3) Refer to Figure 4-9. How much of the tax is paid by buyers?
A) $8
B) $5
C) $4
D) $3
4) Refer to Figure 4-9. The price buyers pay after the tax is
A) $12.
B) $8.
C) $5.
D) $3.
5) Refer to Figure 4-9. For each unit sold, the price sellers receive after the tax (net of tax) is
A) $12.
B) $8.
C) $4.40.
D) $3.
6) Refer to Figure 4-9. How much of the tax is paid by producers?
A) $45
B) $8
C) $3
D) $2
7) Refer to Figure 4-9. As a result of the tax, is there a loss in producer surplus?
A) Yes, because producers are not selling as many units now.
B) No, because the consumer pays the tax.
C) No, because the market reaches a new equilibrium
D) No, because producers are able to raise the price to cover their tax burden.
8) The government proposes a tax on halogen light bulbs. Sellers will bear the entire burden of the tax if
the
A) supply curve of halogen bulbs is horizontal.
B) demand curve for halogen bulbs is vertical.
C) demand curve for halogen bulbs is horizontal.
D) demand curve is downward sloping and the supply curve is upward sloping.
9) Buyers will bear the entire burden of a unit tax if the demand curve for a product is
A) horizontal.
B) vertical.
C) downward sloping.
D) upward sloping.
10) Suppose the demand curve for a product is downward sloping and the supply curve is upward
sloping. If a unit tax is imposed in the market for this product,
A) sellers bear the entire burden of the tax.
B) the tax burden will be shared among the government, buyers and sellers.
C) buyers bear the entire burden of the tax.
D) the tax burden will be shared by buyers and sellers.
Figure 4-10
11) Refer to Figure 4-10. Suppose the market is initially in equilibrium at price P1 and now the
government imposes a tax on every unit sold. Which of the following statements best describes the
impact of the tax? For demand curve D1
A) the producer bears a smaller share of the tax burden if the supply curve is S2.
B) the producer bears a smaller share of the tax burden if the supply curve is S1.
C) the producer’s share of the tax burden is the same whether the supply curve is S1 or S2.
D) the producer bears the entire burden of the tax if the supply curve is S2 and the consumer bears the
entire burden of the tax if the supply curve is S1.
Figure 4-11
12) Refer to Figure 4-11. Suppose the market is initially in equilibrium at price P1 and then the
government imposes a tax on every unit sold. Which of the following statements best describes the
impact of the tax?
A) The consumer will bear a greater share of the tax burden if the demand curve is D1.
B) The consumer’s share of the tax burden is the same whether the demand curve is D1 or D2.
C) The consumer will bear a greater share of the tax burden if the demand curve is D2.
D) The consumer will bear the entire burden of the tax if the demand curve is D1 and the producer will
bear the entire burden of the tax if the demand curve is D2.
13) Suppose an excise tax of $0.75 is imposed on every pack of cigarettes sold and sellers are responsible
for paying this tax. How would the imposition of the tax be illustrated in a graph?
A) The supply curve for cigarettes would shift to the left by $0.75.
B) The supply curve for cigarettes would shift to the left by less than $0.75.
C) The supply curve for cigarettes would shift to the left by more than $0.75.
D) The supply curve for cigarettes would shift to the right by $0.75.
14) In Singapore the government places a $5,000 tax on the buyers of new automobiles. After the
purchase of a new car, a buyer must pay the government $5,000. How would the imposition of the tax
on buyers be illustrated in a graph?
A) The tax will shift the demand curve to the right by $5,000.
B) The tax will shift the demand curve to the left by $5,000.
C) The tax will shift both the demand and supply curves to the right by $5,000.
D) The tax will shift the supply curve to the left by $5,000.
15) A tax is imposed on employers and workers that are used to fund Social Security and Medicare.
This tax is sometimes referred to as
A) the Income Security Tax.
B) the federal income tax.
C) the ACIF.
D) the payroll tax.
16) FICA is a payroll tax imposed on employers and workers that is used to fund Social Security and
Medicare. Which of the following statements regarding the tax is true?
A) Employers are required to pay a greater share of the tax than workers but most economists believe
the burden of the tax is shared equally.
B) Congress wanted the burden of the tax to be greater for employers than for workers.
C) Most economists believe the burden of the tax falls almost entirely on workers.
D) Most economists believe the burden of the tax falls mostly on employers.
17) “Taxes are what we pay for a civilized society.” This statement was made by
A) Adam Smith.
B) Oliver Wendell Holmes.
C) Herbert Hoover.
D) Franklin Roosevelt.
18) Economists have shown that the burden of a tax is
A) greater on the buyer when the tax is collected from the buyer.
B) greater on the seller when the tax is collected from the seller.
C) greater on the buyer when the tax is collected from the seller and greater on the seller when the tax is
collected from the buyer.
D) the same whether the tax is collected from the buyer or the seller.
19) An efficient tax is
A) a tax that imposes an equal tax burden on buyers and sellers.
B) a tax that raises a maximum amount of revenue.
C) a tax that imposes a small excess burden relative to the tax revenue that it raises.
D) a tax that is used to fund research and development of new technology.
Article Summary
Among a package of anti-smoking bills designed to lower California’s health care costs by reducing
the use of tobacco products is a bill sponsored by Dr. Richard Pan that would increase the tax on a
pack of cigarettes by $2. California currently has a tobacco tax of 87-cents-per-pack, making
California’s tax 33rd in the nation and well below the New York state tax of $4.35 a pack. The state
taxes are in addition to a $1.01 federal tax on cigarettes. The bill stipulates that the revenue collected
must be used to increase the number of physicians in California as well as support existing health
care programs managed by the state. A Field Poll taken one day following the announcement of the
bill found that two-thirds of California voters support the increase in the cigarette tax.
Source: Tracy Seipel and Jessica Calefati, “Cigarette tax: California voters overwhelmingly back $2-a-
pack increase,” San Jose Mercury News, August 27, 2015.
20) Refer to the Article Summary. The additional tax of $2 per pack of cigarettes being proposed by
Senator Pan would have which of the following effects on the market for cigarettes in California?
A) Consumer surplus will decrease.
B) Producer surplus will increase.
C) Deadweight loss will decrease.
D) Market efficiency will increase.
21) The division of the burden of a tax between buyers and sellers in a market is called tax incidence.
22) In the market for gasoline, an increase in the federal excise tax on gasoline would shift the supply
curve up.
23) If buyers were required to pay the federal excise tax on gasoline directly to the government, the
demand curve for gasoline would shift up.
24) A tax is efficient if it imposes a small excess burden relative to the tax revenue it raises.
25) For most goods and services, the burden of a tax is on the sellers.
26) If a tax is imposed on a product, the buyer will always bear the entire burden of the tax.
27) Employers withhold several taxes from employees ‘ paychecks, one of which is FICA. Congress
requires employers to pay half of the FICA tax and workers to pay the other half. Does this mean that
the burden of the FICA tax falls evenly on employers and employees? Briefly explain.
28) Is there a difference between the “true burden” of a tax and who is legally required to pay a tax?
Briefly explain.
29) Using a supply and demand graph, illustrate the effect of an increase in the federal cigarette tax of
$1.00 per pack, where the entire tax burden falls on the consumer. Assume the equilibrium price before
the tax is $5.00 per pack and the equilibrium quantity is 30 million packs.
After the implementation of the tax, what are the equilibrium price and equilibrium quantity?
Figure 4-12
30) Refer to Figure 4-12. The figure above represents demand and supply in the market for cigarettes.
Use the diagram to answer the following questions.
a. How much is the government tax on each pack of cigarettes?
b. What portion of the unit tax is paid by consumers?
c. What portion of the unit tax is paid by producers?
d. What is the quantity sold after the imposition of the tax?
e. What is the after-tax revenue per pack received by producers?
f. What is the total tax revenue collected by the government?
g. What is the value of the excess burden of the tax?
h. Is this cigarette tax efficient?
4.5 Appendix: Quantitative Demand and Supply Analysis
1) The following equations represent the demand and supply for bird feeders.
QD = 35 – P
QS = -5 + 3P
What is the equilibrium price (P) and quantity (Q – in thousands) of bird feeders?
A) P = $10; Q = 25 thousand
B) P = $35; Q = 20 thousand
C) P = $20; Q = 20 thousand
D) P = $5; Q = 30 thousand
2) The following equations represent the demand and supply for kumquats.
QD = 60 – 3P
QS = -20 + 5P
What is the equilibrium price (P) and quantity (Q – in thousands) of kumquats?
A) P = $5; Q = 20 thousand
B) P = $30; Q = 5 thousand
C) P = $20; Q = 10 thousand
D) P = $10; Q = 30 thousand
3) If the price of garlic is represented by equation P = 25 – QD, then the corresponding quantity of garlic
demanded is represented by the equation
A) QD = P – 25.
B) QD = P + 25.
C) QD = 25 – P.
D) QD = -25 + P.
4) If the price of toothpaste is represented by equation P = 40 – .5QD, then the corresponding quantity of
toothpaste demanded is represented by the equation
A) QD = 20 – .5P.
B) QD = 40 – P.
C) QD = 80 – 2P.
D) QD = -20 + P.
5) If the quantity of tacos demanded is represented by the equation QD = 20 – 0.5P then the
corresponding price of tacos is represented by the equation
A) P = 0.5QD + 10.
B) P = 40 – 2QD.
C) P = 10 – 2QD.
D) P = QD + 40.
6) If the quantity of hearing aids demanded is represented by the equation QD = 40 – P then the
corresponding price of hearing aids is represented by the equation
A) P = 0.5QD + 20.
B) P = 40 – QD.
C) P = 0.25 – 4QD.
D) P = QD + 40.
7) If the quantity of nail polish supplied is represented by the equation QS = -3 + 2P then the
corresponding price of nail polish is represented by the equation
A) P = 0.5QS + 1.5.
B) P = 2QS + 6.
C) P = 2QS – 6.
D) P = 1.5 – 0.5QS.
8) If the quantity of jelly beans supplied is represented by the equation QS = -20 + 4P then the
corresponding price of jelly beans is represented by the equation
A) P = 0.5QS + 80.
B) P = 0.25QS + 5.
C) P = 4QS – 80.
D) P = 2.5 – 4QS.
Table 4-6
Demand
Supply
P = 50 – QD
P = 10 + 1/3 QS
QD = 50 – P
QS = 3P – 30
9) Refer to Table 4-6. The equations above describe the demand and supply for Aunt Maud’s Premium
Hand Lotion. What are the equilibrium price and quantity (in thousands) for Aunt Maud’s Lotion?
A) $20 and 30 thousand
B) $30 and 20 thousand
C) $60 and 30 thousand
D) $20 and 60 thousand
10) Refer to Table 4-6. The equations above describe the demand and supply for Aunt Maud’s Premium
Hand Lotion. The equilibrium price and quantity for Aunt Maud’s lotion are $20 and 30 thousand
units. What is the value of consumer surplus?
A) $300 thousand
B) $450 thousand
C) $900 thousand
D) $1,500 thousand
11) Refer to Table 4-6. The equations above describe the demand and supply for Aunt Maud’s Premium
Hand Lotion. The equilibrium price and quantity for Aunt Maud’s lotion are $20 and 30 thousand
units. What is the value of producer surplus?
A) $600 thousand
B) $300 thousand
C) $150 thousand
D) $30 thousand
12) Refer to Table 4-6. The equations above describe the demand and supply for Aunt Maud’s Premium
Hand Lotion. The equilibrium price and quantity for Aunt Maud’s lotion are $20 and 30 thousand
units. What is the value of economic surplus in this market?
A) $600 thousand
B) $1,050 thousand
C) $1,500 thousand
D) $2,100 thousand
Table 4-7
Demand
Supply
P = 60 – 2QD
P = 15 + QS
QD = 30 – 0.5P
QS = P – 15
13) Refer to Table 4-7. The equations above describe the demand and supply for Pauline’s Pickled
Pomegranates. What are the equilibrium price and quantity (in thousands) for Pauline‘s Pickled
Pomegranates?
A) $60 and 20 thousand
B) $15 and 45 thousand
C) $30 and 15 thousand
D) $20 and 10 thousand
14) Refer to Table 4-7. The equations above describe the demand and supply for Pauline’s Pickled
Pomegranates. The equilibrium price and quantity for Pauline’s Pickled Pomegranates are $30 and 15
thousand units. What is the value of consumer surplus?
A) $50 thousand
B) $112.5 thousand
C) $225 thousand
D) $337.5 thousand
15) Refer to Table 4-7. The equations above describe the demand and supply for Pauline’s Pickled
Pomegranates. The equilibrium price and quantity for Pauline’s Pickled Pomegranates are $30 and 15
thousand units. What is the value of producer surplus?
A) $50 thousand
B) $112.5 thousand
C) $225 thousand
D) $337.5 thousand
16) Refer to Table 4-7. The equations above describe the demand and supply for Pauline’s Pickled
Pomegranates. The equilibrium price and quantity for Pauline’s Pickled Pomegranates are $30 and 15
thousand units. What is the value of economic surplus in this market?
A) $50 thousand
B) $112.5 thousand
C) $225 thousand
D) $337.5 thousand
17) You are given the following market data for Venus automobiles in Saturnia.
Demand: P = 35,000 – 0.5Q
Supply: P = 8,000 + 0.25Q
where P = Price and Q = Quantity.
a. Calculate the equilibrium price and quantity.
b. Calculate the consumer surplus in this market.
c. Calculate the producer surplus in this market.
18) The demand and supply equations for the peach market are:
Demand: P = 24 – 0.5Q
Supply: P = -6 + 2.5Q
where P = price per bushel, and Q = quantity (in thousands).
a. Calculate the equilibrium price and quantity.
b. Suppose the government guaranteed producers a price of $24 per bushel. What would be the effect
on quantity supplied? Provide a numerical value.
c. By how much would the $24 price change the quantity of peaches demanded? Provide a numerical
value.
d. Would there be a shortage or surplus of peaches?
e. What is the size of this shortage or surplus? Provide a numerical value.