Question 1

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. 
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.

Question 2

Assume the price of gasoline is $2.40 per gallon, and the equilibrium quantity of gasoline is 12 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

Accepted Answer

A) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent; and the tax on gasoline amounts to $0.40 per gallon. 
B) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent; and the tax on gasoline amounts to $0.40 per gallon. 
C) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent; and the tax on gasoline amounts to $0.35 per gallon. 
D) There is insufficient information to make this determination. 
A) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent; and the tax on gasoline amounts to $0.40 per gallon. 
B) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent; and the tax on gasoline amounts to $0.40 per gallon. 
C) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent; and the tax on gasoline amounts to $0.35 per gallon. 
D) There is insufficient information to make this determination.

Question 3

Taxes on labor tend to increase the number of hours that people choose to work.

Accepted Answer

A) True 
 B)False

Question 4

The size of the deadweight loss generated from a tax is affected by the

Accepted Answer

A) elasticities of both supply and demand. 
B) elasticity of demand only. 
C) elasticity of supply only. 
D) total revenue collected by the government. 
A) elasticities of both supply and demand. 
B) elasticity of demand only. 
C) elasticity of supply only. 
D) total revenue collected by the government.

Question 5

If the size of a tax doubles, the deadweight loss doubles.

Accepted Answer

A) True 
 B)False

Question 6

The less freedom young mothers have to work outside the home, the

Accepted Answer

A) more elastic the supply of labor will be. 
B) less elastic the supply of labor will be. 
C) more horizontal the labor supply curve will be. 
D) larger is the decrease in employment that will result from a tax on labor. 
A) more elastic the supply of labor will be. 
B) less elastic the supply of labor will be. 
C) more horizontal the labor supply curve will be. 
D) larger is the decrease in employment that will result from a tax on labor.

Question 7

Figure 8-21  
-Refer to Figure 8-21. Suppose the market is represented by Demand 1 and Supply 1. At first the government places a $3 per-unit tax on this good. Then the government decides to raise the tax to $6 per unit. How would you characterize the decision to raise the tax rate from $3 to $6 per unit? The decision is

Accepted Answer

A) a good one because it increases tax revenue while decreasing the deadweight loss from the tax. 
B) a bad one because it does not increase tax revenue yet increases the deadweight loss from the tax. 
C) a bad one because it decreases tax revenue while increasing the deadweight loss from the tax. 
D) unclear because it increases tax revenue yet also increases the deadweight loss from the tax. 
A) a good one because it increases tax revenue while decreasing the deadweight loss from the tax. 
B) a bad one because it does not increase tax revenue yet increases the deadweight loss from the tax. 
C) a bad one because it decreases tax revenue while increasing the deadweight loss from the tax. 
D) unclear because it increases tax revenue yet also increases the deadweight loss from the tax.

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

Assume the price of gasoline is $2.40 per gallon, and the equilibrium quantity of gasoline is 12 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

Taxes on labor tend to increase the number of hours that people choose to work.

The size of the deadweight loss generated from a tax is affected by the

If the size of a tax doubles, the deadweight loss doubles.

The less freedom young mothers have to work outside the home, the

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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Exam 8: Application: The Costs of Taxation

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

Assume the price of gasoline is $2.40 per gallon, and the equilibrium quantity of gasoline is 12 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

Taxes on labor tend to increase the number of hours that people choose to work.

The size of the deadweight loss generated from a tax is affected by the

If the size of a tax doubles, the deadweight loss doubles.

The less freedom young mothers have to work outside the home, the

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

Filters