Question

1. In a perfectly competitive market for a normal good assume the following occur: i) income increases, and ii) the number of sellers increases. What happens to equilibrium Price (P) and equilibrium quantity (Q)? Explain why curve(s) shifted and the end result of P and Q.

2. The prediction of the Supply and Demand model is that a minimum wage would increase unemployment. Does this prediction match the affects found by researchers (starting with Card and Krueger 1994)? Why or why not?

3. Politicians often place a tax on sellers (not consumers) so that consumers do not pay the tax. Is this thinking correct? Why or why not? If not, what determines who pays the tax?

Answer 1

3. Politicians often place a tax on sellers (not consumers) so that consumers do not pay the tax. Is this thinking correct? Why or why not? If not, what determines who pays the tax?

ANS.3 The thinking is not correct, the consmuers has to pay tax to the the seller. the govt. impose tax on the seller and the the cosumers pay tax to the seller.

The burden of tax is divided between buyer and seller.

Taxes are of 2 tyes :

Direct tax and Indirect tax

Direct taxes are Applied on income. Person liable to pay tax, pays directly to govt. For eg. A person is liable to pay tax to the govt. according to his income, which he has to pay directly to the govt. in case of failure govt. will provide notice to him.

Indirect taxes are applied on expenditure. The products consumed out of basic needs has indirect taxes. Person who paid the tax and who is liable are different. For eg. In a restaurant individual (Consumer) pays tax to the restaurant owner (seller)  who then pays to govt..

Thus, the burden of tax lies on the consumers and sellers.