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Refer to the Figure 5.7. An excise tax introduces a wedge between the price paid by consumers (Pc) and the price received by producers (Pp). Which of the following statement is correct? O When the supply is more elastic than demand, the tax incidence on consumers, Pc - Pe, is lower than the tax incidence on producers, Pe - Pp. When the supply is more inelastic than demand, the tax incidence on consumers, Pc- Pe, is larger than the tax incidence on producers, Pe - Pp. O When the supply is more elastic than demand, the tax incidence on consumers, Pc - Pe, is larger than the tax incidence on producers, Pe - Pp. O When the demand is more elastic than supply, the tax incidence on consumers, Pc - Pe, is larger than the tax incidence on producers, Pe - Pp

Refer to the Figure 5.7. An excise tax introduces a wedge between the price paid by consumers (Pc) and the price received by producers (Pp). Which of the following statement is correct? O When the supply is more elastic than demand, the tax incidence on consumers, Pc - Pe, is lower than the tax incidence on producers, Pe - Pp. When the supply is more inelastic than demand, the tax incidence on consumers, Pc- Pe, is larger than the tax incidence on producers, Pe - Pp. O When the supply is more elastic than demand, the tax incidence on consumers, Pc - Pe, is larger than the tax incidence on producers, Pe - Pp. O When the demand is more elastic than supply, the tax incidence on consumers, Pc - Pe, is larger than the tax incidence on producers, Pe - Pp

Principles of Microeconomics (MindTap Course List)
Principles of Microeconomics (MindTap Course List)
8th Edition
ISBN:9781305971493
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter6: Supply, Demand And Government Policies
Section: Chapter Questions
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FIGURE 5.7 Inelastic Demand PRICE Elastic Demand and PRICE and Elastic Supply Inelastic Supply Se Se Excise Pe P. tax Ea P. Exthar P. tax D a a. QUANTITY QUANTITY Refer to the Figure 5.7. An excise tax introduces a wedge between the price paid by consumers (Pc) and the price received by producers (Pp). Which of the following statement is correct? O When the supply is more elastic than demand, the tax incidence on consumers, Pc - Pe, is lower than the tax incidence on producers, Pe - Pp. O When the supply is more inelastic than demand, the tax incidence on consumers, Pc - Pe, is larger than the tax incidence on producers, Pe - Pp. O When the supply is more elastic than demand, the tax incidence on consumers, Pc - Pe, is larger than the tax incidence on producers, Pe - Pp. O When the demand is more elastic than supply, the tax incidence on consumers, Pc - Pe, is larger than the tax incidence on producers, Pe - Pp Marginal Marginal Social Cost (MSC) Marginal Social Benefit (MSB) Output (students per year) 1000 Private Benefit $2000 $3000 $4000 $5000 $6000 (MPB) $6000 $5000 $4000 $2000 $1000 $11000 $10000 $9000 $7000 $6000 2000 3000 4000 5000 Consider Table 13.2. The table shows the marginal social cost for providing private education, and the marginal private benefit and margina social benefit from attending private education. Marginal private cost is th same as marginal social cost. According to the table, the government creates incentives for the socially optimal output if it O subsidizes education by $5000 per student O subsidizes education by $3000 per student O taxes education by $5000 per student. O taxes education by $3000 per student.
Transcribed Image Text:FIGURE 5.7 Inelastic Demand PRICE Elastic Demand and PRICE and Elastic Supply Inelastic Supply Se Se Excise Pe P. tax Ea P. Exthar P. tax D a a. QUANTITY QUANTITY Refer to the Figure 5.7. An excise tax introduces a wedge between the price paid by consumers (Pc) and the price received by producers (Pp). Which of the following statement is correct? O When the supply is more elastic than demand, the tax incidence on consumers, Pc - Pe, is lower than the tax incidence on producers, Pe - Pp. O When the supply is more inelastic than demand, the tax incidence on consumers, Pc - Pe, is larger than the tax incidence on producers, Pe - Pp. O When the supply is more elastic than demand, the tax incidence on consumers, Pc - Pe, is larger than the tax incidence on producers, Pe - Pp. O When the demand is more elastic than supply, the tax incidence on consumers, Pc - Pe, is larger than the tax incidence on producers, Pe - Pp Marginal Marginal Social Cost (MSC) Marginal Social Benefit (MSB) Output (students per year) 1000 Private Benefit $2000 $3000 $4000 $5000 $6000 (MPB) $6000 $5000 $4000 $2000 $1000 $11000 $10000 $9000 $7000 $6000 2000 3000 4000 5000 Consider Table 13.2. The table shows the marginal social cost for providing private education, and the marginal private benefit and margina social benefit from attending private education. Marginal private cost is th same as marginal social cost. According to the table, the government creates incentives for the socially optimal output if it O subsidizes education by $5000 per student O subsidizes education by $3000 per student O taxes education by $5000 per student. O taxes education by $3000 per student.
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