Question

The demand for salt is price inelastic and the supply of salt is price elastic. The demand for caviar is price elastic and the supply of caviar is price inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt and a tax of $1 per pound is levied on the buyers of caviar. We would expect that most of these taxes will be paid by the _________ of salt and the ________ of caviar.
A. sellers: buyers
B. sellers; sellers
C. buyers; sellers
D. buyers; buyers
E. B or D, only

Which of the following statements is (are) correct?
(x) A buyer’s willingness to pay is the maximum amount that a buyer will pay for a good and it is a measure of how much the buyer values the good.
(y) A buyer is willing to buy a product at a price less than or equal to his willingness to pay, but would refuse to buy a product at a price more than his willingness to pay.
(z) When a buyer’s willingness to pay for a good is equal to the price of the good, the buyer will buy the good because the buyer will receive benefit from the good.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

Which of the following statements is (are) correct? In a market
(x) the marginal buyer is the buyer who would be the first to leave the market if the price were any higher.
(y) for any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay.
(z) an increase in the price of a good would entice a marginal buyer to make a purchase of that good.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

Answer 1

Answer

C. Buyers; Sellers

The demand for salt is price inelastic and the supply of salt is price elastic. The demand for caviar is price elastic and the supply of caviar is price inelastic. Suppose that a tax of $1 per pound is levied on the sellers of salt and a tax of $1 per pound is levied on the buyers of caviar. We would expect that most of these taxes will be paid by the buyers of salt and the sellers of caviar.

When demand for product is price inelastic and supply of the product is price elastic, then if a tax is levied on the sellers, then most of the tax burden will fall on buyers, i.e., most of the tax will be paid by the buyers.

When demand for product is price elastic and supply of the product is price inelastic, then if a tax is levied on the buyers, then most of the tax burden will fall on the sellers of the product, i.e., the sellers will pay most of the tax.

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A. (x), (y) and (z).

All the three statements are true.

- A buyer’s willingness to pay is the maximum amount that a buyer will pay for a good and it is a measure of how much the buyer values the good.
-A buyer is willing to buy a product at a price less than or equal to his willingness to pay, but would refuse to buy a product at a price more than his willingness to pay.
-When a buyer’s willingness to pay for a good is equal to the price of the good, the buyer will buy the good because the buyer will receive benefit from the good.

The buyer desires the product that gives him satisfaction, i.e., the product which has utility to the buyer. There is no way to measure the utility of a product; but how much a buyer values a product, can be measured by the maximum amount the buyer is willing to pay for the product. The maximum amount the buyer pays for a product is equal to the maximum benefit the buyer receives from the product.If the buyer thinks that the price of the product is greater than the benefit he receives from the product, he will refuse to buy the product.

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B. (x) and (y) only

The first two statements are true.

-The marginal buyer is the buyer who would be the first to leave the market if the price were any higher.

-For any given quantity, the price on a demand curve represents the marginal buyer's willingness to pay.

In a free market, the price is set by the free interplay of demand and supply forces. The demand curve shows how much a buyer is willing to pay for a particular quantity of a commodity.The buyer who offers the maximum amount to pay for a commodity is the marginal buyer. This maximum amount is the market price.The marginal buyer will leave the market, if the price is higher than his willingness to pay for a commodity.

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