Question 1

Which of the following is correct? A tax burden
A)falls more heavily on the side of the market that is more elastic.
B)falls more heavily on the side of the market that is less elastic.
C)falls more heavily on the side of the market that is closest to unit elastic.
D)is distributed independently of the relative elasticities of supply and demand.

Accepted Answer

A tax burden falls more heavily on the side of the market that is less elastic. This is because when a tax is imposed, both the buyers and the sellers share the burden of the tax. In a less elastic market (i.e. where there are no close substitutes), buyers and sellers are less responsive to changes in price. As a result, when a tax is imposed, they are less likely to adjust their behavior and more likely to bear the burden of the tax in the form of higher prices or lower revenue. Conversely, in a more elastic market, buyers and sellers are more responsive to changes in price, and can more easily shift the burden of the tax onto the other party by adjusting their behavior.

Question 2

In 1990, Congress passed a new luxury tax on items such as yachts, private airplanes, furs, jewelry, and expensive cars. The goal of the tax was to
A)raise revenue from the wealthy.
B)prevent wealthy people from buying luxuries.
C)force producers of luxury goods to reduce employment.
D)limit exports of luxury goods to other countries.

Accepted Answer

The goal of the luxury tax was to raise revenue from the wealthy by placing a tax on their purchases of luxury items.

Question 3

Which of the following statements is correct?
A)A tax levied on buyers will never be partially paid by sellers.
B)Who actually pays a tax depends on the price elasticities of supply and demand.
C)Government can decide who actually pays a tax.
D)A tax levied on sellers always will be passed on completely to buyers.

Accepted Answer

The statement "Who actually pays a tax depends on the price elasticities of supply and demand" is correct. The incidence of a tax is determined by the relative price elasticities of demand and supply. If demand is relatively inelastic and supply is relatively elastic, then most of the tax will be borne by consumers. If demand is relatively elastic and supply is relatively inelastic, then most of the tax will be borne by producers. Therefore, it is not possible to say for certain who will bear the burden of the tax, but it depends on the price elasticities of supply and demand.

Question 4

Figure 6-30
Panel (a)
Panel (b)   Panel (c) 
-Refer to Figure 6-30. In which market will the tax burden be most equally divided between buyers and sellers?
A)the market shown in panel (a).
B)the market shown in panel (b).
C)the market shown in panel (c).
D)All of the above are correct.

Accepted Answer

In panel (c), the supply and demand are relatively elastic, meaning that both buyers and sellers can easily adjust their behavior in response to the tax. This results in a smaller deadweight loss and a more equal division of the tax burden between buyers and sellers. In contrast, in panels (a) and (b), either the supply or demand is relatively inelastic, making it more difficult for sellers or buyers to adjust their behavior and resulting in a larger deadweight loss and a greater burden on one party.

Question 5

Figure 6-29
Suppose the government imposes a $2 on this market. 
-Refer to Figure 6-29. The buyers and sellers will bear an equal share of the tax burden if the demand is
A)D1, and the supply is S1.
B)D2, and the supply is S1.
C)D1, and the supply is S2.
D)D2, and the supply is S2.

Accepted Answer

The answer of Figure 6-29
Suppose the government imposes a $2...

Question 6

Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect
A)most of the burden of the tax to fall on sellers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.
B)most of the burden of the tax to fall on buyers of cigarettes, regardless of whether buyers or sellers of cigarettes are required to pay the tax to the government.
C)the distribution of the tax burden between buyers and sellers of cigarettes to depend on whether buyers or sellers of cigarettes are required to pay the tax to the government.
D)a large percentage of smokers to quit smoking in response to the tax.

Accepted Answer

When demand is inelastic and supply is elastic, the burden of the tax falls mostly on buyers, regardless of whether buyers or sellers are required to pay the tax. This is because buyers have a limited ability to reduce their demand for cigarettes when the price (due to the tax) goes up, while suppliers can switch to producing other goods that are more profitable. As a result, buyers end up paying more of the tax than sellers. Therefore, most of the burden of the tax falls on buyers of cigarettes. Choice A is incorrect because the burden of the tax falls mostly on buyers, not sellers. Choice C is incorrect because the distribution of the tax burden is not affected by who is required to pay the tax. Choice D is not necessarily true; some smokers may quit smoking, but not all of them.

Question 7

Figure 6-30
Panel (a)
Panel (b)   Panel (c) 
-Refer to Figure 6-30. In which market will the majority of the tax burden fall on buyers?
A)the market shown in panel (a).
B)the market shown in panel (b).
C)the market shown in panel (c).
D)All of the above are correct.

Accepted Answer

The answer of Figure 6-30
Panel (a)
Panel (b)   Panel...

Question 8

Figure 6-29
Suppose the government imposes a $2 on this market. 
-Refer to Figure 6-29. Suppose D1 represents the demand curve for gasoline in both the short run and long run, S1 represents the supply curve for gasoline in the short run, and S2 represents the supply curve for gasoline in the long run. After the imposition of the $2, the price paid by buyers will be
A)higher in the long run than in the short run.
B)higher in the short run than in the long run.
C)equivalent in the short run and the long run.
D)unable to be determined without additional information.

Accepted Answer

The answer of Figure 6-29
Suppose the government imposes a $2...

Question 9

Figure 6-29
Suppose the government imposes a $2 on this market. 
-Refer to Figure 6-29. The buyers will bear a higher share of the tax burden than sellers if the demand is
A)D1, and the supply is S1.
B)D2, and the supply is S1.
C)D1, and the supply is S2.
D)D2, and the supply is S2.

Accepted Answer

The answer of Figure 6-29
Suppose the government imposes a $2...

Question 10

When a tax is imposed in a market, it will​
A)​alter the behavior of buyers.
B)​alter the behavior of sellers.
C)​have no effect on the behavior or either buyers or sellers.
D)​affect the behavior of both buyers and sellers.

Accepted Answer

When a tax is imposed in a market, it affects the behavior of both buyers and sellers. Buyers will face higher prices and may choose to buy less or switch to substitutes, while sellers may choose to reduce their supply or raise prices to offset the cost of the tax. Both parties will adjust their behavior in response to the tax, leading to a new equilibrium in the market.

Question 11

Figure 6-29
Suppose the government imposes a $2 on this market. 
-Refer to Figure 6-29. Suppose D1 represents the demand curve for gasoline in both the short run and long run, S1 represents the supply curve for gasoline in the short run, and S2 represents the supply curve for gasoline in the long run. After the imposition of the $2,
A)buyers bear a higher burden of the tax in the short run than in the long run.
B)sellers bear a higher burden of the tax in the short run than in the long run.
C)buyers and sellers bear an equal burden of the tax in both the short run and long run.
D)buyers and sellers bear an equal burden of the tax in the short run, but buyers bear a higher burden of the tax in the long run.

Accepted Answer

In the short run, the supply curve is S1, which is relatively inelastic, so sellers are not able to adjust their quantity supplied much in response to the tax. Thus, they bear a higher burden of the tax. In the long run, the supply curve is S2, which is more elastic, so sellers are able to adjust their quantity supplied more in response to the tax. Thus, buyers and sellers share the burden of the tax more equally in the long run.

Question 12

​The incidence of a tax is
A)​always determined by the demand side of the market.
B)​always determined by the supply side of the market.
C)​always determined by the interaction of the demand and supply side of the market..
D)​always determined by which side of the market the government imposes the tax on.

Accepted Answer

The incidence of a tax is determined by the interaction of the demand and supply side of the market. It refers to who bears the burden of the tax, whether it is mostly the consumers or the producers. The incidence can shift depending on the elasticity of demand and supply, and the relative bargaining power of the parties involved.

Question 13

​Suppose that a $4 per unit tax is imposed on the sellers of DVDs. The effect of the tax will be to
A)​shift the supply curve up by exactly $4 and the price paid by buyers will remain unchanged.
B)​shift the supply curve up by exactly $4 and the price paid by buyers will rise by less than $4.
C)​shift the supply curve up by exactly $4 and the price received by sellers will rise by exactly $4.
D)​shift the demand curve down by exactly $4 and the price paid by buyers will fall by exactly $4.

Accepted Answer

When a tax is imposed on sellers, it increases their cost of production and shifts the supply curve up by the amount of the tax (in this case, $4). As a result, the equilibrium price will rise, but not by the full $4. The burden of the tax will be shared between buyers and sellers, with buyers paying more and sellers receiving less. Therefore, the price paid by buyers will rise by less than $4.

Question 14

A tax burden falls more heavily on the side of the market that
A)has a fewer number of participants.
B)is more inelastic.
C)is closer to unit elastic.
D)is less inelastic.

Accepted Answer

A tax burden falls more heavily on the side of the market that is more inelastic because they are less responsive to changes in price. This means that they are less likely to reduce their consumption or production in response to the tax, which results in a higher portion of the tax burden being borne by them.

Question 15

The burden of a luxury tax falls
A)more on the rich than on the middle class.
B)more on the poor than on the rich.
C)more on the middle class than on the rich.
D)equally on the rich, the middle class, and the poor.

Accepted Answer

The answer of The burden of a luxury tax falls
A)more...

Question 16

Figure 6-29
Suppose the government imposes a $2 on this market. 
-Refer to Figure 6-29. Suppose D1 represents the demand curve for paperback novels, D2 represents the demand curve for gasoline, and S1 represents the supply curve for paperback novels and gasoline. After the imposition of the $2 on paperback novels and on gasoline, the
A)buyers of gasoline bear a higher burden of the $2 tax than buyers of paperback novels.
B)sellers of gasoline bear a higher burden of the $2 tax than sellers of paperback novels.
C)buyers of gasoline bear an equal burden of the $2 tax as buyers of paperback novels.
D)Both a) and b) are correct.

Accepted Answer

In this case, the demand and supply of gasoline are more inelastic than paperback novels, meaning that buyers of gasoline will bear more of the burden of the tax than buyers of paperback novels. The reason for this is that when the price of gasoline goes up due to the tax, buyers are not able to easily switch to a substitute product, whereas buyers of paperback novels can more easily switch to e-books or other forms of entertainment. Therefore, sellers of gasoline are able to pass on more of the tax to buyers without facing a significant decrease in demand.

Question 17

Figure 6-30
Panel (a)
Panel (b)   Panel (c) 
-Refer to Figure 6-30. In which market will the majority of the tax burden fall on sellers?
A)the market shown in panel (a).
B)the market shown in panel (b).
C)the market shown in panel (c).
D)All of the above are correct.

Accepted Answer

In panel (a), the equilibrium price changes from P1 to P2 and the equilibrium quantity changes from Q1 to Q2, indicating that the tax burden falls mainly on the sellers since they are willing to sell at a lower price despite the tax. In panels (b) and (c), the tax burden is more evenly distributed between buyers and sellers.

Question 18

Which of the following was not a result of the luxury tax imposed by Congress in 1990?
A)The larger part of the tax burden fell on sellers.
B)A larger part of the tax burden fell on the middle class than on the rich.
C)Even the wealthy demanded fewer luxury goods.
D)The tax was never repealed or even modified.

Accepted Answer

The answer of Which of the following was not a...

Question 19

​Figure 6-33
The diagram shows the effect of a tax as measured by the distance between J and K. 
-Refer to Figure 6-33. Based upon the diagram,
A)​the incidence of the tax falls more heavily on buyers.
B)​the incidence of the tax falls more heavily on sellers.
C)​the incidence of the tax is shared equally by both buyers and sellers.
D)​the incidence of the tax cannot be determined based upon the information in the diagram.

Accepted Answer

The distance between J and K represents the amount of the tax. Since K is closer to the original equilibrium point than J, it shows that after the tax is imposed, the price received by sellers has decreased more than the price paid by buyers has increased. This suggests that the incidence of the tax falls more heavily on sellers.

Question 20

​Figure 6-33
The diagram shows the effect of a tax as measured by the distance between J and K. 
-Refer to Figure 6-33. Based upon the diagram,​
A)​more of the incidence of the tax is on buyers, since the demand curve is more elastic than the supply curve.
B)​more of the incidence of the tax is on sellers, since the demand curve is less elastic than is the supply curve .
C)more of the incidence of the tax is on sellers, since supply is more inelastic than demand.​
D)​more of the incidence of the tax is on buyers, since supply is more inelastic than demand.

Accepted Answer

The answer of ​Figure 6-33
The diagram shows the effect of...

Quiz 6: Supply, Demand, and Government Policies

Which of the following is correct? A tax burden

In 1990, Congress passed a new luxury tax on items such as yachts, private airplanes, furs, jewelry, and expensive cars. The goal of the tax was to

Which of the following statements is correct?

Figure 6-30 Panel (a) Panel (b) Panel (c) -Refer to Figure 6-30. In which market will the tax burden be most equally divided between buyers and sellers?

Figure 6-29 Suppose the government imposes a $2 on this market. -Refer to Figure 6-29. The buyers and sellers will bear an equal share of the tax burden if the demand is

Assume the demand for cigarettes is relatively inelastic, and the supply of cigarettes is relatively elastic. When cigarettes are taxed, we would expect

Figure 6-30 Panel (a) Panel (b) Panel (c) -Refer to Figure 6-30. In which market will the majority of the tax burden fall on buyers?

Figure 6-29 Suppose the government imposes a $2 on this market. -Refer to Figure 6-29. The buyers will bear a higher share of the tax burden than sellers if the demand is

When a tax is imposed in a market, it will​

​The incidence of a tax is

​Suppose that a $4 per unit tax is imposed on the sellers of DVDs. The effect of the tax will be to

A tax burden falls more heavily on the side of the market that

The burden of a luxury tax falls

Figure 6-30 Panel (a) Panel (b) Panel (c) -Refer to Figure 6-30. In which market will the majority of the tax burden fall on sellers?

Which of the following was not a result of the luxury tax imposed by Congress in 1990?

​Figure 6-33 The diagram shows the effect of a tax as measured by the distance between J and K. -Refer to Figure 6-33. Based upon the diagram,

​Figure 6-33 The diagram shows the effect of a tax as measured by the distance between J and K. -Refer to Figure 6-33. Based upon the diagram,​

When a tax is imposed in a market, it will

The incidence of a tax is

Suppose that a $4 per unit tax is imposed on the sellers of DVDs. The effect of the tax will be to

Figure 6-33 The diagram shows the effect of a tax as measured by the distance between J and K. -Refer to Figure 6-33. Based upon the diagram,

Figure 6-33 The diagram shows the effect of a tax as measured by the distance between J and K. -Refer to Figure 6-33. Based upon the diagram,