Ch.7

Taxes on buyers

Shift Demand Curve left

Excise Taxes

Taxes placed on manufactured products.

Excise tax on buyers

A tax on a unit of a specific good Price= price the ice cream parlor charges+ $2.00 from government -reduces market demand for ice cream cones -Parlor reduces the price to stay in business

Excise taxes and elasticity

Because buyers continue to purchase nearly the same quantity of ice cream cones with the tax, sellers can easily pass the tax to buyers in the form of higher prices. Occurs regardless of what side is required to pay the tax. Tax also reduces the quantity by a smaller amount allowing the gov to collect more.

Level of prices

Higher prices, more elastic

Exercise tax impact

Impacts market efficiency by reducing quantity of goods sold in a market, though this is partially offset by the tax revenues collected by the govermnent

Are inelastic or elastic products better for excise taxes/ create a greater burden.

Inelastic

Time

More elastic over time

Excise tax on sellers

Price the seller sells= revenue for that price would be the price itcharges the consumer minus the $2.00 tax -Reduces supply of ice cream cones and pushes the market price higher

Example of inelastic demand

The more inelastic side of the market incurs the greater share of the tax burden. Secondly, the more inelastic the market, the smaller the effect the tax has on market quantity, and then the greater gov revenue.

Suppose that owners refill their pet's prescription every month. If the government eliminates all taxes on pet medications, who will benefit more? a. Pet owners would receive most of the tax savings. b. Pet owners and drug companies would share the tax savings equally. c. Drug companies would receive most of the tax savings. d. Neither pet owners nor drug companies would see any tax savings.

a

Which of the following will occur when a new tax is placed on satellite radio services? a. The price consumers pay will rise by less than the amount of the tax. b. Consumers will end up with the entire burden of the new tax c.The quantity of satellite radio services will rise to make up for the tax. d. The profits of satellite radio companies will rise.

a

The government places excise (per unit) taxes on a variety of goods consumers buy, including gasoline, cigarettes, and alcoholic beverages. How would you describe the demand elasticity of goods most likely to be subject to excise taxes? a. They tend to be perfectly elastic. b. They tend to be elastic c. they tend to be inelastic d. they tend to be unitary elastic

b

Suppose the government in your city imposes a $.50 excise tax on gasoline. The burden of this tax falls on:

both buyers and sellers

When cigarette taxes are raised, what is a potential social benefit that may result? a. The price that consumers pay will fall bc demand is elastic. b. The total amount of taxes collected will fall. c. The quantity of cigarettes purchased will fall, as some consumers will stop smoking. d. Companies will develop healthier cigarettes.

c

If a city places a $10 tax on every skateboard sold, who ends up with the burden of the tax? a. Skateboard shops will pay all of the tax because it does not want to lose any customers b. Skateboard consumers will pay all of the tax because stores will pass the tax onto customers. c. Neither consumers nor shops will face any burden of the tax d. Skateboard consumers and shops will likely share the burden of the tax.

d

Suppose the government in your City imposes a $0.50 excise tax on gasoline. If demand for gasoline is more inelastic than its supply, then the burden of this tax will be shared:

mostly by buyers of gas.

Higher total cost of an ice cream cone

reduces demand, shifting demand curve to the left by the amount of the tax. Ice cream parlor must reduce the price to keep customers who don't want to payes

I'm trying to predict whether or not my roommate will buy more or less milk this week than last week. All he tells me is that his oreo-price elasticity of demand for milk is always positive. I also know thtat the price of milk is the same as last week. In fact everything is the same as last week

substitutes

Factor monility

the more specialized inputs are the less firms