Asked by Haylee Green on May 08, 2024
Verified
Which of the following conditions must hold in the equilibrium of a competitive market where the government puts a specific tax on consumers?
A) The quantity sold and the price paid by the buyer must lie on the demand curve.
B) The quantity sold and the seller's price must lie on the supply curve.
C) The quantity demanded must equal the quantity supplied.
D) the difference between the price the buyer pays and the price the seller receives must equal the specific tax.
E) all of the above
Specific Tax
A fixed amount of tax imposed on a product, service, or transaction, regardless of its price.
Competitive Market
A market structure characterized by a large number of buyers and sellers where no single participant can significantly influence the price of goods or services.
Demand Curve
A graph showing the relationship between the price of a good and the amount of the good that consumers are willing to purchase at that price.
- Assess the consequences of state interventions like subsidies, production quotas, and precise taxes on market behavior.
- Describe how elasticity affects the apportionment of taxes and the consequences for market activities.
Verified Answer
PS
Pawan sidhuMay 09, 2024
Final Answer :
E
Explanation :
In a competitive market equilibrium with a specific tax on consumers, all the conditions listed must hold. The quantity sold and the price paid by the buyer must lie on the demand curve (A), and the quantity sold and the seller's price must lie on the supply curve (B), ensuring that the market clears (C). The difference between the price the buyer pays and the price the seller receives equals the specific tax (D), which is the definition of a specific tax's impact on market prices.
Learning Objectives
- Assess the consequences of state interventions like subsidies, production quotas, and precise taxes on market behavior.
- Describe how elasticity affects the apportionment of taxes and the consequences for market activities.