Question

The following are likely effects coming from a tax imposed in the market for Gasoline, EXCEPT:

Question 22 options:

	A) The price consumers pay (after tax) will be higher
	B) The price producerst receive (after tax) will be lower.
	C) Producers will end up absorbing most of the tax.
	D) A DWL will be generated.

The following are likely effects coming from a subsidy imposed on certain product x, EXCEPT:

Question 23 options:

	A) The final price paid by the consumers (after the sibsidy) will be lower.
	B) The final price received by the producer (after the subsidy) will be higher.
	C) The subsidy will increase the quantity produced of good x, and therefore increase efficiency in the economy.
	D) The subsidy will increase both consumer's and producer's well being in this market.

Using the following equations for demand and supply, identify the price and quantity that will prevail in equilibrium:

Demand Curve:   Qd = 80 - 2Px

Supply Curve:     Qs = 30 + 3Px

Question 24 options:

	A) P= 50 Q = 10
	B) P =10 Q=100
	C) P=10 Q=60
	D) P=5 Q=10

Answer 1

22. Ans: C) Producers will end up absorbing most of the tax.

Explanation:

The effects coming from a tax imposed in the market for Gasoline on producer or consumer depend upon the elasticity of that product . So without having knowledge about elasticity of that product we can not conclude that producers will end up absorbing most of the tax.

23. Ans: C) The subsidy will increase the quantity produced of good x, and therefore increase efficiency in the economy.

Explanation:

The subsidies lead economic inefficiency.

24. C) P=10 Q=60

Explanation:

Qd = 80 - 2Px

Qs = 30 + 3Px

At equilibrium ,  Qd = Qs

80 - 2Px =  30 + 3Px

= 80 - 2Px - 30 - 3Px

5Px = 50

Px = 50 / 5 = 10

Equilibrium quantity;

Qd = 80 - 2Px

= 80 - 2 ( 10 )

= 80 - 20 = 60

Qs = 30 + 3Px

= 30 + 3 ( 10 )

=30 + 30 = 60