Problem Set 7
Consider the tax burden on consumers and producers of a $1 per-unit tax to be paid by producers when demand is perfectly elastic and supply is perfectly inelastic. 1) The burden of the tax on producers is ___ percent 2) The incidence of the tax falls ____ because ____
-100 -entirely on producers -consumers are infinitely price sensitive
Tax incidence is the
division of the burden of a tax between the buyer and the seller
Economic analysis tells us when government policy requires raising revenue, it should tax activities where market supply is:
inelastic, because the weak response minimizes deadweight loss
A black market
is a potential outcome of a price ceiling
When a tax is imposed on a good, at the after tax equilibrium the marginal benefit of the last unit produced ___ the marginal cost
is greater than
If a $10 sales tax is imposed on a good and the equilibrium buyer increases by $10, the tax is
paid fully by buyer
Neither the demand nor the supply of sugar is perfectly elastic or inelastic. If the government imposes a 5% tax on sugar, the
price of sugar buyers pay increases by less than 5%
If the marginal tax rate facing a consumer on the last dollar of earned income is greater than the average tax rate, the tax system is ___
progressive
To reduce inequality and poverty in an economy, the government uses a ___
progressive tax system to fund transfer payments
If a good has a tax levied on it, sellers respond to the prices that excludes the tax and not the price with the tax because
sellers do not get to keep the tax revenue
The government runs a budget surplus when ___
tax revenue exceeds its spending
Consumer sovereignty is the view that consumers have the right to choose ___, and the government should not interfere with these choices
the goods that they will consume