1. Explain briefly why generally government shouldn't place taxes in markets that have pre-existing distortions. Be specific. Give an example where taxes can improve the distortion
2. Suppose the demand for apples is perfectly elastic and the government levies a tax t on the producers of apples. Assume that the supply of apples is neither perfectly elastic nor perfectly inelastic (upward sloping)
a. Explain using a graph how the price paid by consumers will change.
b. What is the statutory burden of the tax ? Which party bears the largest economic burden?
c. Is this change larger or smaller than the price change that would result if demand for apples were not perfectly elastic?
d. How would the quantities of apples consumed change because of the tax? Is this change in quantity larger or smaller than the change that would result if the demand for apples were not perfectly elastic?
1. Explain briefly why generally government shouldn't place taxes in markets that have pre-existing distortions. Be specific. Give an example where taxes can improve the distortion
2. Suppose the demand for apples is perfectly elastic and the government levies a tax t on the producers of apples. Assume that the supply of apples is neither perfectly elastic nor perfectly inelastic (upward sloping)
a. Explain using a graph how the price paid by consumers will change.
b. What is the statutory burden of the tax ? Which party bears the largest economic burden?
c. Is this change larger or smaller than the price change that would result if demand for apples were not perfectly elastic?
d. How would the quantities of apples consumed change because of the tax? Is this change in quantity larger or smaller than the change that would result if the demand for apples were not perfectly elastic?
Related textbook solutions
Related questions
1.Individual farmers cannot individually affect market price because
a)There is an infinite demand for their goods.
b) Demand is perfectly inelastic for the farmer's produce.
c)Their individual production is insignificant relative to the production of the market.
d)The government exercises control over the market power of competitive firms.
2.Compared to the early 1950s, today farm output per labor-hour is
| Ā | a)10 times greater than it was then. |
| b) | The same as it was then. |
| c) | 20 times greater than it was then. |
| d) | 20 percent less than it was then. |
3.Because farm products have a low price elasticity of demand, a small change in farm output will have
| a) | An indeterminate effect on price. |
| b) | No effect on price. |
| c) | A smaller effect on price. |
| d) | A larger effect on price. |
4.The price elasticity of demand for food is
| a) | Perfectly inelastic. |
| b) | Relatively inelastic. |
| c) | Relatively elastic. |
| d) | Perfectly elastic. |
5.In order to continue earning an economic profit, individual farmers must
| a) | Expand their rate of output until marginal cost equals zero. |
| b) | Charge higher prices than their competitors. |
| c) | Continue to improve their productivity. |
| d) | Charge lower prices than their competitors. |
6.If a price support is maintained above the equilibrium price, the result will be a
| a) | Market price that is too low. |
| b) | Market price equal to the equilibrium price. |
| c) | Surplus of the product. |
| d) | Shortage of the product. |
7.The primary focus of U.S. farm policy has been
| a) | Subsidies. |
| b) | Price supports. |
| c) | Low-interest loans. |
| d) | Tax credits for mechanical equipment. |
