Question 1

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

Accepted Answer

Equilibrium price is $5.00 and equilibrium quantity is 60.

Question 2

If the government imposes a $1.00 per unit tax on producers, what is the new equilibrium quantity in the market described by $Q_D = 110 - 10P$ and $Q_S = 40 + 4P$?

Accepted Answer

The new equilibrium quantity is 57.1 units.

Question 3

After a $1.00 per unit tax is imposed on producers, what is the price paid by consumers ($P_c$) and the price received by producers ($P_p$)?

Accepted Answer

$P_c = 5.29$, $P_p = 4.29$

Question 4

How is the $1.00 tax burden shared between buyers and sellers in this market?

Accepted Answer

Buyers pay $0.29 and sellers pay $0.71 per unit.

Question 5

Calculate the price elasticity of demand between $P = 5$ and $P = 6$ for the demand curve $Q_D = 110 - 10P$.

Accepted Answer

$E_d = 1.00$

Question 6

Calculate the price elasticity of supply between $P = 5$ and $P = 6$ for the supply curve $Q_S = 40 + 4P$.

Accepted Answer

$E_s = 0.35$

Question 7

Why do producers bear a larger share of the tax burden in this market after the $1.00 tax is imposed?

Accepted Answer

Because the supply is less elastic than demand.

Question 8

What is the total tax revenue collected by the government after imposing a $1.00 per unit tax, given the new equilibrium quantity?

Accepted Answer

$57.10

Question 9

Suppose the demand for a product is unit elastic and the supply is inelastic. If a tax is imposed, who will bear the greater burden?

Accepted Answer

Sellers will bear the greater burden.

Question 10

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

Accepted Answer

Goods with inelastic demand and supply.

Question 11

If the supply curve is $Q_S = 40 + 4P$ and the government imposes a $2.00$ per unit tax on producers, what is the new supply curve equation?

Accepted Answer

$Q_S = 40 + 4(P-2)$

Question 12

A tax is imposed on a market with the demand curve $Q_D = 110 - 10P$. If the price increases from $5$ to $6$, what is the percentage change in quantity demanded?

Accepted Answer

A decrease of 18.2%

Question 13

Which of the following best explains why the incidence of a tax does not depend on who legally pays the tax?

Accepted Answer

Because the incidence depends on the relative elasticities of demand and supply.

Question 14

If the government imposes a tax and the supply is perfectly inelastic, who bears the entire burden of the tax?

Accepted Answer

Sellers

Question 15

Suppose the demand curve is $Q_D = 110 - 10P$. What is the slope of the demand curve?

Accepted Answer

-10

Question 16

If the supply curve is $Q_S = 40 + 4P$, what is the price-intercept (vertical intercept) of the supply curve?

Accepted Answer

$P = -10$

Question 17

If a $1.00$ per unit tax reduces the equilibrium quantity from $60$ to $57.1$, what is the deadweight loss from the tax? (Assume linear demand and supply curves.)

Accepted Answer

$1.45$

Question 18

Which of the following statements is TRUE regarding the effect of a tax on market equilibrium?

Accepted Answer

A tax causes the price paid by buyers to rise and the price received by sellers to fall.

Question 19

If the government wants to raise the most revenue with the least distortion, it should tax goods with which type of demand?

Accepted Answer

Inelastic demand

Microeconomics Problem Set: Elasticity and Tax Incidence Guidance

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