Access Principles of Microeconomics 6th Edition solutions now. Our solutions are written by Chegg experts so you can be assured of the highest quality!. Get instant access to our step-by-step Principles Of Microeconomics solutions manual. Our solution manuals are written by Chegg experts so you can be. The four principles of economic decisionmaking are: (1) people face tradeoffs; .. The two subfields in economics are microeconomics and macroeconomics.
|Published (Last):||16 June 2014|
|PDF File Size:||2.3 Mb|
|ePub File Size:||14.46 Mb|
|Price:||Free* [*Free Regsitration Required]|
Documents Flashcards Grammar checker. Business Economics Microeconomics N. Gregory Mankiw — Principles of Economics Chapter 8 advertisement.
Gregory Mankiw — Principles of Economics Chapter 8. Figure 3 illustrates the market for pizza. The equilibrium quantity would be Q1, as in the case without the tax, and the equilibrium price would be P1.
Both consumers and producers are better off than the 1 Chapter 8 case when the tax was imposed. This illustrates the inefficiency of taxation.
The statement, “If the government taxes land, wealthy landowners will pass the tax on to their poorer renters,” is incorrect.
With a tax on land, landowners can not pass the tax on. Since the supply curve of land is perfectly inelastic, landowners bear the entire burden of the tax. Renters will not be affected at all.
The statement, “If the government taxes apartment buildings, wealthy landowners will pass the tax on to their poorer renters,” is partially correct. With a tax on apartment buildings, landowners can pass the tax on more easily, though the extent to which they do this depends on the elasticities of supply and demand. In this case, the tax is a direct addition to the cost of rental units, so the supply curve will shift up by the amount of the tax.
The tax will be shared by renters and landowners, depending on the elasticities of demand and supply. The statement, “A tax that has no deadweight loss cannot raise any revenue for the government,” is incorrect. An example is the case of a tax when either supply or demand is perfectly inelastic. The tax has neither an effect on quantity nor any deadweight loss, but it does raise revenue.
The statement, “A tax that raises no revenue for the government cannot have any deadweight loss,” is incorrect. An example is ssolutions case of a percent tax imposed on sellers. With a percent tax on their sales of the good, sellers won’t supply any of the good, so the tax will raise no revenue. Yet the tax has a large deadweight loss, since it reduces the quantity sold to zero.
With very elastic supply and very inelastic demand, the burden of the tax on rubber bands will be borne largely by buyers. Chapter 8 Figure microeconomlcs b. With very inelastic supply and very elastic demand, the burden of the tax on rubber bands will be borne largely by sellers.
Compared to part aproducers bear much more of the burden of the tax, and consumers bear much less. The deadweight loss from a tax on heating oil is likely to be greater in the fifth year after it is imposed rather than the first year.
In the first year, the elasticity of demand is fairly low, as people who own oil heaters are not likely to get rid of them right away.
But over time they may switch to other energy sources and people buying new heaters for their homes will more likely choose gas or electric, so the tax will have a greater impact on quantity. The tax revenue is likely to be higher in the first year after it is imposed than in the fifth year.
In the first year, demand is more inelastic, so the quantity does not decline as much and tax revenue microrconomics relatively high. As time passes and more people substitute away from oil, the equilibrium quantity declines, as does tax revenue.
Since the demand for food is inelastic, a tax on food is a good way to raise revenue because it does not lead to much of kankiw deadweight loss; thus taxing mlcroeconomics is less inefficient than taxing other things.
But it is not a good way to raise revenue from an equity point of view, since poorer people spend a higher proportion of their income on food, so the tax would hit them harder than it would hit wealthier people. This tax has such a high rate that it is not likely to raise much revenue. Because of the high tax rate, the equilibrium quantity in the market is likely to be at or near zero. Senator Moynihan’s goal was probably to ban the use of hollow-tipped bullets.
In this case, a tax is as effective as an outright ban. Figure 6 illustrates the market for socks and the effects of the tax.
Without a tax, the equilibrium quantity would be Q1, the equilibrium price would be P1, total spending by 8.
N. Gregory Mankiw – Principles of Economics Chapter 8
The quantity sold declines to Q2. Unless supply is perfectly elastic, the price received by producers falls because of the tax. The price paid by consumers rises, unless demand is perfectly elastic. Whether total spending by consumers rises microeconomiccs falls depends on the price elasticity of demand. If demand is elastic, the percentage decline in quantity exceeds the percentage increase in price, so total spending declines.
If demand is inelastic, the percentage decline in quantity is less than the percentage increase in price, so total spending rises. Whether total consumer spending falls or rises, consumer surplus declines because of the increase in price and reduction in quantity. Since the tax microrconomics gadgets was eliminated, all tax revenue must come from the tax on widgets.
The tax revenue from the tax on widgets equals the tax per unit times the quantity produced. Assuming that neither the zolutions nor the demand curves for widgets are perfectly elastic or inelastic and since the increased tax causes a smaller microeconomcis of widgets to be produced, then it is impossible for tax revenue to double–multiplying the tax per unit which doubles times the quantity which declines gives a number that is less than double the original tax revenue from widgets.
So the government’s tax change will yield less money than before.
Figure 7 illustrates the effects of the tax increase on the new car market in New Jersey. Chapter 8 Figure 7 b. The following table shows the welfare impact of the change in the tax. The demand for cars in New Manliw is probably fairly elastic, since people could travel to nearby states to buy cars.
With elastic demand, area B in the figure will be very small, so the additional tax is less likely to increase government revenue. New Jersey could try to reduce the elasticity of demand by requiring people to pay sales tax to New Jersey when they buy a car outside the state.
From the standpoint of economic efficiency, the British poll tax is wonderful, because it does not distort any economic incentives, so it has no deadweight loss. But such a tax is inequitable, because it is more burdensome on the poor than on the rich. As a result, the tax was quite unpopular.
Without the subsidy, the equilibrium price is P1 and the equilibrium quantity is Q1. The following table illustrates the effect of the subsidy on consumer surplus, producer surplus, government revenue, and soutions surplus.
This is the price received by sellers.
Figure 9 shows a graph of this relationship. Figure 9 Chapter 8 d. Gains from Trade–Partial Equilibrium Analysis.