Microeconomics with Connect Access Card
20th Edition
ISBN: 9781259278556
Author: Campbell McConnell
Publisher: McGraw-Hill Education
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Question
Chapter 18, Problem 9DQ
To determine
The tax incidence and its elasticity.
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Suppose demand and supply are given by: (LO3, LO4)Qx d = 14 − 1/2Px and Qx s = 1/4Px − 1c. How much tax revenue does the government earn with the $12 tax when the new equilibrium quantity is 2 units after tax .
9. True or false? If the statement is false, explain why: LO4
a. An internally held public debt is like a debt of the left hand owed to the right hand.
b. The Federal Reserve and federal government agencies hold more than half the public debt.
c. As a percentage of GDP, the federal debt held by the public was smaller in 2010 than it was in 1990.
d. As a percentage of GDP, the total U.S. public debt is the highest such debt among the world’s advanced industrial nations.
1. Determine burden of the tax under different demand conditions (i.e., when demand is D 1 andwhen demand is D 2 ). Who gets most of the burden of the tax under different demandconditions?2. Prove that the increase (or change) in the price is dependent on the elasticity of demandand supply, under different demand conditions (i.e., when demand is D 1 and when demandis D 2 ).3. What tax revenue is expected by the government if the demand for cigarettes is D 1 ? Is D 2 ?
Chapter 18 Solutions
Microeconomics with Connect Access Card
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- 4. Suppose that there are two households in the economy, A and B, that they face the same wage rate w, and that the government initially uses a proportional income tax according to which each household must pay a fraction t of its labor income as income tax. Assume that given this tax scheme household A chooses to work full time while household B chooses to work part time. Now suppose that the government is interesting in studying the impact of changing the tax system to a progressive tax system where the household work- ing full time would pay a tax rate th >t while the household working part time would pay a rate ti < t. (a) Draw a graph of the impact of this change on the budget constraint that households face with the two different tax systems. (b) What would such a change in the tax system imply for the optimal choice of the two households?arrow_forwardAssume that the federal government replaces the federal income tax with a national sales tax on all consumption expenditures. Analyze the impact of this tax change on taxation efficiency and equity? Note that the federal government already collects a nationwide consumption tax through excise taxes on gasoline, liquor and tobacco.arrow_forwardSuppose demand and supply are given by: Q^d=14-0.5P and Q^s=0.25P-1. Determine the equilibrium quantity and price in this market. Show the equilibrium graphically. Suppose a $12 excise tax is imposed on the good.Determine new supply and the new equilibrium quantity and price. How much does producers' revenue change? How much tax revenue does the government earn?arrow_forward
- Suppose demand and supply are given by: (LO3, LO4) Qx d = 14 − 1/2 Px and Qx s = 1/4Px − 1 a. Determine the equilibrium price and quantity. Show the equilibrium graphically. B. Supposed a $ 12 excise tax is imposed on the good. Determine the new equilibrium price and quantity C. How much tax revenue does the government earn with the $12 taxarrow_forwardConsider the following supply and demand function, QD = 65 − 2P and QS = 1.5P − 5, and assume a $17.50 excise tax is collected from consumers. (a) Calculate price and quantity in this market before (P1 and Q1) and after the tax (P2 and Q2). (b) What is the amount of tax revenue that is collected from con- sumers, producers and in total? (c) What is the relative tax burden of consumers and producers? (d) Show how the elasticity of supply and demand determine the shar- ing of the tax burden. (e) What is the relative tax burden of producers and consumers if the tax is collected from producers, instead?arrow_forward1. What is the price to be paid by the buyers after the tax is imposed? How much is the rise in the price paid by consumers? 2. What is the net price received by the sellers after the tax is imposed? How much is the fall in the price received by the producers? 3. Prove that the increase (or change) in the price is dependent on the elasticity of demand and supply. 4. Determine burden of the tax (or the incidence of the tax that falls on consumers and producer). Who gets most of the burden of the tax. Answer on the basis of elasticity. 5. How much tax revenue is expected by the government to be raised for this good per year?arrow_forward
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