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Exam 8: Applications: the Costs of Taxation

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Question 111

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Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. -Refer to Scenario 8-1. Assume Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct?

A) Erin will now clean her own house.
B) Ernesto will continue to clean Erin's house, but his producer surplus will decline.
C) Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase.
D) Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.

E) A) and C)
F) B) and C)

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Question 112

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The marginal tax rate on labor income for many workers in the United States is almost

A) 30 percent.
B) 40 percent.
C) 50 percent.
D) 65 percent.

E) A) and D)
F) A) and B)

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Question 113

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Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. When the tax is imposed in this market, consumer surplus is

Taxes are of interest to

Tax revenues increase in direct proportion to increases in the size of the tax.

Use the following graph shown to fill in the table that follows.

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The amount of tax revenue received by the government is

Taxes drive a wedge into the market by raising the price that sellers receive and lowering the price that buyers pay.

Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. What price will consumers pay for the good after the tax is imposed?

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The producer surplus after this tax is

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

The more elastic the supply, the larger the deadweight loss from a tax, all else equal.

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The amount of the tax on each unit of the good is

Figure 8-20 On the vertical axis of each graph, DWL is deadweight loss. -Refer to Figure 8-20. Which graph correctly illustrates the relationship between the size of a tax and the size of the deadweight loss associated with the tax?

Figure 8-11 -Refer to Figure 8-11. Suppose Q₁ = 4; Q₂ = 7; P₁ = $6; P₂ = $8; and P₃ = $10. Then, when the tax is imposed,

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. What happens to consumer surplus when the tax is imposed in this market?

When a tax is levied on a good,

Suppose that the market for product X is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $6 tax per unit?

Labor taxes may distort labor markets greatly if