HW 7 Micro

(Figure: The Gas Market) The figure represents the market for gasoline. An excise tax has been levied on each gallon of gasoline supplied by producers. Based on the graph, the incidence of the tax on suppliers is:

$0.50.

Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a $1-per gallon tax is levied. As a result, the price of gasoline rises to $3.75 per gallon. The incidence of the $1 tax is _____ paid by consumers and _____ paid by producers.

$0.75; $0.25

(Figure and Table: The Market for Taxi Rides) Look at the figure and table The Market for Taxi Rides. The figure represents a competitive market for taxi rides. If the government imposes an excise tax of $2 per ride (causing the supply curve to shift upward by that amount), then the government will collect tax revenues of ________, but there will be a deadweight loss to society of ________ caused by this tax.

$16 million; $2 million

Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold. If the demand curve is downward-sloping and the supply curve is upward-sloping:

The price of sweaters will increase but by less than $10.

Suppose the price elasticity of demand for yachts equals 4.04, while the price elasticity of supply for yachts equals 0.22. If Congress reinstates a luxury tax on yachts, who will pay more of the tax?

Yacht builders will pay more.

(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The government recently levied a $10 tax on the producers of blue jeans. What area or areas in the graph identify consumer and producer surplus after the tax was levied?

a + f

If the United States removed all excise taxes on cigarettes, which of the following would NOT occur?

a decrease in producer surplus

(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The government recently levied a $10 tax on the producers of blue jeans. What area or areas in the graph identify tax revenue?

b + d

(Figure: The Market for Blue Jeans) Look at the figure The Market for Blue Jeans. The government recently levied a $10 tax on the producers of blue jeans. What area or areas in the graph identify the loss of consumer surplus due to the tax?

b+c

Look at the figure The Market for Blue Jeans. The government recently levied a $10 tax on the producers of blue jeans. What area or areas in the graph identify deadweight loss?

c + e

Look at the figure The Market for Blue Jeans. The government recently levied a $10 tax on the producers of blue jeans. What area or areas in the graph identify the loss of producer surplus due to the tax?

d + e

An excise tax causes inefficiency if the number of transactions in a market is reduced as a result of the tax. Because the tax discourages mutually beneficial transactions, there is a(n) _____ from a tax.

deadweight loss

(Figure: The Market for Lattes) Look at the figure The Market for Lattes. If the government assesses a tax of $0.75 on sellers of lattes, the price producers will receive for a latte after the tax will

decrease from $2 to $1.50.

(Figure: The Market for Lattes) Look at the figure The Market for Lattes. If the government assesses a tax of $0.75 on each latte, the price the consumer pays for a latte after the tax will:

increase from $2 to $2.25.

To minimize deadweight loss, markets where demand is relatively _____ and supply is relatively _____ should be taxed.

inelastic; inelastic