ECON TEST 3 Prep

The graph shows the demand and supply of bungee jumps in Xtremeland. The government decided to impose an excise tax on bungee jumps to help pay for the high number of back and neck injuries.

$80: $80*20,000 = 1600000 $40: $40*30,000 = 1200000 $120: $120*10000 = 1200000 Setting too high a tax rate can reduce tax revenue

The graph shows the market for office rental space. A per month excise tax is imposed on firms selling office space. D is the demand curve, S1 is the supply curve in the absence of the tax, and S2 represents the supply curve that includes the tax.

1) The larger tax incidence falls on the producers (suppliers). 2) Option A. The excise tax falls on the producers (suppliers) because the supply of office rentals is more inelastic than the demand for office rentals. 1) The larger tax incidence falls on the producers (suppliers) because they are the ones who are directly affected by the tax. As the tax is levied on the firms selling office space, they have to either absorb the tax by reducing their profit margins or pass it on to the consumers by increasing the price of office space. In this case, the supply curve shifts upward, indicating a higher price for office space, which suggests that the producers (suppliers) bear a larger portion of the tax burden. 2) The excise tax falls on the producers (suppliers) because the supply of office rentals is more inelastic than the demand for office rentals. Elasticity measures the responsiveness of quantity demanded or supplied to changes in price. In this case, if the supply of office rentals is more inelastic (less responsive) than the demand for office rentals, it means that the producers (suppliers) have limited ability to adjust their quantity supplied in response to changes in price.

Jim is washing his laundry and, as he checks his pockets, finds an unexpected windfall of $50. Elated because it is $50 more than he had before, he decides to splurge on a lobsterand-filet-mignon dinner. Jim's mistake is an exam Geneva is a researcher at a biotech firm, and faces decision paralysis every time a big question is posed to her. Whenever her boss asks her what project she wants to work on, she always says she is indifferent, so eventually her boss stops asking for her input and just assigns her however he wants. Geneva's mistake is an e Tiffany lives in Alameda, California. She recently received two job offers, one in Oakland and one in San Francisco. The San Francisco job pays $1000 more per year, so Tiffany accepts the job. However, the travel time, which is an hour more each way, quickly becomes a burden. Tiffany's mistake is an e Steve is trying to diet. Each day he says the diet will begin today, but each time he sees potato chips, he indulges in them. The next day, he promises his diet will really start, but the vicious cycle continues

Alexander's mistake is an example of

The graphs show four markets in which a tax will be imposed

Graph 1: Buyers pay the majority This graph represents that the supply curve is more elastic than the demand curve. Since the demand curve is comparatively inelastic, it means that the majority of taxes will be paid by the consumers as quantity demanded will not change by much due to the imposition of taxes. Graph 2: Buyers pay all the tax This graph represents that the supply curve is elastic while the demand curve is perfectly inelastic. The entire tax burden will be imposed on the buyers as the quantity demanded will not change due to the imposition of taxes. Graph 3: Sellers pay all the tax This graph shows that the demand curve is elastic while the supply curve is perfectly inelastic. The entire tax burden will be imposed on the sellers as the quantity supplied will not change due to the imposition of taxes. Graph 4: Sellers pay the majority The graph shows that the demand curve is more elastic than the supply curve. Since the supply curve is comparatively inelastic, it means that the majority of taxes will be paid by the producers as quantity supplied will not change by much due to the imposition of taxes.

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 falls on:

Mostly buyers of the gasoline

Suppose the Canadian government has decided to place an excise tax of per tire on producers of automobile tires. Excise taxes are also called sales or commodity taxes. Previously, there was no excise tax on automobile tires. As a result of the excise tax, producers of tires, such as Bridgestone and Michelin, are going to alter their tire prices. The graph illustrates the demand and supply curves for automobile tires before the excise tax. Please shift the appropriate curve or curves on the graph to demonstrate the impact of the new tax. What is the price consumers pay for a tire post tax? Round to the nearest 10.

Move supply line to the left The intersection is the price paid by consumers Price paid by consumers $100 Price paid by producers $80 The imposition of an excise tax on producers of automobile tires will increase the cost of production for the producers. As a result, the supply of automobile tires will decrease, leading to a leftward shift in the supply curve. This shift in the supply curve will cause the equilibrium price of automobile tires to increase, and the equilibrium quantity of automobile tires to decrease. In other words, the excise tax will cause a decrease in the quantity of automobile tires supplied at any given price, resulting in a higher price for consumers and a lower price received by the producers.

Please label each scenario as to whether or not the person is acting rationally and making cho desire most. Steven's family is at a Korean restaurant. He orders some spicy barbeque pork, but it tastes refund or replacement, so he leaves it uneaten. His parents are dismayed, as this is a better up, but he sees no point in suffering more than he already has. Steven is acting Jacklyn obtains her first credit card. Since she sees its balance as separate from her checkin on designer clothes she cannot really afford. She figures that it is all right to spend the mon the bill until later. Jacklyn is acting Brian's economics professor assigns online homework that is due at 11:55 p.m. Although B than anything else going on, he does not begin the assignment until 11 p.m., even though p hours. He does not expect this one to be any easier but figures that if he is just more focuse time to spare. Brian is actin

Steven is acting: Rationally Jacklyn is acting: Irrationally Brian is acting: Irrationally Julie is acting: Rationally

Economic models are typically based on the principle that people behave rationally. However, people behave rationally. Which of the statements is NOT a reason why economists still consider their models valid, in of people?

The existing models have been in place for so long, they are considered untouchable, the equivalent of an economic law

Ebenezer Scrooge has just been elected the new President of Christmasland. As his first action, he is thinking of introducing an excise (or commodity) tax on either Santa hats or Christmas lights. The demand and supply curves for both products are shown on the graphs. Use the graphs to answer the questions. a) What would be the total deadweight loss of a $3 tax on Santa hats? b) What would be the total deadweight loss of a $3 tax on Christmas lights? c) The deadweight loss for Santa hats and the deadweight loss for Christmas lights are different because the graph with the higher deadweight loss has a more

a) .5 *base *height = .5 *3**(6000-4000) = 3000 b) 5 *base *height = .5 *3**(6000-5000) = 1500 c) elastic demand curve

a) Suppose the government levies this tax on manufacturers for each bag of potato chips they produce. Please shift the appropriate curve or curves to illustrate this. b) Suppose the government levies this tax on producers for each bag of potato chips they purchase. Please shift the appropriate curve or curves to illustrate this.

a) shift supply up (left) up to 2.0 price paid by consumer = 2 price recieved by seller = 1 b) shift demand down (left) to 1 price paid by consumer = 2 price recieved by seller = 1

The graph shows the market for office rental space. A per month excise tax is imposed on firms selling office spa D is the demand curve, S1 is the supply curve in the absen of the tax, and S2 represents the supply curve that includes the tax a) Which group has the larger tax incidence? b) This excise tax falls on this group because

a) the larger tax incidence falls on the producers b) supply of office rentals are more inelastic than the demand for office rentals

Suppose the government in your city imposes a $0.50 excise tax on gasoline. The burden of this tax falls on:

both buyers and sellers

Suppose that a city government introduces a $0.50 excise (commodity) tax on consumers of bottles of soda to improve the health of its citizens. Manipulate the accompanying graph to demonstrate the impact of the tax on the market for soda. What would be the new equilibrium quantity if instead of taxing consumers, the city taxed producers?

move D to the left (down) Values are the new equilibrium intersection and the point right above the new intersection Number is 4 because This indicates that the new equilibrium quantity would not change if the city instead opted to charge suppliers a $0.50 tax. New equilibrium number: 4,000 bottles