Q: Which of the following is the correct formula for the price elasticity of demand using the midpoint method?

$$\frac{(Q_2$ - Q_1$)}{(P_2$ - P_1$)} \times \frac{(P_2$ + P_1$)}{(Q_2$ + Q_1$)}$$

Question 1

Given the demand equation $$QD = 110 - 10P$$ and the supply equation $$QS = 40 + 4P$$, what is the equilibrium price and quantity in this market?

Accepted Answer

Equilibrium price is $$P = 5$$, equilibrium quantity is $$Q = 60$$

Question 2

Suppose the government imposes a $$1.00 per unit tax on producers. Using the supply equation QS = 40 + 4P$, what is the new supply equation after the tax?

Accepted Answer

$$QS = 40 + 4(P + 1)$$

Question 3

After the $$1.00$$ per unit tax is imposed on producers, what is the new equilibrium price paid by buyers?

Accepted Answer

$$P = 5.5$$

Question 4

How much of the $$1.00$$ tax per unit is effectively paid by buyers, and how much by sellers, given the new equilibrium price is $$P = 5.5$$ and the price received by sellers is $$P = 4.5$$?

Accepted Answer

Buyers pay $$0.50$$, sellers pay $$0.50$$

Question 5

What is the total tax revenue collected by the government if the equilibrium quantity after tax is $$Q = 58$$ and the tax is $$1.00$$ per unit?

Accepted Answer

$$58$$

Question 6

Calculate the price elasticity of demand between $$P = 5$$ and $$P = 6$$ using the midpoint formula, given $$Q_1 = 60$ at P_1$ = 5$$ and $$Q_2 = 50$ at P_2$ = 6.$$

Accepted Answer

$$-1.67$$

Question 7

If the price elasticity of supply between $$P = 5$$ and $$P = 6 is $$calculated using the midpoint formula, and $$Q_1 = 60$ at P_1$ = 5$$, $$Q_2 = 64$ at P_2$ = 6$$, what is the elasticity?

Accepted Answer

$$1.5$$

Question 8

Which of the following best explains why the burden of a tax is shared between buyers and sellers?

Accepted Answer

Because the relative elasticities of demand and supply determine how the tax burden is split

Question 9

If demand is more elastic than supply, who bears a greater burden of a per-unit tax?

Accepted Answer

Sellers bear a greater burden

Question 10

Suppose the government wants to maximize tax revenue without causing a large decrease in quantity traded. Should it tax goods with elastic or inelastic demand?

Accepted Answer

Tax goods with inelastic demand

Question 11

If the government imposes a tax and the supply curve is perfectly inelastic, what happens to the price paid by buyers?

Accepted Answer

It does not change; sellers bear the entire tax

Question 12

A city imposes a $$2.00$$ per unit tax on cigarettes. If the demand for cigarettes is highly inelastic, what is the likely effect on the quantity sold and tax revenue?

Accepted Answer

Quantity sold decreases slightly, tax revenue rises

Question 13

Which of the following is the correct formula for the price elasticity of demand using the midpoint method?

Accepted Answer

$$\frac{(Q_2$ - Q_1$)}{(P_2$ - P_1$)} 	imes \frac{(P_2$ + P_1$)}{(Q_2$ + Q_1$)}$$

Question 14

If a $$1.00$$ per unit tax causes the equilibrium quantity to fall from $$60 to$$ $$58$$, what is the deadweight loss from the tax?

Accepted Answer

$$1$$

Question 15

Which of the following best describes tax incidence?

Accepted Answer

The actual division of the tax burden between buyers and sellers

Question 16

If the government imposes a tax on a good with perfectly elastic demand, who bears the entire burden of the tax?

Accepted Answer

Sellers

Question 17

A $$1.00$$ per unit tax is imposed on a market. If the price buyers pay increases by $$0.70$$ and the price sellers receive decreases by $$0.30$$, what does this imply about the relative elasticities?

Accepted Answer

Demand is more inelastic than supply

Question 18

If the government wants to minimize deadweight loss from a tax, it should tax goods with which characteristic?

Accepted Answer

Inelastic demand or supply

Question 19

Which of the following is NOT a likely effect of a per-unit tax on a competitive market?

Accepted Answer

An increase in consumer and producer surplus

Question 20

If the supply curve is $$QS = 40 + 4P$$ and the demand curve is $$QD = 110 - 10P$$, what is the effect on equilibrium quantity if a $$2.00$$ per unit tax is imposed on producers?

Accepted Answer

Equilibrium quantity decreases from $$60 to$$ $$56$$

Microeconomics Problem Set: Elasticity and Tax Incidence Guidance

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