Question 1

Which of the following ideas is the most plausible?

Accepted Answer

A) Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. 
B) Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. 
C) Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. 
D) Reducing a tax rate can never increase tax revenue. 
A) Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. 
B) Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. 
C) Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. 
D) Reducing a tax rate can never increase tax revenue.

Question 2

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. What happens to producer surplus when the tax is imposed in this market?

Accepted Answer

A) Producer surplus falls by $600. 
B) Producer surplus falls by $900. 
C) Producer surplus falls by $1,800. 
D) Producer surplus falls by $2,100. 
A) Producer surplus falls by $600. 
B) Producer surplus falls by $900. 
C) Producer surplus falls by $1,800. 
D) Producer surplus falls by $2,100.

Question 3

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 4

Figure 8-22  
-Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

Accepted Answer

A) Compared to the original tax, the larger tax will decrease tax revenue. 
B) Compared to the original tax, the smaller tax will decrease deadweight loss. 
C) Compared to the original tax, the smaller tax will decrease tax revenue. 
D) Compared to the original tax, the larger tax will increase deadweight loss. 
A) Compared to the original tax, the larger tax will decrease tax revenue. 
B) Compared to the original tax, the smaller tax will decrease deadweight loss. 
C) Compared to the original tax, the smaller tax will decrease tax revenue. 
D) Compared to the original tax, the larger tax will increase deadweight loss.

Question 5

If a tax did not induce buyers or sellers to change their behavior, it would not cause a deadweight loss.

Accepted Answer

A) True 
 B)False

Question 6

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The tax is levied on

Accepted Answer

A) buyers only. 
B) sellers only. 
C) both buyers and sellers. 
D) This is impossible to determine from the figure. 
A) buyers only. 
B) sellers only. 
C) both buyers and sellers. 
D) This is impossible to determine from the figure.

Question 7

Taxes on labor have the effect of encouraging

Accepted Answer

A) workers to work more hours. 
B) the elderly to postpone retirement. 
C) second earners within a family to take a job. 
D) unscrupulous people to take part in the underground economy. 
A) workers to work more hours. 
B) the elderly to postpone retirement. 
C) second earners within a family to take a job. 
D) unscrupulous people to take part in the underground economy.

Question 8

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 9

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 size of the tax is

Accepted Answer

A) P0-P2. 
B) P2-P8. 
C) P2-P5. 
D) P5-P8. 
A) P0-P2. 
B) P2-P8. 
C) P2-P5. 
D) P5-P8.

Question 10

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. 
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.

Question 11

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.  
-Refer to Figure 8-23. If the economy is at point A on the curve, then a decrease in the tax rate will

Accepted Answer

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

Question 12

When a tax is imposed on sellers, producer surplus decreases but consumer surplus increases.

Accepted Answer

A) True 
 B)False

Question 13

Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax

Accepted Answer

A) also doubles. 
B) triples. 
C) quadruples. 
D) rises by a factor of 8. 
A) also doubles. 
B) triples. 
C) quadruples. 
D) rises by a factor of 8.

Question 14

Figure 8-25  
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

Accepted Answer

60 units will be bou

Question 15

Figure 8-19
The vertical distance between points A and B represents the original tax.  
-Refer to Figure 8-19. If the government changed the per-unit tax from $5.00 to $7.50, then the price paid by buyers would be $10.50, the price received by sellers would be $3, and the quantity sold in the market would be 0.5 units. Compared to the original tax rate, this higher tax rate would

Accepted Answer

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

Question 16

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 buyers pay is

Accepted Answer

A) P0. 
B) P2. 
C) P5. 
D) P8. 
A) P0. 
B) P2. 
C) P5. 
D) P8.

Question 17

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The per-unit burden of the tax on buyers is

Accepted Answer

A) $2. 
B) $3. 
C) $4. 
D) $5. 
A) $2. 
B) $3. 
C) $4. 
D) $5.

Question 18

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. When the tax is imposed in this market, the price buyers effectively pay is

Accepted Answer

A) $4. 
B) $6. 
C) $10. 
D) $16. 
A) $4. 
B) $6. 
C) $10. 
D) $16.

Question 19

Scenario 8-2
Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28.
-Refer to Scenario 8-2. Assume Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?

Accepted Answer

A) Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn. 
B) Karla is willing to pay Roland to mow her lawn, but Roland will decline her offer. 
C) Roland is willing to mow Karla's lawn, but Karla will decide to mow her own lawn. 
D) Roland and Karla still can engage in a mutually-agreeable trade. 
A) Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn. 
B) Karla is willing to pay Roland to mow her lawn, but Roland will decline her offer. 
C) Roland is willing to mow Karla's lawn, but Karla will decide to mow her own lawn. 
D) Roland and Karla still can engage in a mutually-agreeable trade.

Question 20

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4. The equilibrium price before the tax is imposed is

Accepted Answer

A) $12, and the equilibrium quantity is 35. 
B) $8, and the equilibrium quantity is 50. 
C) $5, and the equilibrium quantity is 35. 
D) $5, and the equilibrium quantity is 50. 
A) $12, and the equilibrium quantity is 35. 
B) $8, and the equilibrium quantity is 50. 
C) $5, and the equilibrium quantity is 35. 
D) $5, and the equilibrium quantity is 50.

Exam 8: Applications: the Costs of Taxation

Which of the following ideas is the most plausible?

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. What happens to producer surplus when the tax is imposed in this market?

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

Figure 8-22 -Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

If a tax did not induce buyers or sellers to change their behavior, it would not cause a deadweight loss.

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax is levied on

Taxes on labor have the effect of encouraging

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 8-10 -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 size of the tax is

The Laffer curve relates

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-23. If the economy is at point A on the curve, then a decrease in the tax rate will

When a tax is imposed on sellers, producer surplus decreases but consumer surplus increases.

Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax

Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

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 buyers pay is

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The per-unit burden of the tax on buyers is

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. When the tax is imposed in this market, the price buyers effectively pay is

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The equilibrium price before the tax is imposed is

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

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters