Table of contents

1. Introduction to Macroeconomics1h 57m
2. Introductory Economic Models59m
3. Supply and Demand3h 43m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Price Floors3h 40m
6. Introduction to Taxes1h 25m
7. Externalities1h 3m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. Introducing Economic Concepts49m
11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)1h 37m
12. Unemployment and Inflation1h 15m
13. Productivity and Economic Growth1h 17m
14. The Financial System1h 37m
15. Income and Consumption52m
16. Deriving the Aggregate Expenditures Model1h 22m
17. Aggregate Demand and Aggregate Supply Analysis1h 18m
18. The Monetary System1h 1m
19. Monetary Policy1h 32m
20. Fiscal Policy1h 0m
21. Revisiting Inflation, Unemployment, and Policy46m
22. Balance of Payments30m
23. Exchange Rates1h 16m
24. Macroeconomic Schools of Thought40m
25. Dynamic AD/AS Model35m
26. Special Topics11m

6. Introduction to Taxes

Elasticity and Taxes

Macroeconomics

6. Introduction to Taxes

Elasticity and Taxes

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Multiple Choice

Suppose that a unit tax of $2 is imposed on producers with initial equilibrium of $10. If the demand curve is vertical and the supply curve is upward-sloping, what will be the price faced by consumers after the tax?

$10

$12

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Verified step by step guidance

Understand the initial conditions: The initial equilibrium price is $10, and a unit tax of $2 is imposed on producers.

Recognize the characteristics of the demand and supply curves: The demand curve is vertical, indicating perfectly inelastic demand, meaning consumers will pay any price for the quantity they demand. The supply curve is upward-sloping, indicating that as price increases, producers are willing to supply more.

Consider the effect of the tax: A $2 tax on producers shifts the supply curve vertically upwards by $2. This means that for any given quantity, the price producers receive is $2 less than the price consumers pay.

Analyze the new equilibrium: Since the demand curve is vertical, the quantity demanded does not change with price. Therefore, the entire tax burden falls on consumers, and the price they face increases by the full amount of the tax.

Calculate the new price faced by consumers: Add the $2 tax to the initial equilibrium price of $10, resulting in a new price of $12 faced by consumers.