1. If the government places a $500 tax on luxury cars, will the price paid by consumers rise by more than $500, less than $500, or exactly $500? Demonstrate and explain.
2. The government imposes a $0.50 tax on each gallon of gasoline sold
a. Should they impose this tax on producers or consumers? Explain carefully using a supply-and-demand diagram.
b. If the demand for gasoline were more elastic, would this tax be more effective or less effective in reducing the quantity of gasoline consumed? Explain with both words and a diagram.
c. Are consumers of gasoline helped or hurt by this tax? Why?
d. Are workers in the oil industry helped or hurt by this tax? Why?
3. At Fenway Park, home of the Boston Red Sox, seating is limited to about 38,000. Hence, the number of tickets issued is fixed at that figure. Seeing a golden opportunity to raise revenue, the City of Boston levies a per ticket tax of $5 to be paid by the ticket buyer. Boston sports fans, a famously civic-minded lot, dutifully send in the $5 per ticket. Draw a well-labeled graph showing the impact of the tax. On whom does the tax burden fall—the team’s owners, the fans, or both? Why?
4. A market is described by the following supply and demand curves:
Qs = 2PQd = 300 – P
a. Solve for the equilibrium price and quantity.
b. If the government imposes a price ceiling of $90, does a shortage or surplus (or neither) develop? What are the price, quantity supplied, quantity demanded, and size of the shortage or surplus?
c. If the government imposes a price floor of $90, does a shortage or surplus (or neither) develop? What are the price, quantity supplied, quantity demanded, and size of the shortage or surplus?
d. Instead of a price control, the government levies a tax on producers of $30. As a result, the new supply curve is:
Qs = 2(P – 30)
e. Does a shortage or surplus (or neither) develop? What are the price, quantity supplied, quantity demanded, and size of the shortage or surplus?