The Grinch is now the mayor of your hometown, and he's still trying to steal Christmas. On the day after Thanksgiving, he announces a $25 tax on fresh Christmas trees. Tree farmers are angry to hear this because they have already delivered this season's
freshly cut trees to the tree lots in your town. You hear your neighbors planning to buy an artificial tree, and your family decides to drive to the next town to buy a tree. a . Who will bear the biggest share of the burden the first Christmas season this tax is in effect? Why? b. Will your answer change for subsequent Christmases? Why?
a . The tree farmers will bear the biggest burden. Their supply curve is the perfectly inelastic market-day
curve. They will have to reduce their prices by the full $25 tax in order to sell their fixed quantity.
b. The burden will be more evenly distributed in the future. The tree farmers will respond to the tax by
reducing the number of trees that they deliver to your town.
You might also like to view...
In and Edgeworth Box economy, no one strictly prefers the endowment allocation to the competitive equilibrium allocation.
Answer the following statement true (T) or false (F)
Which of the following statements about the marginal rate of substitution is NOT correct?
A) It measures the number of units of the good on the horizontal axis that a consumer must be compensated with to give up a unit of the good on the vertical axis, while remaining on the same indifference curve. B) It is measured by the slope of the indifference curve. C) It decreases in value when moving downward along a typical-shaped indifference curve. D) It is constant for goods that are perfect substitutes.
Total utility is the benefit received from consuming an extra unit of a good
Indicate whether the statement is true or false
A 5% increase in real income usually leads to ________ in money demand.
A. a decrease B. a decrease of 5% C. no change D. an increase of less than 5%