True or False, explain 1. A sales tax which is the same for all goods (e.g. 5% a

Question

True or False, explain

1. A sales tax which is the same for all goods (e.g. 5% added onto the sale price of anything bought anywhere) can be considered a regressive tax.

2. In a perfectly competitive market, if a single firm’s supply decreases, price will increase.

3. In the short run, producers cannot change any of their production costs.

4. The same good can be rival or non-rival depending on the number of consumers using it. 5. Because a monopolist has market power, they can choose both the price they charge, and the quantity that is sold of their good.

Explanation / Answer

1. The statement is true. This is because sales tax is considered to be regressive tax because it affects poor more as compared to rich.

2. False. In a perfectly competitive market, firms are only price takers and not price makers. Thus, change in industry supply will have an impact on prices but not change in the supply of a single firm.

3. False. In the short run, producers can change their variable cost but fixed cost can be changed only in the long run.

4. True. The number of consumers consuming the good determines whether a good is rival or non rival in consumption.

5. False. Monopolists cannot choose both price and quantity of the good as demand curve of the consumers also plays an important role in determination of the price to be charged from the consumers.

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