Question 1

Taxes on labor tend to encourage the elderly to retire early.

Accepted Answer

A) True 
 B)False

Question 2

Suppose that policymakers are considering placing a tax on either of two markets. In Market A, the tax will have a significant effect on the price consumers pay, but it will not affect equilibrium quantity very much. In Market B, the same tax will have only a small effect on the price consumers pay, but it will have a large effect on the equilibrium quantity. Other factors are held constant. In which market will the tax have a larger deadweight loss?

Accepted Answer

A) Market A 
B) Market B 
C) The deadweight loss will be the same in both markets. 
D) There is not enough information to answer the question. 
A) Market A 
B) Market B 
C) The deadweight loss will be the same in both markets. 
D) There is not enough information to answer the question.

Question 3

Suppose the demand curve and the supply curve in a market are both linear. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $3 tax per unit?

Accepted Answer

The deadwe

Question 4

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

Accepted Answer

A) True 
 B)False

Question 5

Economists disagree on whether labor taxes have a small or large deadweight loss.

Accepted Answer

A) True 
 B)False

Question 6

Taxes create deadweight losses.

Accepted Answer

A) True 
 B)False

Question 7

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. 
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.

Question 8

Taxes affect market participants by increasing the price paid by the buyer and received by the seller.

Accepted Answer

A) True 
 B)False

Question 9

A tax on insulin is likely to cause a very large deadweight loss to society.

Accepted Answer

A) True 
 B)False

Question 10

According to Arthur Laffer, the graph that represents the amount of tax revenue (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 line or curve. 
A) a U. 
B) an upside-down U. 
C) a horizontal straight line. 
D) an upward-sloping line or curve.

Question 11

If the tax on a good is increased from $0.30 per unit to $0.90 per unit, the deadweight loss from the tax

Accepted Answer

A) remains constant. 
B) increases by a factor of 4. 
C) increases by a factor of 9. 
D) increases by a factor of 16. 
A) remains constant. 
B) increases by a factor of 4. 
C) increases by a factor of 9. 
D) increases by a factor of 16.

Question 12

Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

Accepted Answer

A) the larger is the decrease in quantity demanded as a result of the tax. 
B) the smaller is the tax burden on buyers relative to the tax burden on sellers. 
C) the larger is the deadweight loss of the tax. 
D) All of the above are correct. 
A) the larger is the decrease in quantity demanded as a result of the tax. 
B) the smaller is the tax burden on buyers relative to the tax burden on sellers. 
C) the larger is the deadweight loss of the tax. 
D) All of the above are correct.

Question 13

When a tax is imposed on a good for which both demand and supply are very elastic,

Accepted Answer

A) sellers effectively pay the majority of the tax. 
B) buyers effectively pay the majority of the tax. 
C) the tax burden is equally divided between buyers and sellers. 
D) None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers. 
A) sellers effectively pay the majority of the tax. 
B) buyers effectively pay the majority of the tax. 
C) the tax burden is equally divided between buyers and sellers. 
D) None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.

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 amount of tax revenue received by the government is

Accepted Answer

A) $2.50. 
B) $4. 
C) $5. 
D) $9. 
A) $2.50. 
B) $4. 
C) $5. 
D) $9.

Question 15

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be

Accepted Answer

A) $200. 
B) $250. 
C) $500. 
D) $2,500. 
A) $200. 
B) $250. 
C) $500. 
D) $2,500.

Question 16

Figure 8-14  
-Refer to Figure 8-14. Which of the following statements is not correct?

Accepted Answer

A) Supply 2 is more elastic than supply 1. 
B) Demand 2 is more elastic than demand 1. 
C) Supply 1 is more inelastic than supply 2. 
D) Demand 2 is more inelastic than supply 2. 
A) Supply 2 is more elastic than supply 1. 
B) Demand 2 is more elastic than demand 1. 
C) Supply 1 is more inelastic than supply 2. 
D) Demand 2 is more inelastic than supply 2.

Question 17

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

Accepted Answer

A) larger than the area that represents consumer surplus in the absence of the tax. 
B) larger than the area that represents government's tax revenue. 
C) a triangle. 
D) All of the above are correct. 
A) larger than the area that represents consumer surplus in the absence of the tax. 
B) larger than the area that represents government's tax revenue. 
C) a triangle. 
D) All of the above are correct.

Question 18

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will

Accepted Answer

A) decrease tax revenue and decrease the deadweight loss. 
B) decrease tax revenue and increase the deadweight loss. 
C) increase tax revenue and decrease the deadweight loss. 
D) increase tax revenue and increase the deadweight loss. 
A) decrease tax revenue and decrease the deadweight loss. 
B) decrease tax revenue and increase the deadweight loss. 
C) increase tax revenue and decrease the deadweight loss. 
D) increase tax revenue and increase the deadweight loss.

Question 19

Figure 8-9
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to

Accepted Answer

A) increase from $600 to $800. 
B) increase from $300 to $800. 
C) decrease from $600 to $300. 
D) remain unchanged at $600. 
A) increase from $600 to $800. 
B) increase from $300 to $800. 
C) decrease from $600 to $300. 
D) remain unchanged at $600.

Question 20

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

Exam 8: Application: The Costs of Taxation

Taxes on labor tend to encourage the elderly to retire early.

Suppose the demand curve and the supply curve in a market are both linear. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $3 tax per unit?

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

Economists disagree on whether labor taxes have a small or large deadweight loss.

Taxes create deadweight losses.

When a tax is levied on a good,

Taxes affect market participants by increasing the price paid by the buyer and received by the seller.

A tax on insulin is likely to cause a very large deadweight loss to society.

According to Arthur Laffer, the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

If the tax on a good is increased from $0.30 per unit to $0.90 per unit, the deadweight loss from the tax

Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

When a tax is imposed on a good for which both demand and supply are very elastic,

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The amount of tax revenue received by the government is

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be

Figure 8-14 -Refer to Figure 8-14. Which of the following statements is not correct?

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

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to

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?

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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