Chapter 6

. The price that buyers pay after the tax is imposed is

$12.00.

What is the amount of the tax per unit?

$4

How is the burden of a tax divided? (i)When the tax is levied on the sellers, the sellers bear a higher proportion of the tax burden.(ii)When the tax is levied on the buyers, the buyers bear a higher proportion of the tax burden.(iii)Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear an equal proportion of the tax burden.(iv)Regardless of whether the tax is levied on the buyers or the sellers, the buyers and sellers bear some proportion of the tax burden.

(iv) only

Suppose sellers of liquor are required to send $1.00 to the government for every bottle of liquor they sell. Further, suppose this tax causes the price paid by buyers of liquor to rise by $0.80 per bottle. Which of the following statements is correct?

- This tax causes the supply curve for liquor to shift upward by $1.00 at each quantity of liquor. - The effective price received by sellers is $0.20 per bottle less than it was before the tax. -Eighty percent of the burden of the tax falls on buyers.

Suppose the secretary of labor proposes an increase in the binding, minimum wage. Does the change in employment depend on the elasticity of demand, the elasticity of supply, both elasticities, or neither?

Elasticity of demand

The mayor of Workerville proposes a local payroll tax to fund a new water park for the city. The mayor proposes to collect half the tax from workers and half the tax from firms. The mayor will be able to successfully divide the burden of the tax equally if the

It is not possible for the tax burden to fall equally on firms and workers.

Suppose the elasticity of supply and demand are: P = 223 - 3QP = 13 + 4Q What are the consumers' price (PC) and producers' price (PP) if the government imposes a $28 per unit tax on this market?

PC = 145; PP = 117

In the spring of 2008, Senators John McCain and Hillary Clinton (who were then running for president) proposed a temporary elimination of the federal gasoline tax, effective only during the summer of 2008, in order to help consumers deal with high gasoline prices. During the summer, when gasoline demand is high because of vacation driving, gasoline refiners are operating near full capacity. In light of this, who do you predict would benefit from the temporary gas tax holiday?

Producers

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

The number of firms selling laptop computers decreases.

Refer to Figure 6-11. If the government imposes a price floor at $9, it would be

binding if market demand is Demand A and non-binding if market demand is Demand B.

If the government levies a $1,000 tax per boat on sellers of boats, then the price paid by buyers of boats would

increase by less than $1,000.

Over time, housing shortages caused by rent control

increase, because the demand for and supply of housing are more elastic in the long run.

Suppose that the demand for lava lamps is elastic, and the supply of lava lamps is inelastic. A tax of $2 per lamp levied on lava lamps will increase the price paid by buyers of lava lamps by

less than $1.

The imposition of a binding price floor on a market causes quantity demanded to be

less than quantity supplied.

If the government removes a $2 tax on buyers of cigars and imposes the same $2 tax on sellers of cigars, then the price paid by buyers will

not change, and the price received by sellers will not change.

If a price ceiling is not binding, then

the equilibrium price is below the price ceiling.

How is the burden of the tax shared between buyers and sellers? Buyers bear

three-fourths of the burden, and sellers bear one-fourth of the burden.