Page 552 - Krugmans Economics for AP Text Book_Neat

4. An excise tax imposed on sellers in a market will result in which 5. An excise tax will be paid mainly by producers when
of the following? a. it is imposed on producers.
I. an upward shift of the supply curve b. it is imposed on consumers.
II. a downward shift of the demand curve c. the price elasticity of supply is low and the price elasticity of
III. deadweight loss demand is high.
a. I only d. the price elasticity of supply is high and the price elasticity
b. II only of demand is low.
c. III only e. the price elasticity of supply is perfectly elastic.
d. I and III only
e. I, II, and III

Tackle the Test: Free-Response Questions

1. Refer to the graph provided. Assume the government has
Answer (8 points)
imposed an excise tax of $60 on producers in this market.
1 point: 1,000
Price
1 point: $90
$120 1 point: Consumer surplus will decrease by $45,000, from $60,000 before the
S
tax to $15,000 after the tax.
90 1 point: Producer surplus will decrease by $45,000, from $60,000 before the
tax to $15,000 after the tax.
1 point: $60 × 1,000 = $60,000
60
1 point: $30,000

30 2. Draw a correctly labeled graph of a competitive market in
equilibrium. Use your graph to illustrate the effect of an excise
D tax imposed on consumers. Indicate each of the following on
0 1,000 2,000 3,000 Quantity your graph:
a. the equilibrium price and quantity without the tax, labeled
a. What quantity will be sold in the market? P E and Q E
b. What price will consumers pay in the market? b. the quantity sold in the market post-tax, labeled Q T
c. By how much will consumer surplus change as a result of c. the price paid by consumers post-tax, labeled P C
the tax? d. the price received by producers post-tax, labeled P P
d. By how much will producer surplus change as a result of e. the tax revenue generated by the tax, labeled “Tax revenue”
the tax? f. The deadweight loss resulting from the tax, labeled “DWL.”
e. How much revenue will the government collect from this
excise tax?
f. Calculate the deadweight loss created by the tax.

510 section 9 Behind the Demand Curve: Consumer Choice