Transcript Chapter 8 Questions

Chapter 8 Questions
Learning something…or something
What is the cost of a tax? (What
does a tax really do?)
Are taxes good or bad? Why?
Question 1
John tutors Robert for $50 an hour. Robert’s willingness to
pay John is $60. John’s opportunity cost for tutoring Robert
is $35.
What is John’s producer surplus?
2. What is Robert’s consumer surplus?
3. If John has to pay a $5 tax how does the market change?
What about a $25 tax on Robert?
1.
1.
John’s consumer surplus is $15
2.
Robert’s consumer surplus is $10
3.
The $5 tax would not change the market because John
would still have a consumer surplus even if he had to take
all of the tax.
If the tax was placed on Robert the transaction would no
longer take place since the total cost is above his
willingness to pay with the distribution of the tax
1. What letter or letters represents
consumer surplus before taxes?
Question 2
2. What letter or letters represents
producer surplus after tax?
3.What is total surplus after tax?
Price
Price
buyers
pay =PB
A
Supply
5. What does A,B,C,D,E,F represent?
B
Price
without =P1
tax
C
6. Tax is represented by the space
between what two points?
E
D
Price =PS
sellers
receive
4. What does B represent?
F
Demand
0
Q2
Q1
Quantity
1.
2.
3.
4.
5.
6.
A,B,C
F
A,B,D,F
Part of the government tax revenue
Total surplus before taxes
Between PB & PS
Question 3
 What kind of market has the largest deadweight loss? What
market has the smallest?
 Markets that have a very inelastic demands and supplies have
the smallest deadweight loss.
 Markets that have very elastic demands and supplies have the
largest deadweight loss.
Question 4
1.
2.
3.
4.
5.
The imposition of the tax
causes the quantity sold to
do what?
What happens to the
amount buyers pay?
Producers receive?
What is the tax?
How much of the tax do
sellers pay?
How much of the tax do
buyers pay?
1.
2.
3.
4.
5.
Reduce by about 4
Goes up by $6, down by $4
$10
$6
$4
Question 5
a.
b.
 c.
 d.
 e.
 f.
 g.
 h.
 i.
equilibrium price before the
tax
consumer surplus before the
tax
producer surplus before the
tax
total surplus before the tax
consumer surplus after the tax
producer surplus after the tax
total tax revenue to the
government
total surplus after the tax
deadweight loss
 a.
 b.
 c.
 d.
 e.
 f.
 g.
 h.
 i.
$10
$3,600
$2,400
$6,000
$900
$600
$3,000
$4,500
$1,500
Question 6
 John has been in the habit of mowing Willa's lawn each week
for $20. John's opportunity cost is $15, and Willa would be
willing to pay $25 to have her lawn mowed. What is the
maximum tax the government can impose on lawn mowing
without discouraging John and Willa from continuing their
mutually beneficial arrangement?
 If the tax is less than $10, there will exist a price at which
both John and Willa will still benefit from the lawn-mowing
arrangement. If the tax is $10, a price can be set which will
leave John and Willa neither better off nor worse off from the
lawn-mowing arrangement. If the tax is greater than $10, all
possible prices will leave at least one of the parties worse off
from the lawn-mowing arrangement.
Question 7
A
B
C