4.4 Practice – Flashcards
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Tax incidence indicates
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the actual division of the burden of a tax.
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Do people who are legally required to pay a tax always bear the burden of the tax? Briefly explain.
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No. Whoever bears the burden of the tax is not affected by who legally is required to pay the tax to the government.
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According to economists, an efficient tax is one that
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imposes a small deadweight loss relative to the tax revenue it raises.
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Does it matter whether buyers or sellers are legally responsible for paying a tax?
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No, the market price to consumers and net proceeds to sellers are the same independent of who pays the tax.
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As explained in the chapter, economic efficiency is an outcome in a market when the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production.
Considering this explanation of economic efficiency, why does a tax creates deadweight loss (i.e. reduce surplus)?
What is the impact of a production tax on the equilibrium price? The equilibrium price
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rises and the equilibrium quantity falls.
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As a result, a tax on production reduces consumer surplus because ___ lose the ___ of the ___ quantity caused by the tax.
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consumers; marginal benefit minus marginal cost; decreased
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If the price consumers pay and the price sellers receive are not affected by whether consumers or sellers collect a tax on a good or service, whey does the government usually require sellers and not consumers to collect a tax?
It would be difficult for buyers to keep track of their purchases and the amount of tax they owe the government on these purchases.
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True.
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The term tax incidence refers to
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the actual division of the burden of a tax between buyers and sellers in a market.
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Refer to the graphs above. In each of the graphs, a curve has shifted as a result of a new Social Security tax. In which graph do workers bear a larger burden from the tax?
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In both cases, the burden on workers is the same.
