Question

Price Controls and Taxes: Price A P Supply 2 в Е н G Demand Quantity 0 23) In the figure shown above, if prices go from P1 to P3, what could this be due to? There is a tax imposed on suppliers per unit sold. Demand for the good increases due to an increase in people's incom5. There is a sales tax imposed on consumers. d. a. b. с. a binding price floor is imposed Both c and d are correct е. 24) In the figure shown if the price is P3 because the reason that you gave above, what is the consumer's surplus? A+B+D b. a. A+B+C+D+E A+B+D+F+G A с. d. none of the above. е. 25) We can expect a tax on heating oil in Alaska to cause the quantity of heating produced to change proportionally tickets will cause the quantity of tickets to decline. than a similar percentage tax on movie a. more b. less C. same d. no way to know. 26) Which of the following statements is NOT TRUE about taxes? a. the burden of the tax is shared by both consumers and producers, not matter who the tax is levied on. b. unless demand or supply are perfectly inelastic, taxes always cause decreases in quantities traded due to efficiencies lost in the economy as a result of taxation. c. the more inclastic demand and supply, the smaller the decrease in quantity. d. the party with the more inelastic behavior pays a lesser proportion of the tax. e. all of the above are correct. 27). Assume that the demand for salt is relatively inelastic and that the demand for orange juice is relatively elastic. Imposing a tax on salt will cause same percentage tax on orange juice. total decrease in traded quantity than imposing the I A

Answer 1

1) The answer is e as the prices might have been decreased due to sudden price flooring which reduces the price, at the same time the price of the particular good would have been increased due to tax that decreased the demand and brought the prices down.

2) The answer is A the consumer surplus will be area within A,B and D

3) The answer is A as the proportionate change will be more for heating oil as it is one of the main products of consumer baskets.

4) The answer is A, when a tax is levied the producer and seller actually shifts all the burden on the consumer.

5) The answer is C, being a necessity, the salt will hardly have any changes in the amount demanded.

6) The answer is A, as earlier mentioned oil is a major part of consumer basket and relates to other changes in price and inflation.

7) The answer is B.

8) Answer is D, as the impact on labor will be less. A vertical graph indicates inelasticity.