Effects of a Sales Tax

The effect of a sales tax collected from sellers is to

A) Shift the demand curve up.B) Shift the supply curve

down.C) Shift the demand curve

down.D) Shift the supply curve up.E) Shift both the demand and

the supply curve.

The effect of a sales tax collected from buyers is to

A) Shift the demand curve up.

B) Shift the supply curve down.

C) Shift the demand curve down.

D) Shift the supply curve up.

E) Shift both the demand and the supply curve.

And on to our lecture…

If the demand curve slopes down and the supply curve is vertical, a sales tax collected from buyers

A) Not change the price paid to sellers.

B) Will reduce price paid to sellers by the amount of the tax.

C) Will reduce price paid to sellers by less than amount of the tax.

D) Will increase price paid to sellers.

Vertical supply case

quantity

price

Pretax price

Post tax

Demand curve shifts down

If the supply curve is horizontal, a $10 per unit tax collected from

sellers will increase the equilibrium price paid by demanders

A) By $10.

B) By less than $10.

C) By more than $10.

Why is that?

Supply curve with tax

Supply curve Without tax

$10

The demand curve has slope –1 and the supply curve has slope +2. A sales tax causes the after

tax price to buyers to rise by $10. The after tax price received by sellers must have fallen

A) By $10

B) By $5

C) By $20

D) By $0

Why is that?

If slope of demand curve is -1And price rises by 10, quantity Falls by 10. If slope of the supply Curve is 2, price received bySuppliers must fall by 20.

Reminder: Midterm Weds Oct 24

What will the quiz be like?

Multiple Choice and True False Questions.

If you haven’t studied

If you’ve studied