If there is an increase in government expenditures and an increase in taxes by an equal amount by how much will the aggregate demand increase?
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- What would happen to the equilibrium price and equilibrium quantity of a good after the government subsidized its production at the same time that demand increased? Explain.Suppose the price elasticity of demand for smartphones is 0.5 (absolute value), while the price elasticity of supply is 1.9. If the government imposes a per-unit tax of $100 on the sellers of smartphones, how will the price and quantity transacted of smartphones change? Will the sellers or the buyers bear a larger tax burden? Will the market be able to achieve economic efficiency after the tax is imposed? Explain with a diagram.According to the article, after the city of Berkeley imposed a $0.01 per ounce tax on sugar-sweetened beverages (SSBs), by what percent did consumption of SSBs fall among Berkeley's low-income residents? Who was Berkeley's tax levied on in city law? Buyers or sellers? Assume that the price elasticity of supply for SSBs is elastic and the price elasticity of demand for SSBs is inelastic. What would be the outcome of the sales tax on sugary drinks if the law says that the tax is levied on sellers of the drinks? Who will pay the tax? Assume that the price elasticity of supply for SSBs is elastic and the price elasticity of demand for SSBs is inelastic. What would be the outcome of the sales tax on sugary drinks if the law says that the tax is levied on buyers of the drinks? Who will pay the tax? Explain why your answers to #3 and #4 are different or similar. What determines who pays the tax? What is your opinion of a tax on sugary drinks in your community? Would you be in favor or…
- Governments impose excise taxes on goods that have inelastic demand, such as cigarettes, more often than in other cases. Why?What is the impact of government failure on the price elasticities of demand? What is the impact of government failure on the price elasticities of supply?Congress and the president decide that the United States should reduce air pollution by reducing its use of gasoline. They impose a $ 0.50 tax for each gallon of gasoline sold. Should they impose this tax on producers or consumers? Explain carefully using a supply-and-demand diagram. If the demand for gasoline were more elastic, would this tax be more effective or less effective in reducing the quantity of gasoline consumed? Explain with both words and a diagram. Are consumers of gasoline helped or hurt by this tax? Why? Are workers in the oil industry helped or hurt by this tax ? Why ?
- Which of the following statements about the relationship between elasticity and tax incidence are true ? Choose one or more:A. A tax on a good for which both demand and supply are relatively inelastic will cause a relatively large transfer of welfare from consumers and producers to the government. B.The incidence of a tax depends on who the tax is placed on. C.If a tax is imposed on a good with a perfectly inelastic demand, then consumers bear the full incidence of the tax. D.When demand is more inelastic than supply, producers bear more of the incidence of a tax. E.When demand is more inelastic than supply, consumers bear more of the incidence of a tax.Suppose households supply 560 billion hours of labor per year and have a tax elasticity of supply of 0.15. If the tax rate is increased by 10 percent, by how many hours will the supply of labor decline?Suppose the supply curve for cars is more elastic than the demand curve for cars. If the government imposes a tax on car sellers, which party (buyers or sellers) will bear more of the tax burden? How will the tax burden change if the government imposed the tax on car buyers, rather than sellers?
- At the current market equilibrium, the price elasticity of supply for a certain good is much lower than the price elasticity of demand. if the government imposes a $5 specific tax on this good, who will bear more of the burden of the tax?A company is considering building a bridge across a river. The bridge would cost $2 million to build and nothing to maintain. The following table shows the company’s anticipated demand over the lifetime of the bridge: If the government were to build the bridge, what price should it charge?Consider the market for BP gasoline. If the market has a very elastic supply and a very inelastic demand, how would the burden of a tax on BP gasoline be shared between producers and consumers? Draw a graph to support your answer.