ECO 201 Chapter Notes - Chapter 8: Tax Rate, Income Tax, Regressive Tax

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tanwildebeest705

6 Apr 2016

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Excise tax: tax charged on each unit of good or service this is sold. Ex: a hotel rooms equilibrium price is and there are 10,000 rooms rented per night. The city government imposes a tax of . So the government takes and the hotel makes . Incidence of a tax: who bears the burden of the tax. When excise tax is paid mainly by the consumers: excise tax on gasoline. Without the tx gas would sell for a gallon, with the tax consumers pay . When excise tax is paid by producers: a day tax on downtown parking. Price elasticity of supply is very low, so people find other alternatives. Price falls, producers make even less, and after tax barely make anything. Putting it all together: when price elasticity of demand is higher than the price elasticity of supply, an excise tax falls mainly on producers.

Related Questions

1.) An excise tax on a good typically reduces the net price received by the seller. (TRUE/FALSE)

2.) The burden of an excise tax on gasoline falls entirely on consumers of gasoline. (TRUE/FALSE)

3.) Rent controls are one of the few examples of a price floor in market economies. (TRUE/FALSE)

4.) Imposing a price ceiling below the equilibrium price of a good often leads to_____.

A) A greater supply of the good

B) A black market for the good

C) A rightward shift of the supply curve for the good.

D) A leftward shift of the demand curve for the good.

E) All of these

5.) Which of the following is true of price floors and ceilings?

A) Lead to the same price and quantity as in competitive market.

B) Lead to technical efficiency

C) Cause the demand curve to shift left

D) Usually result from government intervention

E) Cause the supply curve to shift right.

6.) Price ceilings often lead to black markets. (TRUE/FALSE)

7.) When minimum wage is above the equilibrium wage what occurs?

A) There will be a shortage of labor

B) There will be no effect on the number of people employed

C) There will be an increase in unemployment rate

D) There will be a decrease in unemployment rate

8.) An excise tax on a good typically reduces the price paid by the consumer (TRUE/FALSE)

9.) If a price ceiling is below the equilibrium price is imposed on a market, it will cause the quantity demanded to rise and the quantity supplied to fall. (TRUE/FALSE)

10.) Price floors often lead to black markets. (TRUE/FALSE)

11.) If an excise tax is imposed on restaurant meals what occurs?

A) Fewer meals will be produced and sold

B) More meals will be produced and sold

C) Market price of the meals will fall

D) Government tax revenue will fall.

mauveyellowjacket715

Use the accompanying graph to answer these questions. (LO2, LO3, LO4) a. Suppose demand is D and supply is S0. If a price ceiling of $6 is imposed, what are the resulting shortage and full economic price? b. Suppose demand is D and supply is S0. If a price support of $12 is imposed, what is the resulting surplus? What is the cost to the government of purchasing any and all unsold units? c. Suppose demand is D and supply is S0 so that the equilibrium price is $10. If an excise tax of $6 is imposed on this product, what happens to the equilibrium price paid by consumers? The price received by producers? The number of units sold? d. Calculate the level of consumer and producer surplus when demand and supply are given by D and S0 respectively. e. Suppose demand is D and supply is S0. Would a price ceiling of $2 benefit any consumers? Explain.

cyanyellowjacket357

Politicians concerned with climate change are proposing that a tax on electricity should be implemented with the hope that it will incentivize energy abatement. But they are also want to structure a policy such that it is the producers of electricity that pay the tax, not the consumers. Therefore, they propose a tax of $1/MW h to be paid by the generator of electricity. You have been hired to assess the economic implications of the proposed tax.

After running your econometric modeling, you conclude that the market for electricity is characterized by the following equations:

Demand Curve: P = 40 - 3Qd

Supply Curve: P = Qs

Where P is dollars per MWh and Q is Millions of MWhs.

Part 1: What are the equilibrium price (P) and quantity (Q) with no tax assessed?

Part 2: What will be the equilibrium quantity after the tax is assessed? What is the price that the consumer will pay after the tax is assessed? What is the price that the producer will receive after the tax is assessed?

Part 3: Was the politician successful in reducing electricity usage? If so, by how much?

Part 4: How much tax revenues are raised by the new tax?

Part 5: What is the tax incidence to the consumers?

Part 6: What is the tax incidence to the producers?

Part 7: Was the policymaker successful in assessing the tax on producers, not consumers?

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ECO 201 Chapter Notes - Chapter 8: Tax Rate, Income Tax, Regressive Tax

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