Question

In: Economics

A given tax will impose a greater deadweight loss when: both supply and demand are inelastic....

A given tax will impose a greater deadweight loss when:

both supply and demand are inelastic.
both supply and demand are elastic.
supply is elastic and demand is inelastic.
supply is inelastic and demand is elastic.

In the market for good X—a necessity good without any good substitutes—the workers and capital in the industry can easily find work producing other goods. The burden of the tax is likely to fall:

evenly between buyers and sellers.
more heavily on sellers, given that supply is more inelastic than demand.
more heavily on buyers, given that demand is more inelastic than supply.
more heavily on buyers, given that demand is more elastic than supply.

Which of the following statements is correct?

When demand is more inelastic than supply, sellers pay more of the tax.

When demand is more elastic than supply, sellers pay more of the tax.
When supply is more inelastic than demand, buyers pay more of the tax.

When supply is more elastic than demand, sellers pay more of the tax.

Without taxes, the market price per bag of apples is $5. With a $2 tax per bag of apples, buyers now pay $5.75 per bag. What is the final price per bag of apples received by sellers?

$3.00
$7.75
$5.00
$3.75

Expert Solution

a) "B"

When both the demand and supply are elastic in the market then the tax imposed will cause the greatest dead weight loss in the market.

b) The burden of tax will fall on the buyer because the demand is more inelastic as compared to the supply in the market. the answer is "C".

c) "B"

When the demand is more elastic than the supply then the sellers in the market will be paying more taxes in the market.

d) "D"

It will be the price paid by the buyer subtracted by the tax. answer is 3.75

Rahul Sunny answered 2 years ago

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