ECN 104 Chapter 7 Test Questions
and Answers All Correct
When ___________ are paying tax it affects supply - Answer- sellers
When ________ are paying tax it affects demand - Answer- buyers
Tax Incidence - Answer- measure of who really bears the tax burden
Principles of taxation - Answer- 1) incidence doesn't depend on who officially pay the
tax
2) Incidence depends on shapes of supply / demand curves ( price elasticities)
Deadweight loss - Answer- larger when supply/ demand is elastic
smaller when supply/ demand is inelastic
price elasticity of demand is high, and elasticity of supply is low, burden of excise tax
falls on _____________ - Answer- Producers
Price of elasticity of demand is low, price elasticity of supply is high, burden of an excise
tax falls on ___________ - Answer- Consumers
lower price of good ___________ consumer surplus - Answer- increases
higher price of a good ___________ consumer surplus - Answer- decreases
General principle - Answer- Revenue collected by excise tax is equal to area of the
rectangle whose height is tax wedge between supply and demand curves and whose
width is the quantity transacted.
tax reduces both : - Answer- consumer/ producer surplus.
Fall in quantity : - Answer- larger when demand and supply are elastic
Tax revenue: - Answer- larger when demand and supply in inelastic
Administrative costs - Answer- the resources used by government to collect the tax, and
by taxpayers to pay it, over and above the amount of the tax.
and Answers All Correct
When ___________ are paying tax it affects supply - Answer- sellers
When ________ are paying tax it affects demand - Answer- buyers
Tax Incidence - Answer- measure of who really bears the tax burden
Principles of taxation - Answer- 1) incidence doesn't depend on who officially pay the
tax
2) Incidence depends on shapes of supply / demand curves ( price elasticities)
Deadweight loss - Answer- larger when supply/ demand is elastic
smaller when supply/ demand is inelastic
price elasticity of demand is high, and elasticity of supply is low, burden of excise tax
falls on _____________ - Answer- Producers
Price of elasticity of demand is low, price elasticity of supply is high, burden of an excise
tax falls on ___________ - Answer- Consumers
lower price of good ___________ consumer surplus - Answer- increases
higher price of a good ___________ consumer surplus - Answer- decreases
General principle - Answer- Revenue collected by excise tax is equal to area of the
rectangle whose height is tax wedge between supply and demand curves and whose
width is the quantity transacted.
tax reduces both : - Answer- consumer/ producer surplus.
Fall in quantity : - Answer- larger when demand and supply are elastic
Tax revenue: - Answer- larger when demand and supply in inelastic
Administrative costs - Answer- the resources used by government to collect the tax, and
by taxpayers to pay it, over and above the amount of the tax.
