A tax wedge:
A. refers to the difference in the price the buyer pays and the price the seller keeps.
B. only occurs in markets when the tax is placed on sellers.
C. only occurs in markets when the tax is placed on buyers.
D. only occurs in markets when taxes are placed on large corporations.
A. refers to the difference in the price the buyer pays and the price the seller keeps.
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The figure above shows the production possibilities frontier for a country. How does the opportunity cost of compact cars forgone per SUV gained moving from point C to point B compare with the movement from point B to point A?
A) The opportunity cost of moving from point C to point B is greater than the movement from point B to point A. B) The opportunity cost of moving from point C to point B is less than the movement from point B to point A. C) The opportunity cost of moving from point C to point B is the same as the movement from point B to point A. D) The opportunity costs cannot be compared because the units of moving from point C to point B differ from the units of moving from point B to point A. E) More information is needed to determine how the two opportunity costs compare.
Assume that firms in a perfectly competitive market are earning economic profits. Which of the following statements describes the change in market price and output as a result of the entry of new firms into this market?
A) The short-run market supply curve shifts to the right, causing price to fall and total market output to increase. B) The short-run market supply curve shifts to the left, causing price to rise and total market output to decrease. C) The market demand curve shifts to the left, causing price to fall and market output to decrease. D) The market demand curve shifts to the right, causing price to rise and market output to increase.