Exam 5: Appendix--Price Elasticity and Tax Incidence

If there is a $1 per box tax imposed on the sale of tea and the price paid by consumers increases by $0.50, what may we conclude about the price elasticities of demand and supply?

The more elastic is the supply, the less of a tax is paid by producers

The more price elastic is demand, the larger the portion of a tax that is paid by sellers

For which of the following goods would you expect the demand to be most price elastic?

If supply is elastic, the imposition of a tax

The more inelastic the supply, the less of a tax is paid by producers

Levying a tax on a good when demand is very elastic will generate a large amount of tax revenue for the government.

Exhibit 5-31 Refer to Exhibit 5-31.The tax burden borne by consumers is:

If supply is inelastic, the imposition of a tax will

Exhibit 5-29 Refer to Exhibit 5-29.The supply curve decreases from S to S(t)because a tax is imposed.Under demand curve D' as opposed to demand curve D, consumers will pay more of the tax.

An excise tax will generate more revenue to the government, the more price elastic the demand for the product is.

Exhibit 5-31 Refer to Exhibit 5-31.The revenue generated by the tax is: