Question 1

Normally, both buyers and sellers of a good become worse off when the good is taxed.

Accepted Answer

A) True 
 B)False

Question 2

Taxes create deadweight losses.

Accepted Answer

A) True 
 B)False

Question 3

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is

Accepted Answer

A)  $0.
B)  $1.50.
C)  $3.
D)  $4.50.E) A) and B)
F) B) and C)

Question 4

Figure 8-26 
-Refer to Figure 8-26. Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Accepted Answer

Total tax revenue will increas...

Question 5

Figure 8-29 
-Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to tax revenues?

Accepted Answer

When the tax is $3, tax revenue is $3 x ...

Question 6

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is

Accepted Answer

A)  $250.
B)  $125.
C)  $75.
D)  $50.E) B) and D)
F) B) and C)

Question 7

The graph that represents the amount of deadweight loss (measured on the vertical axis)  as a function of the size of the tax (measured on the horizontal axis)  looks like

Accepted Answer

A)  a U.
B)  an upside-down U.
C)  a horizontal straight line.
D)  an upward-sloping curve.E) B) and C)
F) B) and D)

Question 8

If the labor supply curve is very elastic, a tax on labor

Accepted Answer

A)  has a large deadweight loss.
B)  raises enough tax revenue to offset the loss in welfare.
C)  has a relatively small impact on the number of hours that workers choose to work.
D)  results in a large tax burden on the firms that hire labor.E) A) and C)
F) B) and D)

Question 9

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents

Accepted Answer

A)  consumer surplus after the tax.
B)  consumer surplus before the tax.
C)  producer surplus after the tax.
D)  producer surplus before the tax.E) C) and D)
F) B) and D)

Question 10

Figure 8-10 
-Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the total surplus is

Accepted Answer

A)  [1/2 x (P0-P5)  x Q5] + [1/2 x (P5-0)  x Q5].
B)  [1/2 x (P0-P2)  x Q2] +[(P2-P8)  x Q2] + [1/2 x (P8-0)  x Q2].
C)  (P2-P8)  x Q2.
D)  1/2 x (P2-P8)  x (Q5-Q2) .E) B) and C)
F) A) and B)

Question 11

Figure 8-15  
-Refer to Figure 8-15. Panel (a)  and Panel (b)  each illustrate a $4 tax placed on a market. In comparison to Panel (b) , Panel (a)  illustrates which of the following statements?

Accepted Answer

A)  When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic.
B)  When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic.
C)  When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic.
D)  When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic.E) B) and C)
F) A) and B)

Question 12

Economists generally agree that the most important tax in the U.S. economy is the

Accepted Answer

A)  income tax.
B)  tax on labor.
C)  inheritance or death tax.
D)  tax on corporate profits.E) B) and D)
F) All of the above

Question 13

The higher a country's tax rates, the more likely that country will be

Accepted Answer

A)  at the top of the Laffer curve.
B)  on the positively sloped part of the Laffer curve.
C)  on the negatively sloped part of the Laffer curve.
D)  experiencing small deadweight losses.E) A) and B)
F) C) and D)

Question 14

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubled, the

Accepted Answer

A)  base of the triangle that represents the deadweight loss doubles.
B)  height of the triangle that represents the deadweight loss doubles.
C)  deadweight loss of the tax quadruples.
D)  All of the above are correct.E) All of the above
F) A) and D)

Question 15

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

Accepted Answer

A)  buyers of the good will bear most of the burden of the tax.
B)  sellers of the good will bear most of the burden of the tax.
C)  buyers and sellers will each bear 50 percent of the burden of the tax.
D)  the effective price paid by buyers will decrease as a result of the tax.E) C) and D)
F) A) and C)

Question 16

Which of the following statements is correct?

Accepted Answer

A)  A decrease in the size of a tax always decreases the tax revenue raised by that tax.
B)  A decrease in the size of a tax always decreases the deadweight loss of that tax.
C)  Tax revenue decreases when there is a small decrease in the tax rate and the economy is on the downward-sloping part of the Laffer curve.
D)  An increase in the size of a tax leads to an increase in the deadweight loss of the tax only if the economy is on the upward-sloping part of the Laffer curve.E) None of the above
F) A) and B)

Question 17

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+I represents

Accepted Answer

A)  consumer surplus after the tax.
B)  consumer surplus before the tax.
C)  producer surplus after the tax.
D)  producer surplus before the tax.E) All of the above
F) B) and C)

Question 18

John has been in the habit of mowing Willa's lawn each week for $20. John's opportunity cost is $15, and Willa would be willing to pay $25 to have her lawn mowed. What is the maximum tax the government can impose on lawn mowing without discouraging John and Willa from continuing their mutually beneficial arrangement?

Accepted Answer

If the tax is less than $10, there will ...

Question 19

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

Accepted Answer

A) True 
 B)False

Question 20

When a tax is imposed on sellers, consumer surplus and producer surplus both decrease.

Accepted Answer

A) True 
 B)False

Exam 8: Applications: the Costs of Taxation

Figure 8-26 -Refer to Figure 8-26. Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Correct Answer
verified
Total tax revenue will increas...
View Answer

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubled, the

Correct Answer
verified

The higher a country's tax rates, the more likely that country will be

Correct Answer
verified

The graph that represents the amount of deadweight loss (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

Correct Answer
verified

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents

Correct Answer
verified

When a tax is imposed on sellers, consumer surplus and producer surplus both decrease.

Correct Answer
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Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+I represents

Correct Answer
verified

Correct Answer
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If the tax is less than $10, there will ...
View Answer

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

Correct Answer
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Taxes create deadweight losses.

Correct Answer
verified

Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the total surplus is

Correct Answer
verified

Normally, both buyers and sellers of a good become worse off when the good is taxed.

Correct Answer
verified

Correct Answer
verified

Figure 8-29 -Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to tax revenues?

Correct Answer
verified
When the tax is $3, tax revenue is $3 x ...
View Answer

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

Correct Answer
verified

Economists generally agree that the most important tax in the U.S. economy is the

Correct Answer
verified

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is

Correct Answer
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Figure 8-15 -Refer to Figure 8-15. Panel (a) and Panel (b) each illustrate a $4 tax placed on a market. In comparison to Panel (b) , Panel (a) illustrates which of the following statements?

Correct Answer
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Which of the following statements is correct?

Correct Answer
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If the labor supply curve is very elastic, a tax on labor

Correct Answer
verified

Exam 8: Applications: the Costs of Taxation

Figure 8-26 -Refer to Figure 8-26. Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Correct AnswerverifiedTotal tax revenue will increas...View AnswerShow Answer

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubled, the

Correct AnswerverifiedShow Answer

The higher a country's tax rates, the more likely that country will be

Correct AnswerverifiedShow Answer

The graph that represents the amount of deadweight loss (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

Correct AnswerverifiedShow Answer

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents

Correct AnswerverifiedShow Answer

When a tax is imposed on sellers, consumer surplus and producer surplus both decrease.

Correct AnswerverifiedShow Answer

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+I represents

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIf the tax is less than $10, there will ...View AnswerShow Answer

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

Correct AnswerverifiedShow Answer

Taxes create deadweight losses.

Correct AnswerverifiedShow Answer

Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the total surplus is

Correct AnswerverifiedShow Answer

Normally, both buyers and sellers of a good become worse off when the good is taxed.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 8-29 -Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to tax revenues?

Correct AnswerverifiedWhen the tax is $3, tax revenue is $3 x ...View AnswerShow Answer

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

Correct AnswerverifiedShow Answer

Economists generally agree that the most important tax in the U.S. economy is the

Correct AnswerverifiedShow Answer

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is

Correct AnswerverifiedShow Answer

Figure 8-15 -Refer to Figure 8-15. Panel (a) and Panel (b) each illustrate a $4 tax placed on a market. In comparison to Panel (b) , Panel (a) illustrates which of the following statements?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If the labor supply curve is very elastic, a tax on labor

Correct AnswerverifiedShow Answer

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Total tax revenue will increas...
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If the tax is less than $10, there will ...
View Answer

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When the tax is $3, tax revenue is $3 x ...
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