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/** CYU 7-1 **/
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-1-1a'] = "The following figure shows that, after introduction of the excise tax, the price paid by consumers rises to $1.20; the price received by producers falls to $0.90. Consumers bear $0.20 of the $0.30 tax per pound of butter; producers bear $0.10 of the $0.30 tax per pound of butter. The tax drives a wedge of $0.30 between the price paid by consumers and the price received by producers. As a result, the quantity of butter bought and sold is now 9 million pounds.
";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-1-2a'] = "The fact that demand is very inelastic means that consumers will reduce their demand for textbooks very little in response to an increase in the price caused by the tax. The fact that supply is somewhat elastic means that suppliers will respond to the fall in the price by reducing supply. As a result, the incidence of the tax will fall heavily on consumers of economics textbooks and very little on publishers, as shown in the accompanying figure.
";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-1-3a'] = "True. When a substitute is readily available, demand is elastic. This implies that producers cannot easily pass on the cost of the tax to consumers because consumers will respond to an increased price by switching to the substitute. Furthermore, when producers have difficulty adjusting the amount of the good produced, supply is inelastic. That is, producers cannot easily reduce output in response to a lower price net of tax. So the tax burden will fall more heavily on producers than consumers.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-1-4a'] = "The fact that supply is very inelastic means that producers will reduce their supply of bottled water very little in response to the fall in price caused by the tax. Demand, on the other hand, will fall in response to an increase in price because demand is somewhat elastic. As a result, the incidence of the tax will fall heavily on producers of bottled spring water and very little on consumers, as shown in the accompanying figure.
";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-1-5a'] = "True. The lower the elasticity of supply, the more the burden of a tax will fall on producers rather than consumers, other things equal.";
/** CYU 7-2 **/
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-2-1a'] = "Without the excise tax, Zhang, Yves, Xavier, and Walter sell, and Ana, Bernice, Chizuko, and Dagmar buy one can of soda each, at $0.40 per can. So the quantity bought and sold is 4.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-2-1b'] = "At a price to consumers of $0.60, only Ana and Bernice are willing to buy a can of soda. At a price paid to producers of only $0.20, only Zhang and Yves are willing to sell. So the quantity bought and sold is 2.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-2-1c'] = "Without the excise tax, Ana’s individual consumer surplus is $0.70 – $0.40 = $0.30, Bernice’s is $0.60 – $0.40 = $0.20, Chizuko’s is $0.50 – $0.40 = $0.10, and Dagmar’s is $0.40 – $0.40 = $0.00. Total consumer surplus is $0.30 + $0.20 + $0.10 + $0.00 = $0.60. With the tax, Ana’s individual consumer surplus is $0.70 – $0.60 = $0.10 and Bernice’s is $0.60 – $0.60 = $0.00. Total consumer surplus post-tax is $0.10 + $0.00 = $0.10. So the total consumer surplus lost because of the tax is $0.60 – $0.10 = $0.50.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-2-1d'] = "Without the excise tax, Zhang’s individual producer surplus is $0.40 – $0.10 = $0.30, Yves’s is $0.40 – $0.20 = $0.20, Xavier’s is $0.40 – $0.30 = $0.10, and Walter’s is $0.40 – $0.40 = $0.00. Total producer surplus is $0.30 + $0.20 + $0.10 + $0.00 = $0.60. With the tax, Zhang’s individual producer surplus is $0.20 – $0.10 = $0.10 and Yves’s is $0.20 – $0.20 = $0.00. Total producer surplus post-tax is $0.10 + $0.00 = $0.10. So the total producer surplus lost because of the tax is $0.60 – $0.10 = $0.50.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-2-1e'] = "With the tax, two cans of soda are sold, so the government tax revenue from this excise tax is 2 × $0.40 = $0.80.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-2-1f'] = "Total surplus without the tax is $0.60 + $0.60 = $1.20. With the tax, total surplus is $0.10 + $0.10 = $0.20, and government tax revenue is $0.80. So deadweight loss from this excise tax is $1.20 – ($0.20 + $0.80) = $0.20.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-2-2a'] = "The demand for gasoline is inelastic because there is no close substitute for gasoline itself and it is difficult for drivers to arrange substitutes for driving, such as taking public transportation. As a result, the deadweight loss from a tax on gasoline would be relatively small, as shown in the accompanying diagram.
";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-2-2b'] = "The demand for milk chocolate bars is elastic because there are close substitutes: dark chocolate bars, milk chocolate kisses, and so on. As a result, the deadweight loss from a tax on milk chocolate bars would be relatively large, as shown in the accompanying diagram.
";
/** CYU 7-3 **/
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-3-1a'] = "Since drivers are the beneficiaries of highway safety programs, this tax performs well according to the benefits principle. But since the level of the tax does not depend on ability to pay the tax, it does not perform well according to the ability-to-pay principle. Since higher-income car purchasers are likely to spend more on a new car, a tax assessed as a percentage of the purchase price of the car would perform better on the ability-to-pay principle. A $500-per-car tax will cause people to buy fewer new cars, but a percentage-based tax will cause people to buy fewer cars and less expensive cars.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-3-1b'] = "This tax does not perform well according to the benefits principle because the payers are nonresidents of the local area, but the beneficiaries are local residents who will enjoy greater government services. But to the extent that people who stay in hotels have higher income compared to those who don’t, the tax performs well according to the ability-to-pay principle. It will distort the action of staying in a hotel room in this area, resulting in fewer nights of hotel room stays.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-3-1c'] = "This tax performs well according to the benefits principle because local homeowners are the users of local schools. It also performs well according to the ability-to-pay principle because it is assessed as a percentage of home value: higher-income residents, who own more expensive homes, will pay higher taxes. It will distort the action of buying a house in this area versus another area with a lower property tax rate or the action of making changes to a house that increase its assessed value.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-3-1d'] = "This tax performs well according to the benefits principle because food consumers are the beneficiaries of government food safety programs. It does not perform well according to the ability-to-pay principle because food is a necessity, and lower-income people will pay approximately as much as higher-income people. This tax will distort the action of buying food, leading people to purchase cheaper varieties of food.";
/** CYU 7-4 **/
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-4-1a'] = "The marginal tax rate for someone with income of $5,000 is 1%: for each additional $1 in income, $0.01 or 1%, is taxed away. This person pays total tax of $5,000 × 1% = $50, which is ($50/$5,000) × 100 = 1% of his or her income.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-4-1b'] = "The marginal tax rate for someone with income of $20,000 is 2%: for each additional $1 in income, $0.02 or 2%, is taxed away. This person pays total tax of $10,000 × 1% + $10,000 × 2% = $300, which is ($300/$20,000) × 100 = 1.5% of his or her income.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-4-1c'] = "Since the high-income taxpayer pays a larger percentage of his or her income than the low-income taxpayer, this tax is progressive.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-4-2a'] = "A 1% tax on consumption spending means that a family earning $15,000 and spending $10,000 will pay a tax of 1% × $10,000 = $100, equivalent to 0.67% of its income; ($100/$15,000) × 100 = 0.67%. But a family earning $10,000 and spending $8,000 will pay a tax of 1% × $8,000 = $80, equivalent to 0.80% of its income; ($80/$10,000) × 100 = 0.80%. So the tax is regressive, since the lower-income family pays a higher percentage of its income in tax than the higher-income family.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-4-3a'] = "False. Recall that a seller always bears some burden of a tax as long as his or her supply of the good is not perfectly elastic. Since the supply of labor a worker offers is not perfectly elastic, some of the payroll tax will be borne by the worker, and therefore the tax will affect the person’s incentive to take a job.";
xBookUtils.showAnswers['krugmanwellsmicro4-cyu-7-4-3b'] = "False. Under a proportional tax, the percentage of the tax base is the same for everyone. Under a lump-sum tax, the total tax paid is the same for everyone, regardless of their income.";
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