micro economic assignment - short answers

Principles of Microeconomics Problem Set 10 Due on 12/2/15

1. How does taxation harm the economy? If taxes hurt the economy, why do they exist?

2. Which would you expect to be larger, the price elasticity of demand for luxury goods, or the

price elasticity of supply for luxury goods? Based on that, where do you expect the majority of

the burden of a luxury tax to fall? Based on that, do you think that the luxury tax is

accomplishing its goals?

3. Draw a supply and demand diagram for a market with a unit tax. Be sure to label the

deadweight loss, the consumer surplus, the producer surplus, and the government's revenue.

4. Name a good with an excise tax. Does it feature a negative externality? If so, what is it? If not,

explain lawmakers' motivations for taxing that good extra.