Answers to i-iv and explanations please True/False (Please explain to receive th

Question

Answers to i-iv and explanations please True/False (Please explain to receive the full credit) (4*5 20) i. Suppliers' ability to pass on an excise tax to demanders depends upon the strength of demand. If the demand curve is very high, a large percentage of the excise tax will be passed on, whereas if demand is low, suppliers will have to pay most of the tax enand curve is very high, a large l have to pay most of the tax ii. If we observe fewer cars are being purchased this year than last year, then we should ii. Along a convex indifference curve, the marginal value of a good rises as the quantity of iv. If the consumer has the same tax bill under a head tax as under an income tax, then the themselves expect the price of cars to fall. the good rises. consumer will be indifferent between the two taxes.

Explanation / Answer

i) True-Impact of excise tax on consumers and suppliers depend on elasticity of demand.If demnd is high that is inelastic, a change in the price as a result of excise duty will not affect demand and most of the tax will pass on to the consumers . However if demand is low or elastic , then an increase in price with excise tax will lead to fall in demand , and suppliers burden will be more than consumers.

ii)False.--Here quantity purchased has fallen .This can be caused by decrease in demand (which means price must fall ) or by decrease in supply ( which means pricemust rise)

iii)False--because an indifference curve is convex due to diminishing marginal utility . If we drink one glass of water , our thirst will be quenched and successive glasses of water will give less utility.

iv)false--Head tax is a uniform tax upon every person and is regressive in nature and takes same amount of money from rich and poor people, while income tax is progressive and depends on persons income. If the consumer has the same tax bill the consumer cannot be indifferent because application of income tax will not be relative to the income of the poor.

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