CHAPTER 6 MICROECONOMICS

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

more

If a tax is imposed on a market with elastic demand and inelastic supply:

sellers will bear most of the burden of the tax.

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?

Producers carry the majority of the tax burden.

When the supply of a good is perfectly elastic:

all of the benefits of the subsidy go to consumers.

A given tax will impose a greater deadweight loss when:

both supply and demand are elastic.

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

buyers

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

increases.

If a tax is imposed on sellers of a product, the demand curve will:

not shift.

(Figure: Tax Imposed on Sellers) According to the figure, the price that sellers receive AFTER the tax is imposed is:

$3.40.

(Figure: Tax on Sellers) The size of the tax in the diagram is:

$4.

(Figure: Tax on Sellers) Refer to the figure. Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S 0 to S 1. The equilibrium quantity sold under the tax is:

12

If the government imposes a per cigarette tax on smoking, which of the following is most likely to occur?

Cigarettes would get bigger and/or more potent as a way of avoiding part of the tax.

A commodity tax increases gains from trade.

False

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

False

Why are there more births in the United States in late December than in early January?

Parents get a tax deduction if babies are born before the year end.

If consumers pay 100 percent of a commodity tax, what could one conclude?

The commodity in question has a perfectly elastic supply curve.

(Figure: Commodity Tax with Elastic Demand)According to the figure, who bears the greater burden of a commodity tax?

The seller will bear the greater burden of the tax.

Why do cotton growers spend billions of dollars to dam rivers and transport water hundreds of miles to grow cotton in California deserts?

The water used to grow California cotton is highly subsidized by the government.

Ceteris paribus, the more elastic the supply curve, the larger the total subsidy.

True

If buyers pay $10 per unit and sellers receive $8.50 per unit, the tax is $1.50 per unit.

True

Subsidies must ultimately be paid for through taxes.

True

Which of the following statements is correct?

When demand is more elastic than supply, sellers pay more of the tax.

By law, workers pay half the Social Security tax and employers pay the other half. Is this a fair way to allocate the tax?

Yes, the legal responsibility for the tax has nothing to do with who ultimately pays, so it is as good an allocation as any other.

With a tax on producers, supply:

decreases.

With a subsidy to consumers, supply:

remains the same.