Question 1

A tax of $1 on sellers shifts the supply curve upward by exactly $1.

Accepted Answer

When a tax is imposed on sellers, the cost of producing the good increases by the amount of the tax. This causes the supply curve to shift upward by the amount of the tax, since sellers need a higher price to compensate for the increased cost of production. Therefore, if the tax is $1, the supply curve will shift upward by exactly $1.

Question 2

A tax of $1 on buyers shifts the demand curve downward by exactly $1.

Accepted Answer

When a tax is imposed on buyers, the effective price they pay increases by the amount of the tax. Therefore, the demand curve shifts downward by exactly the amount of the tax, in this case $1.

Question 3

A tax on buyers shifts the demand curve and the supply curve.

Accepted Answer

A tax on buyers only affects the demand curve by decreasing the quantity demanded and increasing the price. The supply curve remains unchanged.

Question 4

A tax on buyers usually causes buyers to pay more for the good and sellers to receive less for the good than they did before the tax was levied.

Accepted Answer

This is because a tax on buyers shifts the demand curve downwards and reduces the quantity demanded, leading to a higher equilibrium price for buyers. Additionally, the tax reduces the amount sellers receive for each unit sold as they have to pay a portion of the tax.

Question 5

When a tax is imposed on a good, the result is always a shortage of the good.

Accepted Answer

Imposing a tax on a good can lead to a decrease in its demand and an increase in its price. This may lead to a decrease in the quantity demanded, but it does not always result in a shortage. In some cases, the market may still clear at the higher price, but with a lower quantity.

Question 6

A tax on sellers increases the quantity of the good sold in the market.

Accepted Answer

A tax on sellers increases the cost of production, which leads to a decrease in supply and an increase in price. This, in turn, will lead to a decrease in the quantity of the good sold in the market.

Question 7

A tax of $1 on buyers always decreases the equilibrium price by $1.

Accepted Answer

A tax on buyers shifts the demand curve downwards by the amount of the tax, but the new equilibrium price (paid by buyers) is determined by where this new demand curve intersects the supply curve. The decrease in equilibrium price is generally less than the tax amount, as the tax burden is shared between buyers and sellers depending on the elasticity of demand and supply.

Question 8

A tax of $1 on sellers always increases the equilibrium price by $1.

Accepted Answer

A tax on sellers shifts the supply curve to the left, causing the equilibrium price to increase but not necessarily by the full amount of the tax. The burden of the tax can also be shared by buyers and sellers and ultimately depends on the relative elasticities of supply and demand.

Question 9

A tax on buyers shifts the demand curve to the right.

Accepted Answer

A tax on buyers shifts the supply curve to the left, not the demand curve to the right. The tax causes an increase in the price of the good, leading to a decrease in quantity demanded and a shift of the demand curve to the left.

Question 10

A tax on sellers usually causes buyers to pay more for the good and sellers to receive less for the good than they did before the tax was levied.

Accepted Answer

This is because the tax affects the supply curve, causing a shift to the left, which results in a higher equilibrium price for the buyer and a lower equilibrium quantity traded for the seller. The burden of the tax is shared between the buyers and sellers, but the incidence of the tax ultimately depends on the relative elasticities of supply and demand.

Question 11

A tax on sellers shifts the supply curve to the left.

Accepted Answer

A tax on sellers increases their costs, which leads to a decrease in supply. This shift is represented as a leftward shift of the supply curve.

Question 12

A tax on buyers decreases demand.

Accepted Answer

When a tax is imposed on buyers, the price for the good or service increases. As a result, buyers are less willing to pay the higher price, causing a decrease in demand.

Question 13

A tax on sellers reduces the size of a market.

Accepted Answer

A tax on sellers increases the price for buyers and reduces the quantity of goods or services that sellers are willing and able to sell, resulting in a smaller market size.

Question 14

A tax on sellers shifts the supply curve but not the demand curve.

Accepted Answer

A tax on sellers increases their costs and therefore shifts their supply curve to the left. It does not affect the demand for the product, so the demand curve remains unchanged.

Question 15

A tax on buyers decreases the quantity of the good sold in the market.

Accepted Answer

When a tax is imposed on buyers, the price of the good for the buyer increases, which reduces the quantity demanded. This is due to the fact that buyers have to pay more for the good, which makes it less attractive for them to buy it. As a result, the quantity of the good sold in the market decreases.

Question 16

A tax on golf clubs will cause buyers of golf clubs to pay a higher price, sellers of golf clubs to receive a lower price, and fewer golf clubs to be sold.

Accepted Answer

A tax on a good typically leads to an increase in the price paid by buyers, a decrease in the price received by sellers, and a decrease in the quantity of the good sold.

Question 17

A tax on sellers and an increase in input prices affect the supply curve in the same way.

Accepted Answer

Both a tax on sellers and an increase in input prices increase the cost of production for sellers, leading to a decrease in supply. Therefore, they affect the supply curve in the same way.

Question 18

A tax on sellers increases supply.

Accepted Answer

A tax on sellers actually decreases their profit margin, leading to a decrease in supply.

Question 19

When a tax of $1.00 per gallon is imposed on sellers of gasoline, the supply curve for gasoline shifts upward, but by less than $1.00.

Accepted Answer

When a tax of $1.00 per gallon is imposed on sellers of gasoline, the supply curve shifts vertically upward by exactly $1.00, reflecting the full amount of the tax.

Question 20

A tax on buyers increases the size of a market.

Accepted Answer

A tax on buyers, also known as a sales tax or value-added tax, is a form of tax on consumption that makes goods more expensive for consumers. This typically reduces the overall demand for the product, leading to a smaller market size.

Quiz 6: Supply, Demand, and Government Policies