Question

61) Why do states places a higher tax on inelastic goods?

                                                                                        

62 and 63) What is the two common results of a price ceiling?

64) When government restricts output, it affects both consumers and producers.                                What other problem is created when the government restricts output?

65 and 66) Suppose that a paper producer is dumping waste into a nearby river. The                                    government imposes a tax to correct for this external cost. What will be the                                 effects of this pollution tax on the market for paper in a competitive market?

67) True or False. Accounting profits include both explicit and implicit costs.

68) What is shown by a production function?

69) What does a deadweight loss represent?

70) In cost analysis, what is the difference between the short run and the long run?

Answer 1

61) ..........A tax will shift the supply curve to the left leading to a higher price and a fall in demand. If demand is inelastic then the tax will have the effect of raising the price significantly and reducing quantity only slightly. This will help to increase tax revenue for the government. when the demand is inelastic consumers are not very responsive to price changes and the quantity demanded remains relatively constant when the tax is introduced. The government can then pass the tax burden along to customers in the form of higher prices, without much of a decline in the equilibrium quantity.

62 and 63) ...... The two consequences of price ceiling are price ceiling prevent a price from rising above a certain level. When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied and excess demand or shortages will result. price floors prevent a price from falling below a certain level.

64).........over the long term price controls in a inevitably lead to problem such as shortages, rationing, deterioration of product quality and black market that arise to supply the price controlled goods through unfficial channel. price controls are restrictions set in place and enforced by governments on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of goods even during shortages and is low inflation or alternatively to ensure a minimum income for providers of certain goods or try to achieve a living wage.voutput restrictions reduce the available supply of goods and services which artificially increases demand for the product and increases the price. A binding price ceiling will create a surplus of supply and will lead to a decrease in economic surplus. Examples in the United States are the price controls set an gasoline during the Nixon administration which eventually led to major shortages in supply and long, slow line at gas pump. Another rent control as another frequently cited example of the ineffectiveness of price control. Rent control policies widely implemented in New York city were intended to help maintain an adequate supply of affordable housing. however the actual effect has been to reduce the overall supply of available rental space which in turn has contributed to even higher prices in the market of available rental housing.

65 and 66)..........implementing tax on pollution the tax will reduce pollution and encourage more environment friendly alternatives. Pollution taxation charges for the damages their actions cause the environment and others.

67)....FALSE :... Because accounting profit on only include explicit cost. Accounting profit is a company's total earnings calculator according to general accepted accounting principles it include explicit cost of doing business, such as operating expenses, depreciation, interest and taxes. Revenue is income from selling a firm's product defined as price times quantity sold. Accounting profit is the total revenues minus explicit cost including depreciation. Explicit cost are out of pocket cost for a firm. for example payments for wages and salaries ,rent, or materials.

68)......The production function relates the maximum amount of output that can be obtained from a given number of inputs. The production function describes a boundary of frontier representing the limit of output obtainable from each feasible combination of inputs. Firms use a production function to determine how much output they should produce given the price of a good and what combination of inputs they should used to produce given the price of capital and labour. The production function also gives information about increasing or decreasing returns to scale and the marginal product of labour and capital.

69).......A deadweight loss is a cost created by society created by market in efficiency which occurs when supply and demand are out of equilibrium. Mainly used in economics dead waste loss can be applied to any deficiency caused by an inefficient allocation of resources.

70).….....The main difference between a long run and short run cost is that there are no fixed factors in the long run there are both fixed and variable factors in the short run. In the short these variables do not always adjust due to the condensed time period.