Question

1.

Sellers will share more burden of tax

		a. when supply is more inelastic relative to the demand.
		b. when supply is more elastic relative to the demand.
		c. when supply and demand both are equally elastic.
		d. when supply and demand both are equally inelastic.

2. if the government want to raise tax revenue then

		a. they should be imposing taxes on the products whose demand and supply are elastic.
		b. they should be imposing taxes on the products whose demand and supply are inelastic.
		c. they should be imposing taxes on the products whose demand and supply both are perfectly inelastic.
		d. they should impose taxes on random basis.

3. At equilibrium

		a. price ceiling will be binding but price floor will be non binding.
		b. price floor will be binding but price ceiling will be non binding.
		c. both price ceiling and price floor will will non binding.
		d. both price floor and price ceiling will be binding.

Answer 1

1.

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 burdens will be on the sellers.

Hence it can be said that Sellers will share more burden of tax when supply is more inelastic relative to the demand.

Hence option a is the correct answer.

2.

If the government want to raise tax revenue then it should impose tax on those goods whose demand and supply are inelastic because when demand and supply are inelastic, the effect of increase in the price will be less on the quantity sold.

Hence option b is the correct answer.

3.

Since the price floor is the legal minimum price which can be charged and it is set above the equilibrium price. It leads surplus of outputs. A binding price floor is set above the equilibrium price. The example of price floor is minimum wage.

The price ceiling is a legal maximum price which can be charged by the sellers and it is set below the equilibrium price. The price ceiling imposed by the government leads shortage of goods.

If price ceiling is set below the equilibrium price, then it will be binding and if it is set above the equilibrium price, then it will be not binding.

Therefore it can be said that when there is equilibrium in the market and at equilibrium there is neither excess demand nor excess supply of goods. Hence it can be said that at equilibrium both price ceiling and price floor both will be non-binding.

Hence option c is the correct answer.