Question

8. When deciding what to tax, which of the following is true of the government if it wishes to know who will be paying the tax?

a. It must know the demand of the good or service.

b. It must understand the supply of the good.

c. It must know the price elasticities of demand and supply.

d. It must know the income elasticity of demand.

9. The best example of two complementary goods is _____ and _______.

a. a Big Mac; a Whopper

b. a Big Mac; a McDonald's cheeseburger

c. gasoline; motor oil

d. Chevron gasoline; BP gasoline

10. Which of the following is not among the most important economic choices a society must make?

a. What goods will be produced

b. How people will produce the goods will be produced

c. Who will do which jobs in the economy

d. How the wage payment system operates between employers and employees

11. As a good becomes more popular with consumers, what would we expect to see?

a. An increase in price and an increase in quantity

b. An increase in price and a decrease in quantity

c. A decrease in price and an increase in quantity

d. A decrease in price and a decrease in quantity

Answer 1

8. The falling of tax burden upon the consumer or producer depends upon the price elasticity of demand and supply. The imposition of a tax increases the price of the good. If the demand is inelastic and supply is elastic, the consumers bear the larger share of tax. On the other hand if the demand is elastic and supply is inelastic the producers bear the larger share of a tax. Both demand and supply are equally elastic the consumers and producers equally share the tax burden.

Answer: c. It must know the price elasticities of demand and supply.

9. Complementary goods are those goods which are used for a single purpose. Substituted goods are those which can be substituted for one another.

Answer: c gasoline and motor oil.

10. The most important economic choices are what to produce, how to produce and whom to produce.

Answer: d. how the wage payment system operates between employers and employees.

11. The snob effect suggest that the demand for goods having prestige value increase with increase in price. It quantity demanded increase with increase in price.

Answer: a. An increase in price and an increase in quantity.