9) Figure 18-3 Refer to Figure 18-3. The figure above shows a demand curve and t

Question

9)

Figure 18-3

Refer to Figure 18-3. The figure above shows a demand curve and two supply curves, one more elastic than the other. Use Figure 18-3 to answer the following questions.

a.   Suppose the government imposes an excise tax of $1.00 on every unit sold. Use the graph to illustrate the impact of this tax.

b.   If the government imposes an excise tax of $1.00 on every unit sold, will the consumer pay more of the tax if the supply curve is S1 or S2? Refer to the graphs in your answer.

c.   If an excise tax of $1.00 on every unit sold is imposed, will the revenue collected by the government be greater if the supply curve is S1 or S2?

d.   If the government imposes an excise tax of $1.00 on every unit sold, will the deadweight loss be greater if the supply curve is S1 or S2?

Explanation / Answer

Ans a - The price will increase leading to an increase in supply and decrease in demand.

Ans b - The consumer will more of the tax if the supply curve is S1.

Ans c - The revenue collected by the government be greater if the supply curve is S1.

Ans d - The deadweight loss will be greater if the supply curve is S1.

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