AS/ECON 4070 3.0AF     Midterm Exam     Wednesday October 25 2000

time = 50 minutes

Do all 3 questions. All questions count equally.

1. What is the incidence of a 20 percent excise tax on a good, if the good is sold in a competitive market in which the quantity supplied Q^s is

Qs = 6ps

and in which the quantity demanded Q^D is

QD = 144-10PD

where p_s is the net-of-tax price received by sellers, and in which P^D is the gross-of-tax price paid by buyers?

2. True, false or uncertain? : A tax on the use of capital in the service sector must be born more by capital owners than by workers.

Explain briefly.

3. Explain under what circumstances a comprehensive sales tax ( with no exemptions ) would have no excess burden.

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