How is the incidence of a sales tax between the buyer and the seller determined?
What will be an ideal response?
The tax incidence depends on the price elasticities of supply and demand. Buyers pay more of the tax the more inelastic the demand and the more elastic the supply. Sellers pay more of the tax the more elastic the demand and the more inelastic the supply.
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Nadia operates a frame shop and charges the perfectly competitive price of $65 for custom framing of a standard size picture. She is a price-taking producer. To maximize her profit, Nadia will:
a. accept framing orders up until the point where the marginal cost of doing so is $65. b. seek to produce at the point where her average variable cost is $65. c. seek to operate at the minimum point on her average variable cost curve. d. seek to operate at the minimum point on her marginal cost curve.
Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP falls?
A) AD did not shift and SRAS shifted to the left. B) AD shifted to the right by less than SRAS. C) SRAS shifted to the right by more than LRAS. D) AD shifted to the right by more than SRAS.