Question

In: Economics

Where is the initial effect of a tax on the buyers of a good? On the...

  1. Where is the initial effect of a tax on the buyers of a good?
    1. On the supply of that good
    2. On the demand for that good
    3. On the equilibrium quantity of the good
    4. On the equilibrium price of the good

  1. If buyers are required to pay a $0.10 tax per bag on Hershey's kisses, how will the demand for kisses shift?
    1. Up by $0.05 per bag
    2. Up by $0.10 per bag
    3. Down by $0.05 per bag
    4. Down by $0.10 per bag

  1. Suppose a tax is imposed on the buyers of a product. On whom will the burden of the tax fall?
    1. On the buyers or the sellers
    2. On the buyers and the sellers
    3. On the buyers or the government
    4. On the buyers and the government

  1. If a tax is levied on the seller of a product, what will happen to the demand curve and the supply curve?
    1. Demand will not change and supply shifts to the left
    2. Demand will not change and supply shifts to the right.
    3. Demand shifts to the left and supply will not change.
    4. Demand shifts to the right and supply will not change.

Solutions

Expert Solution

1 - Option B

On the demand for that good.

The tax on the buyer at the initial level affects the demand and after that the equilibrium price and quantity are affected.

2 - Option D

Down by $ 0.10 per kisses

This is because of the levy of tax , the price will rise leading to fall in demand for kisses.

3 - Option B

On the buyers and the sellers

This is because the burden of tax will be divided among buyer and seller based upon their elasticities. The side with lesser elasticity bears greater burden. Government receives tax and not pays it. Hence Option B will be correct

4 - Option A

Demand will not change and supply shifts to left

The tax will increase the cos of production leading to decrease in supply and leftward shift. Hence Option A will be correct.


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