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chapter7 practice answers

chapter7 practice answers - Chapter 7 1 B 2 B 3 C 4 C 5 D 6...

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Chapter 7 1. B 2. B 3. C 4. C 5. D 6. D 7. C 8. D 9. B 10. A 11. B 12. C 13. A 14. B 15. C 16. A 17. A 18. D 19. B 20. 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 ).
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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. 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. e. See above. f. Since the supply of gasoline is perfectly inelastic, producers pay for this entire tax.
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