Question 2:

Consider the wool market in New Zealand. Keep in mind that New Zealand produces a tiny fraction of world wool output. A tax on wool imposed by the Government of New Zealand will

1. be borne by New Zealand sheep farmers if it is imposed on sales of New Zealand wool.

2. be borne by New Zealand sheep farmers if it is imposed on sales of wool to New Zealand consumers.

3. be borne by sheep farmers and consumers in the same way regardless who the tax is imposed on.

4. be borne by sheep farmers and consumers in a way that cannot be determined on the basis of the information given.

Choose the option that yields the correct answer.