Question

The government proposes a tax on sugary beverages. Buyers will bear the entire burden of the tax if the ____________________.

• A.

  Demand is perfectly inelastic.

• B.

  Supply is perfectly inelastic.

• C.

  Demand is perfectly elastic.

• D.

  Demand curve is downward sloping and the supply curve is upward sloping.

2. Consider the following scenario: Every week I buy either Trader Joe’s fried rice OR Trader Joe’s pot stickers to make for lunches for my wife and I. >

Refer to the scenario above: Suppose that the price of soy sauce, which is used to make the fried rice, increases. Assume soy sauce is unrelated to pot sticker consumption and neither the supply nor demand curve is perfectly inelastic. Which one of the following is true?

• A. The equilibrium price of fried rice decreases.
• B. The equilibrium price of pot stickers increases.
• C. The equilibrium quantity of fried rice increases.
• D. The equilibrium quantity of pot stickers doesn’t change.
• E. The equilibrium quantity of pot stickers increases.

3.

Which of the following statements is TRUE?

• A.

  If a subsidy is imposed on a market, it will always lead to an inefficient level of output.

• B.

  The statement “the government should tax the rich at a higher rate” is a normative statement.

• C.

  If the production possibilities frontier is a straight line then the opportunity cost for a good is decreasing.

• D.

  If the demand for a good decreases and the supply of the good increases, the equilibrium price increases.

Answer 1

Ans 1. Option A

This is because an increase in price won't affect the quantity demanded of beverages, so, sellers will increase the price by the amount of the tax making the buyers pay all of the tax.

Ans 2. Option A

The increase in price of soy sauce will decrease the demand for fried rice because both soy sauce and fried rice are consumed together i.e. they are complimentary goods. The deceased demand of fried rice at given supply of fried rice created a surplus of fried rice in the market leading to decrease in price of fried rice at equilibrium.

Ans 3. Option B

This is a normative statement because it is based on the value judgement of the person as no other facts are given along the statement as to why it should be done etc.

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