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Economics Practice Question

This document discusses indirect taxes on goods, using sugary beverages and Dr Pepper as examples. It explains that a per-unit tax on Dr Pepper would have a greater impact than a tax of the same amount on all sugary beverages. For a tax on Dr Pepper, consumers would buy less and producers would produce less as demand falls. But for an overall sugary beverage tax, consumption may not decrease as much since consumers could switch to untaxed alternatives. A per-unit tax is more efficient at reducing consumption of the targeted good.

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773 views5 pages

Economics Practice Question

This document discusses indirect taxes on goods, using sugary beverages and Dr Pepper as examples. It explains that a per-unit tax on Dr Pepper would have a greater impact than a tax of the same amount on all sugary beverages. For a tax on Dr Pepper, consumers would buy less and producers would produce less as demand falls. But for an overall sugary beverage tax, consumption may not decrease as much since consumers could switch to untaxed alternatives. A per-unit tax is more efficient at reducing consumption of the targeted good.

Uploaded by

Tuấn Hạo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Welker’s Wikinomics​ practice activities

Unit 1.3 Government Intervention


Indirect Taxes

1. Define ​indirect tax​ and distinguish between two types of indirect taxes a government
may place on a good or service.
indirect tax is collected by a intermediary through purchasing goodies, for example (
VAT).
Specific and percentage tax are the two types of indirect taxes a government may
place on a good or service

2. Explain the effect that a specific, per unit tax will have on the market for a particular
good.
Specific tax couldn't decrease the quantity demanded much because it keeps the price
stable if consumers buys more thats products but it still restrict some people who aren't
able to pay the tax

3. In the graph below, illustrate the effect of a per unit tax on sugary beverages, assuming
that demand for sugary beverages is relatively inelastic (e.g. the demand curve is
relatively steep).

4. Show and explain the effect of the tax on:


a. Consumers of sugary beverages:
consumers demand will decrease because of the increase in price
Welker’s Wikinomics​ practice activities

b. Producers of sugary beverages:


producers supply will also decrease because their revenue decrease due to
tax. Tax also cause the producers surplus fall

c. Total welfare in the market for sugary beverages:


consumers surplus and producers surplus both will decrease after the tax. But,
the government surplus would increase

d. The government:
receives beneficial revenue from taxes

5. Based on the fact that demand for sugary beverages is relatively inelastic, who is likely
to bear the largest burden of an indirect tax? Explain.
consumers will bear the largest burden of indirect tax because the demand is relatively
inelastic. When the demand for a product is inelastic, no matter how the price changes,
the demand just only changes minorly. which means there’s an indirect tax ,consumers
still buy, because nobody care much of the tax that being imposed on the sugary
beverages

6. Now assume that instead of taxing sugary beverages, the government decides to tax
one brand of sugary beverage, ​Dr. Pepper.​ In a new diagram, illustrate the effect of a per
unit tax of the same amount as that applied to sugary beverages placed on on the
market for ​Dr. Pepper​. (Consider the elasticity of demand for ​Dr. Pepper​ relative to that
for all sugary beverages when drawing the demand curve)
Welker’s Wikinomics​ practice activities

​ n:
7. Show and explain the effect of the tax on ​Dr. Pepper o
a. Consumers of ​Dr. Pepper​:
consumers will buy less dr. pepper products because the price increase when
the tax is imposed on them and consumers will buy the substitute products
instead

b. The producers of ​Dr. Pepper:​


producers will produce less because of the demand fall down due to tax

c. Total welfare in the market for ​Dr. Pepper​:


both consumers and producers surplus will decrease because the price is
higher after purnishing the tax.however government surplus will be higher due
to an increase in revenue

d. The government:
the government would increase their revenue after impose tax on any product
Welker’s Wikinomics​ practice activities

8. Discuss the impact of a particular per unit tax placed on ​Dr. Pepper,​ compared to one of
the same amount placed on all sugary beverages on:
a. Efficiency in the markets for the two goods:
the particular per unit tax placed on dr.pepper is more efficient because it can
reduce much more the consumers quantity demanded. that means the more
unit consumers buy, the more tax they have to pay per unit whereas tax of the
same amount placed on others the tax only charges consumers one time (no
matter how many they buy) and if consumers are willing to pay the tax,they can
buy that product as much as they want

b. The producers of the two goods:


the producers will produce more product that have the tax of the same amount
placed on all sugary beverages because is has an inelastic demanded, the
producers would pay less than consumers. Whereas the particular per unit tax (
dr pepper) products have elasticity demanded, which means the tax producers
will pay is as same as consumers will do

c. The consumers of the two goods:


consumers will buy more products having the tax of the same amount ) placed
on other sugary beverages) because if they are willing to pay the tax once, they
can buy as much as they want due to the same tax

d. Government tax revenues:


government revenue of products that have particular per unit tax is much higher
Welker’s Wikinomics​ practice activities

e. Employment of workers in the two industries:


due to the increase production in products that have the tax of the same amount
placed on all sugary beverages, the employment of workers in that industry will
be boosted

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