demand and supply elasticity.

Q1. Which of the following statements is most accurate with respect to the effects of taxes imposed on goods and services?

A)   The actual incidence will fall more heavily on the seller if the supply is less elastic relative to demand.

B)   The actual incidence will fall more heavily on the buyer if the demand is more elastic relative to supply.

C)   The statutory incidence will fall more heavily on the buyer if the supply is less elastic relative to demand.

Q2. Arthur Hampton is reviewing the transcript of a lawmaking session during which a legislator made the following two statements:

Statement 1: The impact of a tax on the equilibrium price and quantity of a good or service will be the same whether the tax is legally imposed on the buyers or sellers.

Statement 2: The impact on the equilibrium price and quantity of a good or service of making trade in it illegal will be the same whether the penalty is imposed on the buyers or sellers.

With respect to these statements:

A)   only statement 1 is correct.

B)   both are correct.

C)   only statement 2 is correct.

Q3. The decrease in production and trade as a result of a tax is called:

A)   total tax incidence.

B)   statutory incidence.

C)   deadweight loss.

答案和详解如下：

demand and supply elasticity.

Q1. Which of the following statements is most accurate with respect to the effects of taxes imposed on goods and services?

A)   The actual incidence will fall more heavily on the seller if the supply is less elastic relative to demand.

B)   The actual incidence will fall more heavily on the buyer if the demand is more elastic relative to supply.

C)   The statutory incidence will fall more heavily on the buyer if the supply is less elastic relative to demand.

Correct answer is A)

When supply is relatively inelastic, changes in quantity are small for a given change in price, and a larger share of the tax burden—the tax incidence—will fall on the sellers.

Q2. Arthur Hampton is reviewing the transcript of a lawmaking session during which a legislator made the following two statements:

Statement 1: The impact of a tax on the equilibrium price and quantity of a good or service will be the same whether the tax is legally imposed on the buyers or sellers.

Statement 2: The impact on the equilibrium price and quantity of a good or service of making trade in it illegal will be the same whether the penalty is imposed on the buyers or sellers.

With respect to these statements:

A)   only statement 1 is correct.

B)   both are correct.

C)   only statement 2 is correct.

Correct answer is A)

Hampton should agree with Statement 1 but disagree with Statement 2. In the trade of illegal goods, the effects of the prohibition depend on whether the penalties are imposed on the buyers or sellers. A penalty imposed on the buyers will shift the demand curve down by the value of the penalty buyers expect to bear. A penalty imposed on the sellers will shift the supply curve up by the value of the penalty sellers expect to bear. Other things equal, a penalty on buyers will result in a lower equilibrium price and a penalty on sellers will result in a higher equilibrium price. In either case the equilibrium quantity decreases.

Q3. The decrease in production and trade as a result of a tax is called:

A)   total tax incidence.

B)   statutory incidence.

C)   deadweight loss.

Correct answer is C)

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