Economics Chapter 6

At perfect elasticity the buyers pay how much of the tax?

100%

True or false: the incidence of tax depends on whether the tax is levied on buyers or sellers

False, it does not

Incidence of Tax

How the burden of a tax is shared among market participants. How is tax shared between buyer and seller.

When a good is taxed what happens to the quantity of the good sold in the new equilibrium?

It gets smaller

Taxes cause buyers to... and sellers to...

Pay more for the good and receive less for selling the good.

A tax on a good does what...

Places a wedge between the price paid by buyers and the price received by sellers. Meaning that when the market moves to a new equilibrium, buyers pay more for a good and sellers receive less for it.

Very Elastic Supply + Inelastic Demand does what to the price buyers pay and what to the amount sellers receive? Who bears most of the tax in this case?

Price paid by buyers rises substantially and the price received by sellers falls very little. The buyers bear most of the burden in this case.

Very inelastic supply and very elastic demand does what to the price buyers pay and what to the amount sellers receive? Who bears most of the tax in this case?

Price paid by buyers rises very little and the price received by sellers falls substantially. This means that in this case the sellers bear most of the burden.

What side of the market does the tax burden most heavily effect and why?

The less elastic side because that side of the market cannot respond as easily to the tax by changing the quantity bought or sold.

What happens to the equilibrium quantity of a good when the government levies a tax on it?

The quantity falls

True or False: A small elasticity of demand means that buyers do not have good alternatives to consuming a particular good?

True

True or False: A small elasticity of supply mean that sellers do not have good alternatives to producing a good.

True

True or False: A tax burden falls more heavily on the side of the market that is less elastic

True

True or False: A tax on a market shrinks the market

True

True or False: Buyers and sellers share the burden of taxes?

True

True or False: The incidence of a tax depends on the price elasticities of supply and demand

True