Question 1

Buyers of a good bear the larger share of the tax burden when a tax is placed on a product for which

Accepted Answer

When supply is more elastic than demand, sellers can more easily adjust their quantity supplied, so buyers bear a larger share of the tax burden.

Question 2

Figure 6-15 
-Refer to Figure 6-15.Suppose a tax of $5 per unit is imposed on this market.How much will sellers receive per unit after the tax is imposed?

Accepted Answer

After the $5 tax is imposed, the new equilibrium price will be $14 and the quantity sold will decrease to 10 units. Sellers will now receive $9 per unit ($14 - $5 tax). Therefore, the correct answer is between $5 and $10.

Question 3

Congress intended that

Accepted Answer

The answer of Congress intended that
...

Question 4

In which of these cases will the tax burden fall most heavily on buyers of the good?

Accepted Answer

When the demand curve is relatively steep, buyers are less responsive to price changes, meaning they will bear a larger share of the tax burden.

Question 5

Figure 6-15 
-Refer to Figure 6-15.Suppose a tax of $5 per unit is imposed on this market.How much will buyers pay per unit after the tax is imposed?

Accepted Answer

After the tax is imposed, the new equilibrium price becomes $14 per unit (from $9 without the tax). Buyers will have to pay this higher price, plus the additional $5 tax, so the total price that buyers will pay per unit after the tax is imposed is between $10 and $14 (inclusive). Therefore, the correct answer is (C) between $10 and $14.

Question 6

A key lesson from the payroll tax is that the

Accepted Answer

The payroll tax is an example of how the true burden of a tax cannot be legislated. While the tax is officially paid by employers, economic theory suggests that the burden is ultimately shouldered by both workers and employers in the form of lower wages and/or reduced employment opportunities.

Question 7

A payroll tax is a

Accepted Answer

A payroll tax is a tax on the wages that firms pay their workers. This tax is usually a percentage of the worker's total wages and is paid by the employer to the government. The purpose of a payroll tax is to fund government programs such as Social Security and Medicare.

Question 8

The Federal Insurance Contribution Act (FICA)tax is an example of

Accepted Answer

FICA tax is a payroll tax that is deducted from an employee's or employer's wages to fund Social Security and Medicare programs. It is not a sales tax, farm subsidy, or income subsidy.

Question 9

Suppose that in a particular market,the supply curve is highly elastic and the demand curve is highly inelastic.If a tax is imposed in this market,then

Accepted Answer

When demand is inelastic and supply is elastic, buyers are less responsive to price changes, so they bear a greater burden of the tax.

Question 10

Suppose that the demand for picture frames is inelastic and the supply of picture frames is elastic.A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by

Accepted Answer

When demand is inelastic and supply is elastic, the burden of the tax falls more on buyers, so the price paid by buyers will increase by more than $0.50 but less than $1.

Question 11

Suppose that the demand for picture frames is inelastic and the supply of picture frames is elastic.A tax of $1 per frame levied on picture frames will decrease the effective price received by sellers of picture frames by

Accepted Answer

When demand is inelastic and supply is elastic, the tax burden falls more on consumers than on producers. Therefore, the effective price received by sellers decreases by less than $0.50.

Question 12

Although lawmakers legislated a fifty-fifty division of the payment of the FICA tax,

Accepted Answer

The legislated tax incidence only determines the legal division of the tax payment, but the actual tax incidence is determined by market forces and can shift between employers and employees depending on the specific labor market conditions. Therefore, the legislated division does not necessarily reflect the actual division of the tax payment.

Question 13

If a tax is imposed on a market with inelastic supply and elastic demand,then

Accepted Answer

The answer of If a tax is imposed on a...

Question 14

Figure 6-15 
-Refer to Figure 6-15.Suppose a tax of $5 per unit is imposed on this market.Which of the following is correct?

Accepted Answer

When a tax is imposed on a market, the price paid by buyers will increase and the price received by sellers will decrease. In this case, the price paid by buyers will increase from $20 to $25 ($20 + $5 tax), and the price received by sellers will decrease from $20 to $15 ($20 - $5 tax). Since buyers are facing a higher price and sellers are receiving a lower price, it is likely that sellers will be able to pass on some of the burden of the tax to buyers, but buyers will still bear more of the burden. Therefore, option B is incorrect. Option A is also incorrect because it assumes that both buyers and sellers have equal bargaining power, which is not necessarily true. Option D is incorrect because it presents all options as equally likely, which is not the case here. Hence, the correct answer is C.

Question 15

Suppose that in a particular market,the demand curve is highly elastic and the supply curve is highly inelastic.If a tax is imposed in this market,then

Accepted Answer

Since the demand curve is highly elastic, consumers are very sensitive to changes in price, which means they will be less likely to buy the taxed product and will instead switch to substitutes. On the other hand, since the supply curve is highly inelastic, producers will not be able to easily increase the quantity supplied to compensate for the tax, and will therefore have to bear a greater burden of the tax. This means that sellers will tend to pass on less of the tax to buyers, resulting in a greater burden on sellers than buyers.

Question 16

Figure 6-15 
-Refer to Figure 6-15.Suppose a tax of $5 per unit is imposed on this market.What will be the new equilibrium quantity in this market?

Accepted Answer

A tax of $5 per unit will decrease the equilibrium quantity, but it will not drop below 25 units. The new equilibrium quantity will be between 25 and 50 units as the tax shifts the supply curve upward, reducing the quantity supplied and demanded.

Question 17

If a tax is imposed on a market with inelastic demand and elastic supply,then

Accepted Answer

In a market with inelastic demand and elastic supply, buyers are less sensitive to price changes and will therefore bear most of the burden of the tax. Sellers, on the other hand, have the ability to adjust their production levels in response to the tax, and are therefore able to shift some of the burden onto the buyers. However, since the demand is relatively inelastic, the buyers will still end up bearing the majority of the tax burden.

Question 18

When a payroll tax is enacted,

Accepted Answer

When a payroll tax is enacted, the government collects a tax from employers based on the wages they pay to their employees. This tax is then passed on to employees in the form of lower wages. Therefore, the wage received by workers falls, and the wage paid by firms rises.

Question 19

The federal government uses the revenue from the FICA (Federal Insurance Contribution Act)tax to pay for

Accepted Answer

The FICA tax is a payroll tax that is used to fund Social Security and Medicare programs. It is a mandatory contribution that both employers and employees make towards these programs. Therefore, the revenue from the FICA tax is used exclusively for Social Security and Medicare, not for other programs such as unemployment compensation or housing subsidies.

Question 20

Suppose that a tax is placed on books.If the buyers pay the majority of the tax,then we know that the

Accepted Answer

If buyers are paying the majority of the tax, it indicates they are less sensitive to changes in price than the sellers (suppliers). This means that the demand for books is more inelastic than the supply.

Quiz 6: Supply, Demand, and Government Policies