Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 6, Problem 5QR
To determine
The impact of changing tax on consumers to sellers.
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Students have asked these similar questions
If the government removes a tax on a good, then the price paid by buyers will
a)increase, and the price received by sellers will increase
b)increase, and the price received by sellers will decrease
c)decrease, and the price received by sellers will increase
d)decrease, and the price received by sellers will decrease
If after a tax is imposed, the price paid by the buyer rises by $3 while the price received by the seller falls by $2, and the quantity of goods sold falls from 300 to 200 units, what is the amount of government revenue from this tax?
Taxes & Subsidies
Suppose that, in order to incentivize drivers to switch to electric vehicles, a government imposes a tax to be added to the purchase price of gasoline cars and a subsidy (discount voucher) on the purchase of electric cars. You can assume whatever you think is reasonable about the demand and supply elasticities to prices.
Illustrate the likely effects of those policies using graphs. Discuss:
What happens to the quantity of gasoline and electric cars in equilibrium?
Who bears the burden of the tax, and who enjoys the subsidy in your model (between producers and consumers)?
As a policymaker, do you want demand and supply curves to be more or less price elastic for the policy to work?
Chapter 6 Solutions
Principles of Macroeconomics (MindTap Course List)
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Similar questions
- The government is in need of tax revenue and has narrowed down the choice of markets to tax to two: cigarettes or t-shirts. The markets are summarised below. Cigarettes Demand: P = 100 – 4Q Supply: P = Q T-shirts Demand: P = 35 – ½Q Supply: P = 5 + ½Q Graph the two markets and calculate the equilibrium price and quantity. If the government implemented a $5 tax on each market, how much tax revenue could each market generate? If you were an economic advisor, which market would you suggest taxing and why?arrow_forwardDoes a tax increase or decrease the quantity of the taxed good that is consumed?arrow_forwardDraw a supply-and-demand diagram of the market for liquor without the tax. Show the price paid by consumers, the price received by producers, and the quantity of liquor sold. What is the difference between the price paid by consumers and the price received by producers? Now draw a supply-and-demand diagram for the liquor market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of liquor sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of liquor sold increased or decreased?arrow_forward
- How does a tax on a good affect the price paid by buyers, price receive by sellers, and the quantity sold?arrow_forwardThe figure below shows a market of good X. Suppose that the government levied the tax of 30 on X. Regarding the after-tax equilibrium quantity, does it matter on which side (sellers or buyers) the tax was levied? What is the quantity and the price buyers pay and the price sellers receive in the after-tax equilibrium? Quantity: Price buyers pay: Price sellers receive:arrow_forwardSuppose that policymakers are considering placing a tax on either of two markets. In Market A, the tax will have a significant effect on the price consumers pay, but it will not affect equilibrium quantity very much. In Market B, the same tax will have only a small effect on the price consumers pay, but it will have a large effect on the equilibrium quantity. Other factors are held constant. In which market will the tax have a larger deadweight loss? Market A Market B The deadweight loss will be the same in both markets. There is not enough information to answer the question.arrow_forward
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