Question

For each of the following five questions (parts a-e), indicate which of the two quantities you expect to be larger and why: a) The shortage caused by a $2/ gallon price ceiling on gasoline vs. the shortage caused by a $0.50/ gallon price ceiling on gasoline. b) The elasticity of supply of wheat currently vs. the elasticity of supply of wheat after the US places a ban on pesticides and fertilizers. c) Buyers' share of a tax on yachts vs. sellers' share of a tax on yachts. d) The elasticity of demand for cars in 2019 vs. the elasticity of demand for cars in 2020 when many employers allowed employees to telecommute. e) Government revenue from a large sales tax on bananas vs. government revenue from a smaller sales tax on fruit.

Answer 1

a) The $2/gallon price ceiling on gasoline would cause a larger shortage compared to the $0.50/gallon price ceiling. b) The elasticity of supply of wheat is expected to be lower after the US bans pesticides and fertilizers. c) The buyers' share of a tax on yachts is expected to be larger than the sellers' share.

Step-by-step explanation:

a) The shortage caused by a $2/gallon price ceiling on gasoline is expected to be larger than the shortage caused by a $0.50/gallon price ceiling on gasoline. This is because a higher price ceiling of $2/gallon significantly limits the supply of gasoline and creates a larger shortage compared to a lower price ceiling of $0.50/gallon.

b) The elasticity of supply of wheat is expected to be lower after the US places a ban on pesticides and fertilizers. This is because the ban on pesticides and fertilizers reduces the productivity and availability of wheat, resulting in a less responsive supply to changes in price.

c) The buyers' share of a tax on yachts is expected to be larger than the sellers' share of the tax. This is because buyers bear the burden of the tax directly through higher prices, while sellers can pass on some of the tax burden to buyers but have the ability to shift some of the tax burden onto sellers of complementary goods or factors of production.

d) The elasticity of demand for cars in 2020 when many employers allowed employees to telecommute is expected to be higher compared to the elasticity of demand for cars in 2019. This is because the availability of telecommuting reduces the need for commuting by car, making the demand for cars more elastic and responsive to changes in price.

e) Government revenue from a large sales tax on bananas is expected to be higher compared to the government revenue from a smaller sales tax on fruit. This is because bananas are a specific type of fruit, and a large sales tax specifically on bananas would have a higher impact on banana sales, resulting in higher government revenue compared to a smaller sales tax on all fruits collectively.