Chapter%207%20Answers

Chapter%207%20Answers - Chapter 7 1. B 2. B 3. C 4. C 5. A...

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Chapter 7 1. B 2. B 3. C 4. C 5. A 6. B 7. C 8. A 9. B 10. C 11. A 12. A 13. D 14. B 15. D II. Short-answer Questions 1. Gasoline taxes. a. If a tax on gasoline is imposed, the price that consumers pay goes up (from P 0 * to P 1 *+T) and the amount that producers receive goes down (from P* 0 to P* 1 ). Q P S D Q 0 * Q 1 * P 0 * P 1 *+T P 1 * Amount consumers pay after taxes Amount producers receive CS PS TAX DWL D-T b. See above. c. See below.
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Q P S D Q 0 * = Q 1 * P 0 *=P 1 *+T P 1 * Amount consumers pay for gas Amount producers receive D-T CS PS TAX REVENUE d. It’s easiest to model this tax as a shift back in the demand curve for gasoline. As the graph above shows, the amount that consumers pay for gasoline is the same before and after the tax (P 0 *=P 1 *), and the amount that producers receive goes down by the exact amount of the tax (from P 0 * to P 1 *). There is no change in the equilibrium quantity of gasoline bought and sold on the market.
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Chapter%207%20Answers - Chapter 7 1. B 2. B 3. C 4. C 5. A...

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