ps8_sol - EC 101.05-06 Exercises for Chapter 8 FALL 2008 1....

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EC 101.05-06 Exercises for Chapter 8 FALL 2008 1. To measure the gains and losses from a tax on a good, economists use the tools of a. macroeconomics. b. welfare economics. c. international-trade theory. d. circular-flow analysis. ANS: B 2. A tax placed on buyers of tires shifts a. the demand curve for tires downward, decreasing the price received by sellers of tires and causing the market for tires to expand. b. the demand curve for tires downward, decreasing the price received by sellers of tires and causing the market for tires to shrink. c. the supply curve for tires upward, decreasing the effective price paid by buyers of tires and causing the market for tires to expand. d. the supply curve for tires upward, increasing the effective price paid by buyers of tires and causing the market for tires to shrink. ANS: B 3. It does not matter whether a tax is levied on the buyers or the sellers of a good because a. sellers always bear the full burden of the tax. b. buyers always bear the full burden of the tax. c. buyers and sellers will share the burden of the tax. d. None of the above is correct; the incidence of the tax does depend on whether the buyers or the sellers are required to pay the tax. ANS: C 4. Which of the following statements is correct regarding the imposition of a tax on gasoline? a. The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. b. The incidence of the tax depends upon the price elasticities of demand and supply. c. The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. d. The amount of tax revenue raised by the tax does not depend upon the amount of the tax per unit. ANS: B 1
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5. Suppose a tax of $3 per unit is imposed on a good. The supply curve and the demand curve are straight lines. The tax decreases consumer surplus by $3,900 and it decreases producer surplus by $3,000. The tax generates tax revenue of $6,000. From this information it follows that the tax decreased the equilibrium quantity of the good a. from 2,000 to 1,500. b. from 2,400 to 2,000. c. from 2,600 to 2,000. d. from 3,000 to 2,400. ANS: C 6. Which of the following quantities decrease in response to a tax on a good? a. the size of the market for the good, the effective price of the good paid by buyers, and consumer surplus b. the size of the market for the good, producer surplus, and the well-being of buyers of the good c. the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus d. None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers. ANS: B
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ps8_sol - EC 101.05-06 Exercises for Chapter 8 FALL 2008 1....

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