Chapter Questions
Explain why the combination of consumer and producer surplus is not maximized if there is either excess demand or supply.
Use economic reasoning to explain why nearly every purchase you make provides you with consumer surplus.
Name one local tax that is based on the ability-to-pay principle and one local tax that is based on the benefit principle. State your reason for categorizing the taxes as you did.
How is elasticity related to the revenue from a sales tax?
If the federal government wanted to tax a good and suppliers were strong lobbyists, but consumers were not, would government prefer supply or demand to be more inelastic? Why?
What types of goods would you recommend government tax if it wants the tax to result in no welfare loss? Name a few examples.
Suppose demand for cigarettes is inelastic and the supply of cigarettes is elastic. Who would bear the larger burden of a tax placed on cigarettes?
If the demand for a good is perfectly elastic and the supply is elastic, who will bear the burden of a tax on the goud paid by consumers?
What percent of a tax will the demander pay if price elasticity of supply is .3 and price elasticity of demand is .7? What percent will the supplier pay?
Which good would an economist normally recommend taxing if government wanted to minimize welfare loss and maximize revenue: a good with an elsstic or inelastic supply? Why?
Should tenants who rent apartments worry that increases in property taxes will increase their rent? Does your answer change when considering the long nun?
Can you explain the tax system that led to this building style, which was common in old Eastem European cities?
In which case would the shortage resulting from a price ceiling be greater-when supply is inelastic or elastic? Explain your answer.
Define rent secking. Do firms have a greater incentive to engage in rent-seeking behavior when demand is elastic or when it is inelastic?