1. Refer to Scenario 19.3 below to answer the questions that follow. SCENARIO 19
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1. Refer to Scenario 19.3 below to answer the questions that follow. SCENARIO 19.3: Suppose demand for widgets is given by the equation P = 20 - 0.5Q. Originally, the price of the good is $10 per unit. When a tax of $2 per unit is imposed, the price of the good rises to $12 per unit. Refer to Scenario 19.3. What is the excess burden of the tax? Answer $4 $36 $64 $100 2. Assume there are two people in a society. Person A is willing to pay $70 to have one unit of a public good produced and Person B is willing to pay $80 to have one unit of a public good produced and $70 to have two units produced. As a result, for ________ unit(s) of this public good society would be willing to pay a price of ________. Answer 1; $150 3; $100 1; $100 5; $80 3. Education generates external benefits. When these external benefits are not considered, the market will produce Answer an efficient level of education. more than the efficient level of education. less than the efficient level of education. zero units of education. 4. Firms are more likely to avoid a prisoner's dilemma when they interact repeatedly than when they rarely interact. Answer True False 5. In any case where there is a negative externality, it is better to form a government agency to solve the problem. Answer True False 6. Refer to Scenario 19.3 below to answer the questions that follow. SCENARIO 19.3: Suppose demand for widgets is given by the equation P = 20 - 0.5Q. Originally, the price of the good is $10 per unit. When a tax of $2 per unit is imposed, the price of the good rises to $12 per unit. Refer to Scenario 19.3. How much total tax revenue is raised by the tax? Answer $2 $20 $32 $40 7. To find the optimal level of provision for a public good, the government must know ________. Answer the marginal revenue of selling the good the supply curve of the government everyone's preferences the price elasticity of demand of each buyer 8. Your local government needs to increase tax revenue. To increase tax revenue it can either increase the property tax on residential property or increase the property tax on all property. The government wants to impose the smallest excess burden possible. What would your recommendation be? Answer to increase the property tax only on residential property because this tax cannot be shifted to increase the property tax on all property because the demand for all property is less elastic than the demand for residential property to increase the property tax on all property, because this tax would be less regressive than a tax only on residential property to increase the property tax only on residential property because taxpayers are allowed to deduct property taxes from their federal income tax liability, thus reducing the amount they must pay in federal taxes 9. Refer to Scenario 19.3 below to answer the questions that follow. SCENARIO 19.3: Suppose demand for widgets is given by the equation P = 20 - 0.5Q. Originally, the price of the good is $10 per unit. When a tax of $2 per unit is imposed, the price of the good rises to $12 per unit. Refer to Scenario 19.3. Prior to the imposition of the tax consumers purchased ________ widgets and after the tax was imposed they purchased ________ widgets. Answer 16; 20 20; 16 10; 8 40; 32Explanation / Answer
$64 $100 1 less than the efficient level of education true False $20 the marginal revenue of selling to increase the property tax 8 40
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