To finance medical care, the federal government raises the tax per pack paid by
ID: 1204740 • Letter: T
Question
To finance medical care, the federal government raises the tax per pack paid by sellers of cigarettes. Other things being equal, the price of cigarettes rises because of a(n):
a.
upward movement along the supply curve for cigarettes.
b.
rightward shift of the supply curve for cigarettes.
c.
upward movement along the demand curve for cigarettes.
d.
leftward shift of the supply curve for cigarettes.
Which of the following is not a common [non-price] effect of imposing a rent control?
a.
Discriminatory practices by landlords.
b.
More time on waiting lists and searching for housing.
c.
A "black market" for rentals.
d.
An excess supply of rentals at the controlled price.
[Formula: Elasticity = % change in Quantity Demanded / % change in Price]
Assume that the price elasticity of demand is 0.20. Given a 10 percent increase in price, we will see a
a.
20 percent increase in the quantity demanded.
b.
2 percent decrease in the quantity demanded.
c.
20 percent decrease in the quantity demanded.
d.
0.2 percent decrease in the quantity demanded.
e.
2 percent increase in the quantity demanded.
a.
upward movement along the supply curve for cigarettes.
b.
rightward shift of the supply curve for cigarettes.
c.
upward movement along the demand curve for cigarettes.
d.
leftward shift of the supply curve for cigarettes.
Explanation / Answer
1. Option D is correct.
This is so because, when a tax is imposed on sellers their cost of production of goods increases at each level of price because of which they reduces the supply of cigrettes and the supply curve shifts to left increasing its price and the taxes burden is partially shifted on to the consumers.
2. Option D is correct.
When the government imposes rent controls it sets a price which is less than the equilibrium price which creates an excess DEMAND and NOT supply at the controlled price.
3. -0.20 = % change in demand/+10%
-0.20*10% = % change in demand
% change in demand = -2%
negative sign implying decrease in demand (because elasticity of demand is always negative)
Option B is correct.
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