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Principles of Economics- Mankiw (5th) 133

Principles of Economics- Mankiw (5th) 133 - CHAPTER 6 S U P...

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CHAPTER 6 SUPPLY, DEMAND, AND GOVERNMENT POLICIES 137 the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased? 5. A senator wants to raise tax revenue and make workers better off. A staff member proposes raising the payroll tax paid by firms and using part of the extra revenue to reduce the payroll tax paid by workers. Would this accomplish the senator’s goal? 6. If the government places a $500 tax on luxury cars, will the price paid by consumers rise by more than $500, less than $500, or exactly $500? Explain. 7. Congress and the president decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $0.50 tax for each gallon of gasoline sold. a. Should they impose this tax on producers or consumers? Explain carefully using a supply-and- demand diagram. b. If the demand for gasoline were more elastic, would this tax be more effective or less effective in reducing the quantity of gasoline consumed?
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