Question 1

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

Accepted Answer

When sellers pay the majority of the tax, it indicates that the supply is more inelastic than the demand. This is because the sellers are not able to easily shift the burden of the tax onto the buyers by increasing the price, as the buyers are likely to reduce their demand in response to the price increase. As a result, the sellers end up bearing a larger share of the tax burden.

Question 2

The burden of a luxury tax falls

Accepted Answer

The answer of The burden of a luxury tax falls
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Question 3

Which of the following is correct?

Accepted Answer

According to the concept of tax incidence, the burden of a tax is determined by the relative elasticities of supply and demand. If demand is more elastic than supply, the burden will fall more heavily on producers. Conversely, if supply is more elastic than demand, the burden will fall more heavily on consumers. Therefore, option B is correct as the tax burden falls more heavily on the side of the market that is less elastic.

Question 4

Figure 6-16
Panel (a)Panel (b)   Panel (c) 
-Refer to Figure 6-16.In which market will the majority of the tax burden fall on buyers?

Accepted Answer

In market (b), the demand curve is more inelastic compared to the other two markets. Therefore, when a tax is imposed, the price increase will be borne mainly by the buyers, and the majority of the tax burden will fall on them. In markets (a) and (c), the demand curve is more elastic, resulting in a more significant price increase for the sellers, and they will bear the majority of the tax burden.

Question 5

Suppose that the demand for picture frames is elastic and the supply of picture frames is inelastic.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 elastic and supply is inelastic, the tax burden falls more on the sellers. Therefore, the price paid by buyers will increase by less than $0.50.

Question 6

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

Accepted Answer

The goal of the luxury tax was to raise revenue from the purchases of luxury items by wealthy individuals. The tax was specifically targeted at items that were considered non-essential and only affordable by high-income earners.

Question 7

Suppose the demand for macaroni is inelastic and the supply of macaroni is elastic,and the demand for cigarettes is inelastic and the supply of cigarettes is elastic.If a tax were levied on the sellers of both of these commodities,we would expect that the

Accepted Answer

When demand is inelastic and supply is elastic, the tax burden falls more on buyers because they are less responsive to price changes.

Question 8

The demand for salt is inelastic and the supply of salt is elastic.The demand for caviar is elastic and the supply of caviar is inelastic.Suppose that a tax of $1 per pound is levied on the sellers of salt and a tax of $1 per pound is levied on the buyers of caviar.We would expect that most of the burden of these taxes will fall on

Accepted Answer

The answer of The demand for salt is inelastic and...

Question 9

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

Accepted Answer

When the demand curve is relatively flat and the supply curve is relatively steep, it indicates that buyers are less sensitive to changes in price compared to sellers. This means that sellers will bear the majority of the tax burden as they are not able to shift the tax onto buyers in the form of higher prices. When the demand curve is steep, buyers are more sensitive to price changes, which means sellers have more room to increase prices in response to the tax, thereby shifting the burden partially onto buyers.

Question 10

If the government wants to reduce smoking,it should impose a tax on

Accepted Answer

The answer of If the government wants to reduce smoking,it...

Question 11

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

Accepted Answer

A tax burden will fall more heavily on the side of the market that is more inelastic because they are less responsive to changes in price and will not be able to adjust their consumption as easily. This means they will bear more of the burden of the tax.

Question 12

Lawmakers designed the burden of the FICA payroll tax to be split evenly between workers and firms.Labor economists believe that

Accepted Answer

Labor economists generally believe that workers bear most of the burden of the FICA payroll tax. This is because firms may shift some of the burden to workers through lower wages or reduced hiring. While it is difficult to precisely measure the exact distribution of the tax burden, research suggests that workers bear a majority of the burden. Therefore, option D is the correct answer. Options A and B are not supported by data and go against mainstream economic thinking. Option C is partially true, as firms may also bear some of the burden, but it is not the main burden.

Question 13

Most labor economists believe that the supply of labor is

Accepted Answer

Most labor economists believe that the supply of labor is less elastic than the demand, meaning that there are fewer substitutes for labor than there are for the goods and services that firms produce. Therefore, when a payroll tax is imposed, workers are less able to shift to other occupations or industries, and are more likely to simply accept lower wages. This suggests that workers bear most of the burden of the payroll tax.

Question 14

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

Accepted Answer

When demand is more elastic than supply, sellers are unable to pass on the full amount of the tax to consumers because a small increase in price would cause a significant decline in demand. As a result, sellers have to bear the larger share of the tax burden.

Question 15

Figure 6-16
Panel (a)Panel (b)   Panel (c) 
-Refer to Figure 6-16.In which market will the majority of the tax burden fall on sellers?

Accepted Answer

In market (a), the supply is more inelastic compared to demand, meaning sellers cannot easily change the quantity supplied, so they bear more of the tax burden.

Question 16

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

Accepted Answer

Since the demand for picture frames is elastic, a tax will cause a decrease in the quantity demanded for picture frames, and since the supply is inelastic, the quantity supplied will only decrease slightly. As a result, the burden of the tax will be shared by both buyers and sellers. The effective price received by sellers will decrease by an amount somewhere between the full $1 tax and the amount of the tax that buyers absorb, which is less than $0.50. Therefore, the correct choice is C, between $0.50 and $1.

Question 17

Which of the following statements is true?

Accepted Answer

The statement "Who actually pays a tax depends on the price elasticities of supply and demand" is true according to the principle of tax incidence. The incidence of a tax refers to who ultimately bears the burden of the tax, which is dependent on the relative price elasticity of demand and supply. So, both buyers and sellers can end up sharing the burden of the tax depending on the price elasticity of demand and supply. The other statements are not necessarily true; for example, a tax levied on sellers may not always be passed on completely to buyers.

Question 18

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

Accepted Answer

The luxury tax was repealed and replaced by a smaller excise tax in 1993.

Question 19

Figure 6-16
Panel (a)Panel (b)   Panel (c) 
-Refer to Figure 6-16.In which market will the tax burden be most equally divided between buyers and sellers?

Accepted Answer

In market (c), the supply and demand curves are likely to have similar elasticities, leading to a more equal division of the tax burden between buyers and sellers.

Quiz 6: Supply, Demand, and Government Policies