Discuss how taxes affect product and input markets
What will be an ideal response?
Taxes change behavior, and changes in behavior can affect supply and demand in markets, causing prices to change. When prices change in input markets or in output markets, some people may be made better off and some worse off. These final changes determine the ultimate burden of a tax.
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The rutabaga market is perfectly competitive. Research is published claiming that eating rutabagas leads to gaining weight and so the demand for rutabagas permanently decreases. The permanent decrease in demand results in a
A) lower price, economic losses by rutabaga farmers, and entry into the market. B) lower price, economic losses by rutabaga farmers, and exit from the market. C) higher price, economic profits for rutabaga farmers, and entry into the market. D) higher price, economic losses by rutabaga farmers, and exit from the market. E) lower price, economic profits for rutabaga farmers, and entry into the market.
A perfectly competitive firm faces a market clearing price of $150 per unit. Average total costs are at the minimum value of $200 per unit at an output rate of 100 units
Average variable costs are at the minimum value of $100 per unit at an output rate of 50 units. Marginal cost equals $150 per unit at an output rate of 75 units. It can be concluded that the short-run profit-maximizing output rate is A) 75 units, at which the firm earns zero economic profits per unit sold. B) 75 units, at which the firm earns negative economic profits per unit sold. C) 75 units, at which the firm earns positive economic profits per unit sold. D) 50 units, because price is less than average variable costs.
An example of a market subject to adverse selection would be:
A. the insurance market. B. the financial market. C. the used car market. D. All of these statements are true.
Is it possible to express an economic model in words without diagrams?
a. No, models can only be stated in diagrams. b. No, the very definition of model requires mathematical form. c. Yes, some of the simplest models are verbal statements. d. Yes, although the best models always use diagrams. e. Uncertain, economic theory has not answered this question yet.