Question 1

Supply-side economics is a term associated with the views of

Accepted Answer

A) Ronald Reagan and Arthur Laffer. 
B) Karl Marx. 
C) Bill Clinton and Greg Mankiw. 
D) Milton Friedman. 
A) Ronald Reagan and Arthur Laffer. 
B) Karl Marx. 
C) Bill Clinton and Greg Mankiw. 
D) Milton Friedman.

Question 2

Figure 8-26  
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is producer surplus after the tax is imposed?

Accepted Answer

Producer surplus is

Question 3

Scenario 8-3
Suppose the market demand and market supply curves are given by the equations:  
-Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:   
If T = 40, what price will buyers pay and what price will sellers receive?

Accepted Answer

Buyers will pay $80

Question 4

When a tax is imposed on buyers, consumer surplus and producer surplus both decrease.

Accepted Answer

A) True 
 B)False

Question 5

Figure 8-14  
-Refer to Figure 8-14. Which of the following statements is correct?

Accepted Answer

A) Supply 1 is more elastic than supply 2. 
B) Demand 2 is more elastic than demand 1. 
C) Demand 1 is more elastic than supply 1. 
D) All of the above are correct. 
A) Supply 1 is more elastic than supply 2. 
B) Demand 2 is more elastic than demand 1. 
C) Demand 1 is more elastic than supply 1. 
D) All of the above are correct.

Question 6

When a tax on a good is enacted,

Accepted Answer

A) buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers. 
B) buyers always bear the full burden of the tax. 
C) sellers always bear the full burden of the tax. 
D) sellers bear the full burden of the tax if the tax is levied on them; buyers bear the full burden of the tax if the tax is levied on them. 
A) buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers. 
B) buyers always bear the full burden of the tax. 
C) sellers always bear the full burden of the tax. 
D) sellers bear the full burden of the tax if the tax is levied on them; buyers bear the full burden of the tax if the tax is levied on them.

Question 7

When a tax is imposed on a good, consumer surplus decreases and producer surplus remains unchanged.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

Consumer s

Question 9

Figure 8-14  
-Refer to Figure 8-14. Which of the following combinations will maximize the deadweight loss from a tax?

Accepted Answer

A) supply 1 and demand 1 
B) supply 2 and demand 2 
C) supply 1 and demand 2 
D) supply 2 and demand 1 
A) supply 1 and demand 1 
B) supply 2 and demand 2 
C) supply 1 and demand 2 
D) supply 2 and demand 1

Question 10

The benefit to buyers of participating in a market is measured by

Accepted Answer

A) the price elasticity of demand. 
B) consumer surplus. 
C) the maximum amount that buyers are willing to pay for the good. 
D) the equilibrium price. 
A) the price elasticity of demand. 
B) consumer surplus. 
C) the maximum amount that buyers are willing to pay for the good. 
D) the equilibrium price.

Question 11

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

Accepted Answer

A) $250. 
B) $500. 
C) $750. 
D) $1,000. 
A) $250. 
B) $500. 
C) $750. 
D) $1,000.

Question 12

Suppose the government increases the size of a tax by 20 percent. The deadweight loss from that tax

Accepted Answer

A) increases by 20 percent. 
B) increases by more than 20 percent. 
C) increases but by less than 20 percent. 
D) decreases by 20 percent. 
A) increases by 20 percent. 
B) increases by more than 20 percent. 
C) increases but by less than 20 percent. 
D) decreases by 20 percent.

Question 13

The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.

Accepted Answer

A) True 
 B)False

Question 14

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. 
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.

Question 15

Suppose that instead of a supply-demand diagram, you are given the following information:
Qs = 100 + 3P
Qd = 400 - 2P
From this information compute equilibrium price and quantity. Now suppose that a tax is placed on buyers so that
Qd = 400 - 2(P + T).
If T = 15, solve for the new equilibrium price and quantity. (Note: P is the price received by sellers and P + T is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers. What does this show you?

Accepted Answer

Prior to the tax, the equilibrium price

Question 16

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the total surplus?

Accepted Answer

A) $50 
B) $30 
C) $25 
D) $0 
A) $50 
B) $30 
C) $25 
D) $0

Question 17

Figure 8-29  
-Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to the deadweight loss from the tax?

Accepted Answer

When the tax is $3, deadweight loss is 0

Question 18

When the government imposes taxes on buyers or sellers of a good, society

Accepted Answer

A) loses some of the benefits of market efficiency. 
B) gains efficiency but loses equality. 
C) is better off because the government's tax revenues exceed the deadweight loss. 
D) moves from an elastic supply curve to an inelastic supply curve. 
A) loses some of the benefits of market efficiency. 
B) gains efficiency but loses equality. 
C) is better off because the government's tax revenues exceed the deadweight loss. 
D) moves from an elastic supply curve to an inelastic supply curve.

Question 19

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. The tax causes consumer surplus to decrease by the area

Accepted Answer

A) A. 
B) B+C. 
C) A+B+C. 
D) A+B+C+D+F. 
A) A. 
B) B+C. 
C) A+B+C. 
D) A+B+C+D+F.

Question 20

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. The per-unit burden of the tax on sellers is

Accepted Answer

A) P3 - P1. 
B) P3 - P2. 
C) P2 - P1. 
D) P4 - P3. 
A) P3 - P1. 
B) P3 - P2. 
C) P2 - P1. 
D) P4 - P3.

Exam 8: Applications: the Costs of Taxation

Supply-side economics is a term associated with the views of

Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is producer surplus after the tax is imposed?

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: If T = 40, what price will buyers pay and what price will sellers receive?

When a tax is imposed on buyers, consumer surplus and producer surplus both decrease.

Figure 8-14 -Refer to Figure 8-14. Which of the following statements is correct?

When a tax on a good is enacted,

When a tax is imposed on a good, consumer surplus decreases and producer surplus remains unchanged.

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

Figure 8-14 -Refer to Figure 8-14. Which of the following combinations will maximize the deadweight loss from a tax?

The benefit to buyers of participating in a market is measured by

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

Suppose the government increases the size of a tax by 20 percent. The deadweight loss from that tax

The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.

Deadweight loss is the

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the total surplus?

Figure 8-29 -Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to the deadweight loss from the tax?

When the government imposes taxes on buyers or sellers of a good, society

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The tax causes consumer surplus to decrease by the area

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The per-unit burden of the tax on sellers 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

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