7)
Suppose a $2/unit tax is placed on a good. If the original equilibrium is (P = $13, Q = 500) and the new equilibrium is (P = $14.50, Q = 300), what is the producer tax burden?
Group of answer choices
a $1000
b $150
c $450
d $600
8)
Which of the following is consistent with a demand curve that shows a larger percent change in price than its percent change in quantity?
Group of answer choices
a Price Elasticity = 0.8, Inelastic demand
b Price Elasticity = 1.2, Inelastic demand
c Price Elasticity = 1.2, Elastic demand
d Price Elasticity = 0.8, Elastic demand
7) b. $150
Reason- The new quantity supplied after imposing
tax is 300 units. Tax per unit is $2. Therefore, the supply curve
will shift upwards by 2 units.
Here, the shaded portion is the tax burder that falls on the producers.
8) a. Price elasticity= 0.8, Inelastic
Demand
Reason- When the the percentage change in price is
more than the percentage change in quantity demanded, the
demoninator will be more than the numerator, as a result of which
the price elasticity will be less than zero, which is inelastic.
The demand is inelastic because only a large change in price
effects the quantity supplied.
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