Question

at plans to impose gure below shows the market for cigarettes. The government plans to o answer in this market which will be collected by sellers. Use the rigure to ans Questions 47 and 48 Price per pack 512 Supply 40 70 Demand Quantity of cigarettes (1000s of packs) 47. The amount of the tax paid by buyers is sellers is a $8; $3 b. $3; $2 The amount of the tax paid by c. $5; $2 d. $3; $5 18. How much government tax revenue is collected after the tax is imposed a. $350,000 b. $200,000 c. $320,000 d. $120,000 49. Which of the following statements best describes the effect of a sales tax imposed on all food items, including basic grocery items which are currently not taxed? a. The buyer and the seller will bear the burden of the tax equally. b. Buyers will pay most of the tax because the demand for food is price elastic. c. Buyers will pay most of the tax because the demand for food is price inelastic. d. Sellers will bear the burden of most of the tax because the demand for food is price inelastic don empirical studies. whint garding his

Answer 1

Answer : 47) The answer is option b.

Before tax impose buyers pays $5 per pack. But after tax impose buyers pays $8 per pack. So, the tax amount paid by buyers = 8 - 5 = $3.

Before tax impose sellers receives $5 per pack. But after tax impose sellers receives $3 per pack. So, the tax amount paid by sellers = 5 - 3 = $2.

Therefore, option b is correct.

48) The answer is option b.

Total tax amount per pack = Consumers' paid amount - Sellers' received amount = 8 - 3 = $5 per pack.

Quantity = 40,000 of packs.

Government tax revenue = Total tax amount per pack * Quantity = 5 * 40,000 = $200,000.

Therefore, option b is correct.

49) The answer is option c.

The demand for food is price inelastic. In case of inelastic demand if sale tax is imposed then buyers bear most of the burden of this tax. Therefore, option c is correct.