Consider the competitive market for with the usual assumptions. Demand is downward sloping and supply is upward sloping. At the market price and quantity the (absolute) elasticity of demand is Jep| = 0.25 and the elasticity of supply is es = 0.75 . A per-unit tax of $10 is imposed which is paid by the consumer. Which of the following statements is TRUE of the economy with the tax? O We have excess supply with the tax as supply is more elastic and market price rises. O Producer Surplus falls as market price falls. O Market price rises by less than $10. O Consumer surplus rises as demand is less elastic than supply. O The producer bears the larger burden of the tax.

Consider the competitive market for with the usual assumptions. Demand is downward sloping and supply is upward sloping. At the market price and quantity the (absolute) elasticity of demand is Jep| = 0.25 and the elasticity of supply is es = 0.75 . A per-unit tax of $10 is imposed which is paid by the consumer. Which of the following statements is TRUE of the economy with the tax? O We have excess supply with the tax as supply is more elastic and market price rises. O Producer Surplus falls as market price falls. O Market price rises by less than $10. O Consumer surplus rises as demand is less elastic than supply. O The producer bears the larger burden of the tax.

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter17: Taxation And Resource Allocation

Section: Chapter Questions

Problem 4TY

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