Government intervention

Which of the following does not explain why community surplus is reduced when imposing an indirect tax?

• The consumers end up consuming less amount of the good at a higher price

• The government now collects part of the community surplus through the tax revenue.

•  Less resources are allocated to the production of the taxed good than the optimum from society's point of view.

• Producers lose producer surplus because they now sell a smaller amount of the good and receive a lower net price for each unit.

What is the other term that is also used to talk about 'welfare loss'? (Answer in two words.)

Which of the following relationships indicates that the society would be better off if it were to produce more of a good than the result of the actual market outcome? .

• MSB = MSC2.

• MSC < MSB3.

• MSB < MSC

• None of the proposed options are correct.

The difference between a specific and an ad valorem tax is that:

• 1. The specific tax shifts the supply curve upwards but the ad valorem tax shifts it to the left.

• 2. The specific tax is paid by consumers but the ad valorem tax is paid by producers.

• 3. The specific tax is a fixed amount no matter the price of the good, but the amount of the ad valoremtax increases as the price of the good increases.

• 4. Each one produces different market outcomes and effects on the stakeholders.

Which of the following is not true? ..

• 1. An indirect tax has a negative effect on consumers

• 2. An indirect tax is beneficial for the government.

• 3. Producer revenue does not change after the imposition of the tax

• 4. Indirect taxes might produce unemployment in the market of the taxed good.

Which of the following is not a reason why governments set indirect taxes?..

• 1. To redistribute income from one group of the population to another

• 2. To collect revenue to provide public goods and services

• .3. To improve the allocation of resources from the society's point of view

• 4. To promote the consumption of the taxed good.

Goods that are harmful to society and to the individual who consumes them are called __________ goods. (Answer in one word)