price of the good continues to serve as the rationing mechanism. |
ANS: ______