Question 1

When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

Accepted Answer

A) True 
 B)False

Question 2

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. Total surplus without the tax is

Accepted Answer

A) $10, and total surplus with the tax is $2.50. 
B) $10, and total surplus with the tax is $7.50. 
C) $20, and total surplus with the tax is $2.50. 
D) $20, and total surplus with the tax is $7.50. 
A) $10, and total surplus with the tax is $2.50. 
B) $10, and total surplus with the tax is $7.50. 
C) $20, and total surplus with the tax is $2.50. 
D) $20, and total surplus with the tax is $7.50.

Question 3

Figure 8-25  
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Accepted Answer

The deadwe

Question 4

Figure 8-25  
-Refer to Figure 8-25. How much is total surplus at the market equilibrium?

Accepted Answer

Total surp

Question 5

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. The tax has made Rebecca and Susan worse off by a total of

Accepted Answer

A) $30. 
B) $25. 
C) $10. 
D) $5. 
A) $30. 
B) $25. 
C) $10. 
D) $5.

Question 6

In 1776, the American Revolution was sparked by anger over

Accepted Answer

A) the extravagant lifestyle of British royalty. 
B) the crimes of British soldiers stationed in the American colonies. 
C) British taxes imposed on the American colonies. 
D) the failure of the British to protect American colonists from attack by hostile Native Americans. 
A) the extravagant lifestyle of British royalty. 
B) the crimes of British soldiers stationed in the American colonies. 
C) British taxes imposed on the American colonies. 
D) the failure of the British to protect American colonists from attack by hostile Native Americans.

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax provides to the government?

Accepted Answer

A) Tax revenue = (P2 - P1)xQ1 
B) Tax revenue = (P3 - P1)xQ1 
C) Tax revenue = (P3 - P2)xQ1 
D) Tax revenue = (P3 - P1)x(Q2 - Q1) 
A) Tax revenue = (P2 - P1)xQ1 
B) Tax revenue = (P3 - P1)xQ1 
C) Tax revenue = (P3 - P2)xQ1 
D) Tax revenue = (P3 - P1)x(Q2 - Q1)

Question 9

Other things equal, the deadweight loss of a tax

Accepted Answer

A) decreases as the size of the tax increases. 
B) increases as the size of the tax increases, but the increase in the deadweight loss is less rapid than the increase in the size of the tax. 
C) increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax. 
D) increases as the price elasticities of demand and/or supply increase, but the deadweight loss does not change as the size of the tax increases. 
A) decreases as the size of the tax increases. 
B) increases as the size of the tax increases, but the increase in the deadweight loss is less rapid than the increase in the size of the tax. 
C) increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax. 
D) increases as the price elasticities of demand and/or supply increase, but the deadweight loss does not change as the size of the tax increases.

Question 10

A decrease in the size of a tax is most likely to increase tax revenue in a market with

Accepted Answer

A) elastic demand and elastic supply. 
B) elastic demand and inelastic supply. 
C) inelastic demand and elastic supply. 
D) inelastic demand and inelastic supply. 
A) elastic demand and elastic supply. 
B) elastic demand and inelastic supply. 
C) inelastic demand and elastic supply. 
D) inelastic demand and inelastic supply.

Question 11

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Accepted Answer

A) True 
 B)False

Question 12

Labor taxes may distort labor markets greatly if

Accepted Answer

A) labor supply is highly inelastic. 
B) many workers choose to work 40 hours per week regardless of their earnings. 
C) the number of hours many part-time workers want to work is very sensitive to the wage rate. 
D) "underground" workers do not respond to changes in the wages of legal jobs because they prefer not to pay taxes. 
A) labor supply is highly inelastic. 
B) many workers choose to work 40 hours per week regardless of their earnings. 
C) the number of hours many part-time workers want to work is very sensitive to the wage rate. 
D) "underground" workers do not respond to changes in the wages of legal jobs because they prefer not to pay taxes.

Question 13

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

Accepted Answer

A) The response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of bananas is weak. 
B) The response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak. 
C) The response of buyers and sellers to a change in the price of bananas is strong. 
D) The response of buyers and sellers to a change in the price of bananas is weak. 
A) The response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of bananas is weak. 
B) The response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak. 
C) The response of buyers and sellers to a change in the price of bananas is strong. 
D) The response of buyers and sellers to a change in the price of bananas is weak.

Question 14

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 as a result of the tax is

Accepted Answer

A) $1.50. 
B) $3. 
C) $4.50. 
D) $6. 
A) $1.50. 
B) $3. 
C) $4.50. 
D) $6.

Question 15

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is

Accepted Answer

A) smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax. 
B) bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers. 
C) a right triangle. 
D) a triangle, but not necessarily a right triangle. 
A) smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax. 
B) bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers. 
C) a right triangle. 
D) a triangle, but not necessarily a right triangle.

Question 16

Which of the following is not correct?

Accepted Answer

A) Economists who argue that labor taxes are highly distorting believe that labor supply is fairly elastic. 
B) Economists who argue that labor taxes are not highly distorting believe that labor supply is fairly inelastic. 
C) Economists who argue that labor supply is fairly inelastic cite elderly workers who adjust the date they retire as an example. 
D) Economists who argue that labor supply is fairly elastic cite workers who adjust the hours of overtime that they work as an example. 
A) Economists who argue that labor taxes are highly distorting believe that labor supply is fairly elastic. 
B) Economists who argue that labor taxes are not highly distorting believe that labor supply is fairly inelastic. 
C) Economists who argue that labor supply is fairly inelastic cite elderly workers who adjust the date they retire as an example. 
D) Economists who argue that labor supply is fairly elastic cite workers who adjust the hours of overtime that they work as an example.

Question 17

Figure 8-25  
-Refer to Figure 8-25. How much is consumer surplus at the market equilibrium?

Accepted Answer

Consumer s

Question 18

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

Accepted Answer

A) P3ACP1. 
B) ABC. 
C) P2DAP3. 
D) P1CDP2. 
A) P3ACP1. 
B) ABC. 
C) P2DAP3. 
D) P1CDP2.

Question 19

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. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is

Accepted Answer

A) $80. 
B) $30. 
C) $20. 
D) $10. 
A) $80. 
B) $30. 
C) $20. 
D) $10.

Question 20

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low.

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. Total surplus without the tax is

Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Figure 8-25 -Refer to Figure 8-25. How much is total surplus at the market equilibrium?

In 1776, the American Revolution was sparked by anger over

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

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax provides to the government?

Other things equal, the deadweight loss of a tax

A decrease in the size of a tax is most likely to increase tax revenue in a market with

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Labor taxes may distort labor markets greatly if

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

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 as a result of the tax is

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is

Which of the following is not correct?

Figure 8-25 -Refer to Figure 8-25. How much is consumer surplus at the market equilibrium?

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

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. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low.

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

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