ECON 201 Exam: ECON 201 Practice Exam: Questions & Answers: Complete Solution

Which of the following statements is TRUE? I. A $0.50 tax on each fishing lure sold raises the price per lure by $0.50. II. A tax on sellers is equivalent to a tax on buyers. III. A tax on buyers is analyzed by shifting the demand curve up by the amount of the tax. (Ans- II only Without taxes, the market price per bag of apples is $5. With a $2 tax per bag of apples, buyers now pay $5.75 per bag. What is the final price per bag of apples received by sellers? (Ans- $3.75 (Figure: Tax on Sellers) Refer to the figure. Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S0 to S1. The equilibrium quantity sold under the tax is: (Ans- 12 Suppose the demand for pizza is inelastic and the supply of pizza is elastic, and the demand for cigarettes is inelastic and the supply of cigarettes is elastic. If a tax were levied on the sellers of both of these commodities, we would expect that the burden of:(Ans- both the pizza and the cigarette taxes would fall more heavily on buyers than on sellers. If the government wanted to reduce alcohol consumption in the United States, would a state tax or federal tax be most effective? (Ans- A federal tax on alcohol consumption would be more effective because suppliers cannot as easily avoid the tax simply by shipping alcohol to other states. Assume that cigarettes sell for $7 per pack in New Jersey and $3 per pack in South Carolina, and New Jersey taxes cigarettes at $3.00 per pack and South Carolina taxes cigarettes at $0.10 per pack. How might cigarette sellers respond to the after-tax price differential between the two states? (Ans- Cigarette sellers will decrease the supply of cigarettes to New Jersey and increase the supply of cigarettes to South Carolina