Question

1-3 please

Feel free to use any spaces for scratch work. 1) Consider the excise tax lectured in class. For a given excise tax, we can correctly predict that consumer tax incidence will be less than producer tax incidence when: a) Both the demand and the supply curves are more inelastic. b) The demand curve is inelastic and the supply curve is elastie. c) The demand curve is elastic and the supply curve is inelastic. d) Both the demand and the supply curves are more elastic. 2) Consider the graph below which depicts the market for gadgets. Di and Si are the initial demand and supply curves, respectively, S2 is the new supply curve once an excise tax is implemented in this market. Given the above information and holding everything else constant, the economic incidence of this excise tax will fall more heavily on producers than consumers if: Price of FC Quantity of Gudgets a) Distance (B-C) is greater than distance (C-E). b) Distance (A-C) is greater than distance (C-1). c) Distance (C-E) is greater than distance (B-C). d) Distance (C-E) is greater than distance (H-1). 3) in the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by: Page 2 a. 25 b. 50 3. 100 75

Answer 1

1. We can directly predict that consumer tax incidence will be less than producer tax incidence when the demand curve is elastic and supply curve is inelastic. Hence,option(C) is correct.

2. The economic incidence of excise tax will fall more heavily on producers than consumers if Distance (C-E) is greater than distance (B-C) . Hence,option(C) is correct.

3. Equilibrium quantity before tax = 200 widgets

Tax = $5

Tax revenue = $750

This implies equilibrium quantity after tax = (750/5)= 150 widgets

This implies that the equilibrium quantity of widgets has fallen by (200-150)= 50 widgets. Hence,option(B) is correct.