Question

In: Economics

1. The size of the market mostly a. increases due to the taxes. b. decreases due...

1. The size of the market mostly

		a. increases due to the taxes.
		b. decreases due to the taxes.
		c. may increase or decrease depending on the size of the tax.
		d. will have no impact on the market.

2. Tax burden

		a. falls equally on the buyers and sellers.
		b. falls more on buyers than sellers.
		c. falls more on sellers than buyers.
		d. is shared by buyers and sellers based on the elasticity.

3. Taxes makes

		a. makes buyers worse off.
		b. makes sellers worse off.
		c. both buyers and sellers worse off.
		d. makes government worse off.

4. When the taxes are imposed

		a. government does not gain anything out of it.
		b. government distributes the tax revenue among the buyers and sellers.
		c. government earns tax revenue based on quantity sold after taxes.
		d. government earns tax revenue based on quantity demanded after taxes.

Expert Solution

1.

Since tax creates distortions in the market because it increases the price for the buyers and decreases the price which a seller receive.

Hence this leads to decrease in the quantity demand and supply of goods.

Hence it can be said that the size of the market mostly decreases due to the taxes.

Hence option b is the correct answer.

2.

Since the burden of tax depends on the elasticity of demand and supply, the burden will be on the inelastic side of the curve. If demand is more elastic relative to the supply, then more burden will be on the sellers.

Hence it can be said that tax burden is shared by buyers and sellers based on the elasticity.

Hence option d is the correct answer.

3.

Since tax creates distortions in the market because it increases the price for the buyers and decreases the price which a seller receive.

It means due to tax both consumer and producer surplus decreases.

Hence both will be worse off.

Hence option c is the correct answer.

4.

When the taxes are imposed government earns tax revenue based on quantity sold after taxes.

Tax revenue= tax* quantity sold after tax.

Hence option c is the correct answer.

Rahul Sunny answered 2 years ago

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