Question 1

A tax imposed on sellers will:

Accepted Answer

A tax imposed on sellers will increase the cost of production, so the sellers will supply less. This will shift the supply curve up by the amount of the tax.

Question 2

Use the following to answer questions:
Figure: Supply Tax 
-(Figure: Supply Tax) In the accompanying pizza market, with a $2 tax imposed on the sellers, how much do buyers pay for a pizza?

Accepted Answer

With a $2 tax imposed on sellers, the supply curve shifts upward by $2. The new equilibrium is at point E', where the new price is $12 and the quantity sold has decreased to 150 pizzas. Therefore, buyers pay $11.50 for a pizza.

Question 3

With a tax on producers, demand:

Accepted Answer

A tax on producers affects the supply curve, not the demand curve, so the demand remains in the same location.

Question 4

Use the following to answer questions:
Figure: Tax Imposed on Sellers 
-(Figure: Tax Imposed on Sellers) According to the figure, the equilibrium price and quantity before the $1 tax is imposed are:

Accepted Answer

Before the tax is imposed, the equilibrium price is $4 and the equilibrium quantity is 1,000.

Question 5

By law, workers pay half the Social Security tax and employers pay the other half. However, the price of labor (wages) does not adjust very quickly. If the government wanted to temporarily create a shortage of labor (or combat a surplus of labor), what should it do?

Accepted Answer

The correct answer is A because moving the whole tax onto workers (suppliers of labor) would increase the cost of labor to employers, making them less likely to hire workers. This would create a shortage of labor.

Question 6

Use the following to answer questions:
Figure: Supply Tax 
-(Figure: Supply Tax) In the accompanying pizza market, with a $2 tax imposed on the sellers, how much of the tax is paid by the buyers and how much of the tax burden is borne by the sellers?

Accepted Answer

The tax burden is shared between buyers and sellers depending on the elasticity of demand and supply. In this case, buyers pay $1.50 and sellers pay $0.50 of the $2 tax.

Question 7

With a tax on consumers, demand:

Accepted Answer

When a tax is imposed on consumers, the price of the product increases. This increase in price causes consumers to reduce their demand for the product resulting in a decrease in demand.

Question 8

By law, workers pay half the Social Security tax and employers pay the other half. Is this a fair way to allocate the tax?

Accepted Answer

The legal responsibility for the tax is determined by law and therefore not based on any ethical or economic principles. Who ultimately bears the burden of the tax may be debated, but the allocation is simply a matter of legal obligation.

Question 9

Which of the following is correct concerning the burden of a tax imposed on coffee mugs?

Accepted Answer

When a tax is imposed on coffee mugs, both buyers and sellers share the burden of the tax. Buyers will have to pay a higher price for the coffee mugs due to the tax, while sellers will receive a lower price due to the tax. The extent of the burden on each party depends on the price elasticity of demand and supply, respectively. In general, the burden of the tax will be shared between buyers and sellers, but not equally.

Question 10

With a tax on producers, supply:

Accepted Answer

When a tax is imposed on producers, it increases the cost of production, which reduces the profitability of producing goods. As a result, producers produce less and supply decreases.

Question 11

A tax on sellers of apples:

Accepted Answer

A tax on sellers of apples increases the cost of production for sellers, which reduces the incentive for them to produce and sell apples. As a result, they will supply fewer apples at every price to maintain their profit levels. Therefore, choice A is the correct answer.

Question 12

Use the following to answer questions:
Figure: Demand Tax 
-(Figure: Demand Tax) The figure illustrates a market for gasoline with a $1 tax imposed on the buyers. What price do sellers receive for a gallon of gasoline in this market?

Accepted Answer

The sellers receive the price that buyers pay minus the tax. If the buyers pay $3.50 and the tax is $1, the sellers receive $2.50.

Question 13

Use the following to answer questions:
Figure: Tax on Supply and Demand 
-(Figure: Tax on Supply and Demand) According to the figure, if the tax is placed on sellers, the equilibrium is at Point:

Accepted Answer

The tax on sellers shifts the supply curve upward, leading to a new equilibrium at Point B. At this point, the equilibrium price is P3 and the equilibrium quantity is Q2.

Question 14

Use the following to answer questions:
Figure: Tax on Supply and Demand 
-(Figure: Tax on Supply and Demand) According to the figure, if the tax is placed on buyers, the equilibrium is at Point:

Accepted Answer

If the tax is placed on buyers, the demand curve will shift downward by the amount of the tax (shown by the vertical distance between points C and A). The new equilibrium will be at the intersection of the original supply curve and the new demand curve (D1bis). This intersection occurs at point C, where the equilibrium price is P₁ and the equilibrium quantity is Q₂.

Question 15

Use the following to answer questions:
Figure: Tax Imposed on Sellers 
-(Figure: Tax Imposed on Sellers) According to the figure, the price that buyers pay AFTER the tax is imposed is:

Accepted Answer

The price that buyers pay AFTER the tax is imposed is $4.40. This is because the tax is $0.40, and the price before the tax is $4.

Question 16

With a tax on consumers, supply:

Accepted Answer

A tax on consumers affects the demand curve, not the supply curve, so the supply remains in the same location.

Question 17

Use the following to answer questions:
Figure: Tax Imposed on Sellers 
-(Figure: Tax Imposed on Sellers) According to the figure, the price that sellers receive AFTER the tax is imposed is:

Accepted Answer

The price that sellers receive after the tax is imposed is $3.40, as the tax reduces the price sellers receive from the market price.

Question 18

Suppose there is a tax of $50 on bicycles. The supply curve for bicycles slopes upward. The demand curve for bicycles slopes downward. Sellers are required by law to pay the tax. If the tax is reduced from $50 to $10 per bicycle, then the:

Accepted Answer

When the tax on sellers is reduced, the supply curve shifts downward by the amount of the tax reduction, which is $40 in this case.

Question 19

If buyers are required to pay a tax on top of the price, buyers' willingness to pay will:

Accepted Answer

When buyers are required to pay a tax on top of the price, their perceived cost of the good or service increases, which decreases their willingness to pay for it. Thus, the demand curve will shift down.

Question 20

Use the following to answer questions:
Figure: Demand Tax 
-(Figure: Demand Tax) The figure illustrates a market for gasoline with a $1 tax imposed on the buyers. What price do buyers pay for a gallon of gasoline in this market?

Accepted Answer

The $1 tax is added to the equilibrium price of $2.50, making the price buyers pay $3.50.

Quiz 6: Taxes and Subsidies

A tax imposed on sellers will:

Use the following to answer questions: Figure: Supply Tax -(Figure: Supply Tax) In the accompanying pizza market, with a $2 tax imposed on the sellers, how much do buyers pay for a pizza?

With a tax on producers, demand:

Use the following to answer questions: Figure: Tax Imposed on Sellers -(Figure: Tax Imposed on Sellers) According to the figure, the equilibrium price and quantity before the $1 tax is imposed are:

By law, workers pay half the Social Security tax and employers pay the other half. However, the price of labor (wages) does not adjust very quickly. If the government wanted to temporarily create a shortage of labor (or combat a surplus of labor) , what should it do?

Use the following to answer questions: Figure: Supply Tax -(Figure: Supply Tax) In the accompanying pizza market, with a $2 tax imposed on the sellers, how much of the tax is paid by the buyers and how much of the tax burden is borne by the sellers?

With a tax on consumers, demand:

By law, workers pay half the Social Security tax and employers pay the other half. Is this a fair way to allocate the tax?

Which of the following is correct concerning the burden of a tax imposed on coffee mugs?

With a tax on producers, supply:

A tax on sellers of apples:

Use the following to answer questions: Figure: Demand Tax -(Figure: Demand Tax) The figure illustrates a market for gasoline with a $1 tax imposed on the buyers. What price do sellers receive for a gallon of gasoline in this market?

Use the following to answer questions: Figure: Tax on Supply and Demand -(Figure: Tax on Supply and Demand) According to the figure, if the tax is placed on sellers, the equilibrium is at Point:

Use the following to answer questions: Figure: Tax on Supply and Demand -(Figure: Tax on Supply and Demand) According to the figure, if the tax is placed on buyers, the equilibrium is at Point:

Use the following to answer questions: Figure: Tax Imposed on Sellers -(Figure: Tax Imposed on Sellers) According to the figure, the price that buyers pay AFTER the tax is imposed is:

With a tax on consumers, supply:

Use the following to answer questions: Figure: Tax Imposed on Sellers -(Figure: Tax Imposed on Sellers) According to the figure, the price that sellers receive AFTER the tax is imposed is:

Suppose there is a tax of $50 on bicycles. The supply curve for bicycles slopes upward. The demand curve for bicycles slopes downward. Sellers are required by law to pay the tax. If the tax is reduced from $50 to $10 per bicycle, then the:

If buyers are required to pay a tax on top of the price, buyers' willingness to pay will:

Use the following to answer questions: Figure: Demand Tax -(Figure: Demand Tax) The figure illustrates a market for gasoline with a $1 tax imposed on the buyers. What price do buyers pay for a gallon of gasoline in this market?