Question 1

The Laffer curve relates

Accepted Answer

A)  the tax rate to tax revenue raised by the tax.
B)  the tax rate to the deadweight loss of the tax.
C)  the price elasticity of supply to the deadweight loss of the tax.
D)  government welfare payments to the birth rate.E) None of the above
F) A) and B)

Question 2

When a tax is levied on a good,

Accepted Answer

A)  government collects revenues which might justify the loss in total welfare.
B)  there is a decrease in the quantity of the good bought and sold in the market.
C)  a wedge is placed between the price buyers pay and the price sellers effectively receive.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

Deadweight loss is the

Accepted Answer

A)  decline in total surplus that results from a tax.
B)  decline in government revenue when taxes are reduced in a market.
C)  decline in consumer surplus when a tax is placed on buyers.
D)  loss of profits to business firms when a tax is imposed.E) B) and D)
F) All of the above

Question 5

Figure 8-7
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-7. Which of the following statements summarizes the incidence of the tax?

Accepted Answer

A)  For each unit of the good that is sold, buyers bear one-half of the tax burden, and sellers bear one-half of the tax burden.
B)  For each unit of the good that is sold, buyers bear one-third of the tax burden, and sellers bear two-thirds of the tax burden.
C)  For each unit of the good that is sold, buyers bear one-fourth of the tax burden, and sellers bear three-fourths of the tax burden.
D)  For each unit of the good that is sold, buyers bear three-fourths of the tax burden, and sellers bear one-fourth of the tax burden.E) B) and C)
F) B) and D)

Question 6

When a tax is levied on the sellers of a good, the

Accepted Answer

A)  supply curve shifts upward by the amount of the tax.
B)  quantity demanded decreases for all conceivable prices of the good.
C)  quantity supplied increases for all conceivable prices of the good.
D)  None of the above is correct.E) A) and B)
F) None of the above

Question 7

When a tax is imposed on the buyers of a good, the demand curve shifts

Accepted Answer

A)  downward by the amount of the tax.
B)  upward by the amount of the tax.
C)  downward by less than the amount of the tax.
D)  upward by more than the amount of the tax.E) A) and C)
F) A) and D)

Question 8

The decrease in total surplus that results from a market distortion, such as a tax, is called a

Accepted Answer

A)  wedge loss.
B)  revenue loss.
C)  deadweight loss.
D)  consumer surplus loss.E) None of the above
F) B) and C)

Question 9

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) A) and D)
F) B) and C)

Question 10

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus before the tax is measured by the area

Accepted Answer

A)  I+Y.
B)  J+K+L+M.
C)  L+M+Y.
D)  I+J+K+L+M+Y.E) A) and B)
F) A) and C)

Question 11

When a tax is levied on a good,

Accepted Answer

A)  neither buyers nor sellers are made worse off.
B)  only sellers are made worse off.
C)  only buyers are made worse off.
D)  both buyers and sellers are made worse off.E) A) and C)
F) A) and B)

Question 12

In a recent research paper published by the European Central Bank, two economists concluded that

Accepted Answer

A)  tax revenue would increase in Denmark and Sweden if tax rates on capital income were reduced in those countries.
B)  tax revenue would increase in Denmark and Sweden if tax rates on labor income were reduced in those countries.
C)  tax revenue would increase in the U.S. if tax rates on capital income were reduced in the U.S.
D)  tax revenue would increase in the U.S. if tax rates on labor income were reduced in the U.S.E) A) and B)
F) B) and D)

Question 13

Figure 8-9
The vertical distance between points A and C represent a tax in the market. 
-Refer to Figure 8-9. The consumer surplus without the tax is

Accepted Answer

A)  $2,000.
B)  $5,000.
C)  $8,000.
D)  $16,000.E) B) and D)
F) A) and B)

Question 14

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. The price that sellers receive is

Accepted Answer

A)  P0.
B)  P2.
C)  P5.
D)  P8.E) B) and C)
F) A) and D)

Question 15

If the size of a tax triples, the deadweight loss increases by a factor of six.

Accepted Answer

A) True 
 B)False

Question 16

The supply curve for cameras is the typical upward-sloping straight line, and the demand curve for cameras is the typical downward-sloping straight line. When cameras are taxed, the area on the relevant supply-and-demand graph that represents

Accepted Answer

A)  government's tax revenue is a rectangle.
B)  the deadweight loss of the tax is a triangle.
C)  the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle.
D)  All of the above are correct.E) A) and D)
F) A) and C)

Question 17

Who once said that taxes are the price we pay for a civilized society?

Accepted Answer

A)  Milton Friedman
B)  Theodore Roosevelt
C)  Arthur Laffer
D)  Oliver Wendell Holmes, Jr.E) A) and C)
F) None of the above

Question 18

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are

Accepted Answer

A)  $16 and 300.
B)  $10 and 600.
C)  $10 and 300.
D)  $6 and 300.E) A) and D)
F) C) and D)

Question 19

Figure 8-15 
-Refer to Figure 8-15. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the market represented by

Accepted Answer

A)  D1.
B)  D2.
C)  D3.
D)  D4.E) C) and D)
F) B) and D)

Question 20

Figure 8-9
The vertical distance between points A and C represent a tax in the market. 
-Refer to Figure 8-9. The total surplus without the tax is

Accepted Answer

A)  $8,000.
B)  $12,000.
C)  $20,000.
D)  $40,000.E) B) and C)
F) A) and B)

Exam 8: Application: The Costs of Taxation

When a tax is imposed on the buyers of a good, the demand curve shifts

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Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The total surplus without the tax is

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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

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When a tax is levied on a good,

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In a recent research paper published by the European Central Bank, two economists concluded that

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When a tax is levied on the sellers of a good, the

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Deadweight loss is the

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

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Figure 8-15 -Refer to Figure 8-15. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the market represented by

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Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Which of the following statements summarizes the incidence of the tax?

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Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus before the tax is measured by the area

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The Laffer curve relates

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The decrease in total surplus that results from a market distortion, such as a tax, is called a

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If the size of a tax triples, the deadweight loss increases by a factor of six.

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Who once said that taxes are the price we pay for a civilized society?

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Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are

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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. The price that sellers receive is

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When a tax is levied on a good,

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The supply curve for cameras is the typical upward-sloping straight line, and the demand curve for cameras is the typical downward-sloping straight line. When cameras are taxed, the area on the relevant supply-and-demand graph that represents

Correct AnswerverifiedShow Answer

Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The consumer surplus without the tax is

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