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Quantitative Analysis of Taxes quiz

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  • What is the first step when calculating the effect of a tax on supply and demand using equations?
    The first step is to adjust the supply or demand equation by substituting 'p' with 'p minus tax' (if suppliers are taxed) or 'p plus tax' (if buyers are taxed).
  • How does a \$1 per unit tax on suppliers affect the supply curve?
    It shifts the supply curve upward (or leftward) by the amount of the tax, reflecting the higher cost to suppliers.
  • What is the new supply equation if the original is Qs = 2p - 6 and a \$1 tax is imposed on suppliers?
    The new supply equation is Qs = 2p - 8.
  • How do you find the new equilibrium after a tax is imposed?
    Set the new quantity supplied equation equal to the quantity demanded equation and solve for the equilibrium price.
  • If the new supply equation is Qs = 2p - 8 and the demand equation is Qd = 10 - p, what is the equilibrium price?
    The equilibrium price is \$6.
  • How do you calculate the equilibrium quantity after finding the equilibrium price?
    Plug the equilibrium price into either the supply or demand equation to solve for the equilibrium quantity.
  • What is the equilibrium quantity when the equilibrium price is \$6 in this example?
    The equilibrium quantity is 4 units.
  • Who pays the equilibrium price after a tax is imposed on suppliers?
    The buyers (non-taxed party) pay the equilibrium price.
  • How do you determine the price sellers receive after a per-unit tax is imposed?
    Subtract the tax amount from the price buyers pay to find the price sellers receive.
  • What price do sellers receive if buyers pay \$6 and the tax is \$1 per unit?
    Sellers receive \$5 per unit.
  • Why do we replace 'p' with 'p minus tax' in the supply equation when suppliers are taxed?
    Because suppliers receive the market price minus the tax, reflecting their net revenue after paying the tax.
  • Does it matter whether the tax is imposed on buyers or sellers for the final prices?
    No, the final prices for buyers and sellers will be the same regardless of which side is taxed.
  • What does the \$1 difference between the price buyers pay and the price sellers receive represent?
    It represents the per-unit tax collected by the government.
  • What is the general effect of a per-unit tax on equilibrium quantity?
    A per-unit tax decreases the equilibrium quantity.
  • What are the three main steps to solve for prices in a taxed market using equations?
    1) Adjust the relevant equation for the tax, 2) solve for the new equilibrium price and quantity, 3) determine the prices paid by buyers and received by sellers.