Question

QUESTION 1

A tax on the buyers of smart watches encourages
    a.   sellers to supply a smaller quantity at every price.
   b.   sellers to supply a larger quantity at every price.
   c.   buyers to demand a larger quantity at every price.
   d.   buyers to demand a smaller quantity at every price.

QUESTION 2

Suppose that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by
    a.   less than $0.50.
   b.   $1.
   c.   $0.50.
   d.   between $0.50 and $1.

QUESTION 3

Which of the following statements is correct?
    a.   A tax levied on sellers always will be passed on completely to buyers.
   b.   Who bears the burden of a tax depends on the price elasticities of supply and demand.
   c.   Government can decide who ultimately pays a tax.
   d.   A tax levied on buyers will never be partially paid by sellers.

Answer 1

1.

The incidence of an excise tax is the rate which measure of who really bears the burden of the tax.

Irrespective of on whom tax is imposed, tax burden will be shared by both sellers and buyers.

The burden of tax falls more on the inelastic side, so if demand is relatively inelastic, then burden of tax falls more on buyers while burden of tax will be less on the sellers and vice-versa.

Since with the imposition of taxes price paid by buyers, increases, so a tax on the buyers of smart watches encourages buyers to demand a smaller quantity at every price.

Hence option d is the correct answer.

2.

As it has been given that the demand for picture frames is highly inelastic, and the supply of picture frames is highly elastic. A tax of $1 per frame levied on picture frames will increase the price paid by buyers of picture frames by between $0.50 and $1

Hence option d is the correct answer.

3.

The incidence of an excise tax is the rate which measure of who really bears the burden of the tax.

Irrespective of on whom tax is imposed, tax burden will be shared by both sellers and buyers.

The burden of tax falls more on the inelastic side, so if demand is relatively inelastic, then burden of tax falls more on buyers while burden of tax will be less on the sellers and vice-versa.

Hence option b is the correct answer.