Q: Which formula correctly calculates the share of a tax paid by buyers?

$$\text{Share paid by buyers} = \frac{\text{price increase}}{\text{tax amount}}$$

Question 1

Suppose the government imposes a $0.20 per bottle tax on soda. If the demand for soda is more inelastic than the supply, which party will bear a greater share of the tax burden?

Accepted Answer

Buyers will bear a greater share because demand is more inelastic.

Question 2

A price ceiling is only binding if it is set:

Accepted Answer

Below the equilibrium price.

Question 3

If a $$0.20 tax is imposed on sellers and the equilibrium price rises by 0.15$$, what share of the tax is paid by buyers?

Accepted Answer

$$\frac{0.15}{0.20} = 75\%$$

Question 4

Which of the following best describes the economic incidence of a tax?

Accepted Answer

It is determined by the relative elasticities of supply and demand.

Question 5

A government subsidy for electric cars shifts which curve, and in which direction?

Accepted Answer

The demand curve shifts up.

Question 6

If the government sets a price floor for beer at $1.50 per can, and at this price quantity supplied is 17 billion cans and quantity demanded is 13 billion cans, what is the resulting surplus?

Accepted Answer

$$17 - 13 = 4$$ billion cans

Question 7

Which of the following statements about statutory and economic tax incidence is correct?

Accepted Answer

Economic incidence is independent of statutory incidence.

Question 8

A quota is binding only if it is set:

Accepted Answer

Below the equilibrium quantity.

Question 9

Suppose a $$0.20 tax is imposed on buyers, and the price paid by buyers rises by 0.15. $$What is the price received by sellers?

Accepted Answer

$$\1.50$

Question 10

If the supply of cancer drugs is highly inelastic and a price ceiling is set below equilibrium, what is the likely market outcome?

Accepted Answer

A large shortage of cancer drugs.

Question 11

Which formula correctly calculates the share of a tax paid by buyers?

Accepted Answer

$$	ext{Share paid by buyers} = \frac{	ext{price increase}}{	ext{tax amount}}$$

Question 12

If a government wants to decrease the quantity of alcohol sold, which policy is most effective?

Accepted Answer

Imposing a binding price floor above equilibrium.

Question 13

Which party captures more of the benefit from a subsidy when supply is more inelastic than demand?

Accepted Answer

Sellers capture more of the benefit.

Question 14

A binding mandate requires a minimum quantity to be bought or sold. Where must this minimum be set to affect the market?

Accepted Answer

Above the equilibrium quantity.

Question 15

If a $3,000 subsidy is given to parents for child care, what happens to the demand curve for child care?

Accepted Answer

It shifts up by $3,000.

Question 16

Which of the following is NOT a likely consequence of a binding price ceiling?

Accepted Answer

A surplus of the good.

Question 17

If the government imposes a quota on taxi medallions in New York City, restricting the number to 13,600, what is the likely effect on the price of taxi rides?

Accepted Answer

The price will rise above equilibrium.

Question 18

Which of the following best describes the effect of a tax on the supply curve?

Accepted Answer

The supply curve shifts up by the amount of the tax.

Question 19

If a price floor is set above the equilibrium price, what is the likely market outcome?

Accepted Answer

A surplus of the good.

Question 20

Which of the following is a correct step in evaluating the impact of a tax or subsidy?

Accepted Answer

Identify which curve shifts and in which direction.

Chapter 6: Prices, Price Controls, and Quantity Regulations – Government Intervention in Markets

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