Micro midterm 2

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According to Arthur Laffer, the graph that represents the amount of tax revenue as a function of the size of tax looks like

An upside down u

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic

buyers of the good will bear most of the burden of the tax

The deadweight loss from a $3 tax will be largest in a market with

elastic supply and elastic demand

When a country is on the downward sloping side of the laffer curves, a cut in the tax rate will

Increase tax revenue and decrease the deadweight loss

Which of the following combinations with maximize the deadweight loss from a tax

Supple 2 and demand 2 The most elastic curves (flatter lines)

Which of the following combinations will minimize the deadweight loss from a tax

Supply 1 and demand 1 The most inelastic curves (straighter lines)

Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon

Sellers of a product will bear the larger part of the tax burden, and buyers will bear a smaller part of the tax burden, when the

demand for the product is more elastic than the supply of the product


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