quanda08 - Chapter 8 1 Exhibit 2 shows the market for tyres...

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Practice Questions to accompany Mankiw & Taylor: Economics 1 Chapter 8 1. Exhibit 2 shows the market for tyres. Suppose that a €12 road use tax is placed on each tyre sold. a. In Exhibit 2, locate consumer surplus, producer surplus, tax revenue, and the deadweight loss. Exhibit 2 Answer: See Exhibit 5. Exhibit 5
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Practice Questions to accompany Mankiw & Taylor: Economics 2 b. Why is there a deadweight loss in the market for tyres after the tax is imposed? Answer: The tax raises the price paid by buyers and lowers the price received by sellers causing them to reduce their quantities demanded and supplied. Therefore, they fail to produce and exchange units where the value to buyers exceeds the cost to sellers. c. What is the value of the tax revenue collected by the government? Why wasn't the government able to collect €12 per tyre on 60 tyres sold (the original equilibrium quantity)? Answer: €12 x 40 = €480. The tax distorted prices to the buyers and sellers so that the quantity
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This note was uploaded on 07/06/2009 for the course BUS BAM303 taught by Professor Na during the Spring '09 term at 東京大学.

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quanda08 - Chapter 8 1 Exhibit 2 shows the market for tyres...

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