Question : 31.Assumethesupplycurveforcigarsisatypical,upward-slopingstraightline,andthedemandcurveforcigarsisatypical,downward-slopingstraightline.Supposetheequilibriumquantityinthemarketforcigarsis1,000permonthwhenthereisnotax.T : 1262569

31.Assumethesupplycurveforcigarsisatypical,upward-slopingstraightline,andthedemandcurveforcigarsisatypical,downward-slopingstraightline.Supposetheequilibriumquantityinthemarketforcigarsis1,000permonthwhenthereisnotax.Thenataxof$0.50percigarisimposed.Theeffectivepricepaidbybuyersincreasesfrom

a.Thedemandforcigarsislesselasticthanthesupplyofcigars.

b.Thetaxcausesadecreaseinconsumersurplusof$390andadecreaseinproducersurplusof$97.50.

c.Thedeadweightlossofthetaxis$12.50.

d.Alloftheabovearecorrect.

32.Supposethatpolicymakersareconsideringplacingataxoneitheroftwomarkets.InMarketA,thetaxwillhaveasignificanteffectonthepriceconsumerspay,butitwillnotaffectequilibriumquantityverymuch.InMarketB,thesametaxwillhaveonlyasmalleffectonthepriceconsumerspay,butitwillhavealargeeffectontheequilibriumquantity.Otherfactorsareheldconstant.Inwhichmarketwillthetaxhavealargerdeadweightloss?

a.MarketA

b.MarketB

c.Thedeadweightlosswillbethesameinbothmarkets.

d.Thereisnotenoughinformationtoanswerthequestion.

33.Consideragoodtowhichaper-unittaxapplies.Thegreaterthepriceelasticitiesofdemandandsupplyforthegood,the

a.smallerthedeadweightlossfromthetax.

b.greaterthedeadweightlossfromthetax.

c.moreefficientisthetax.

d.moreequitableisthedistributionofthetaxburdenbetweenbuyersandsellers.

34.Consideragoodtowhichaper-unittaxapplies.Thesizeofthedeadweightthatresultsfromthetaxissmaller,the

a.largeristhepriceelasticityofdemand.

b.smalleristhepriceelasticityofsupply.

c.largeristheamountofthetax.

d.Alloftheabovearecorrect.

35.Consideragoodtowhichaper-unittaxapplies.Thesizeofthedeadweightthatresultsfromthetaxissmaller,the

a.lesselasticisthedemandforthegood.

b.lesselasticisthesupplyofthegood.

c.smalleristheamountofthetax.

d.Alloftheabovearecorrect.

36.Supposethegovernmentplacesaper-unittaxonagood.Thesmallerthepriceelasticitiesofdemandandsupplyforthegood,the

a.smallerthedeadweightlossfromthetax.

b.greaterthedeadweightlossfromthetax.

c.lessefficientisthetax.

d.moreequitableisthedistributionofthetaxburdenbetweenbuyersandsellers.

37.Suppose thepriceofmilkis$2.39pergallon,andtheequilibriumquantityofmilkis100 thousandgallonsperdaywithnotaxonmilk.Startingfromthisinitialsituation,whichofthefollowingscenarioswouldresultinthesmallestdeadweightloss?

a.The priceelasticityofdemandformilkis 0.3,thepriceelasticityofsupplyformilk is0.7,andthemilktaxamountsto$0.40pergallon.

b.The priceelasticityofdemandformilkis 0.2,thepriceelasticityofsupplyformilk is0.5,andthemilktaxamountsto$0.30pergallon.

c.The priceelasticityofdemandformilkis 0.2,thepriceelasticityofsupplyformilk is0.7,andthemilktaxamountsto$0.30pergallon.

d.The priceelasticityofdemandformilkis 0.1,thepriceelasticityofsupplyformilk is0.5,andthemilktaxamountsto$0.20pergallon.

38.Assume the priceof gasolineis $2.00 pergallon, andthe equilibrium quantityof gasolineis 10 milliongallons perdaywithnotaxongasoline.Startingfromthisinitialsituation,whichofthefollowingscenarioswouldresultinthelargestdeadweightloss?

a.Thepriceelasticityofdemandforgasolineis0.1;thepriceelasticityofsupplyforgasolineis0.6;andthegasolinetaxamountsto$0.20pergallon.

b.Thepriceelasticityofdemandforgasolineis0.1;thepriceelasticityofsupplyforgasolineis0.4;andthegasolinetaxamountsto$0.20pergallon.

c.Thepriceelasticityofdemandforgasolineis0.2;thepriceelasticityofsupplyforgasolineis0.6;andthegasolinetaxamountsto$0.30pergallon.

d.Thereisinsufficientinformationtomakethisdetermination.

39.Assume the priceof gasolineis $2.40 pergallon, andthe equilibrium quantityof gasolineis 12 milliongallons perdaywithnotaxongasoline.Startingfromthisinitialsituation,whichofthefollowingscenarioswouldresultinthelargestdeadweightloss?

a.A10percentincreaseinthepriceofgasolinereducesthequantityofgasolinedemandedby2percentanditincreasesthequantityofgasolinesuppliedby5percent;andthetaxongasolineamountsto$0.40pergallon.

b.A10percentincreaseinthepriceofgasolinereducesthequantityofgasolinedemandedby2percentanditincreasesthequantityofgasolinesuppliedby7percent;andthetaxongasolineamountsto$0.40pergallon.

c.A10percentincreaseinthepriceofgasolinereducesthequantityofgasolinedemandedby1percentanditincreasesthequantityofgasolinesuppliedby8percent;andthetaxongasolineamountsto$0.35pergallon.

d.Thereisinsufficientinformationtomakethisdetermination.

40.Otherthingsequal,thedeadweightlossofatax

a.decreasesasthesizeofthetaxincreases.

b.increasesasthesizeofthetaxincreases,buttheincreaseinthedeadweightlossislessrapidthantheincreaseinthesizeofthetax.

c.increasesasthesizeofthetaxincreases,andtheincreaseinthedeadweightlossismorerapidthantheincreaseinthesizeofthetax.

d.increasesasthepriceelasticitiesofdemandand/orsupplyincrease,butthedeadweightlossdoesnotchangeasthesizeofthetaxincreases.