Question

11. When a market is in equilibrium and that good or service is then taxed, the:

	a.	social marginal benefit of consumption exceeds the social marginal cost of production.
	b.	deadweight loss is greater when the tax is levied on consumers than when it is levied on producers.
	c.	social marginal cost of production exceeds the social marginal benefit of consumption.
	d.	deadweight loss is greater when the tax is levied on producers than when it is levied on consumers.

12. What information must you know to determine the tax burdens on firms and workers for a tax on labor?

	a.	the relative elasticities of labor demand and labor supply
	b.	the percentage of the statutory burden placed on employers
	c.	how the statutory burden of the tax is divided between employers and workers
	d.	the percentage of the statutory burden placed on workers

Answer 1

11) When a Market is in equilibrium, it means that

Private Marginal Cost= Private Marginal Benefit= Social Marginal Benefit.

Now when the good is taxed, Its Social Marginal Cost= Private Marginal Cost+ Tax

But before imposing tax, Private Marginal Cost= Social Marginal Benefit

Hence, after tax

Social Marginal Cost= Social Marginal Benefit + Tax.

From the equation, it can be seen that when the good or service is taxed, social Marginal Cost of production exceeds the social Marginal Benefit of Consumption.

Hence, Option c is correct.

12) To determine the tax burden on firms and workers for a tax on labour, we must know the relative elasticities of labour demand and labour supply.

Hence, Option a is correct.