Question 1

The decrease in total surplus that results from a market distortion, such as a tax, is called a

Accepted Answer

A) wedge loss. 
B) revenue loss. 
C) deadweight loss. 
D) consumer surplus loss. 
A) wedge loss. 
B) revenue loss. 
C) deadweight loss. 
D) consumer surplus loss.

Question 2

In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9?

Accepted Answer

A) The tax on airline tickets increases from $20 per ticket to $60 per ticket. 
B) The tax on airline tickets increases from $20 per ticket to $90 per ticket. 
C) The tax on airline tickets increases from $15 per ticket to $60 per ticket. 
D) The tax on airline tickets increases from $15 per ticket to $135 per ticket. 
A) The tax on airline tickets increases from $20 per ticket to $60 per ticket. 
B) The tax on airline tickets increases from $20 per ticket to $90 per ticket. 
C) The tax on airline tickets increases from $15 per ticket to $60 per ticket. 
D) The tax on airline tickets increases from $15 per ticket to $135 per ticket.

Question 3

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

Accepted Answer

A) California economics. 
B) welfare economics. 
C) supply-side economics. 
D) elasticity economics. 
A) California economics. 
B) welfare economics. 
C) supply-side economics. 
D) elasticity economics.

Question 4

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 5

Which of the following scenarios is not consistent with the Laffer curve?

Accepted Answer

A) The tax rate is very low, and tax revenue is very low. 
B) The tax rate is very high, and tax revenue is very low. 
C) The tax rate is very high, and tax revenue is very high. 
D) The tax rate is moderate (between very high and very low), and tax revenue is relatively high. 
A) The tax rate is very low, and tax revenue is very low. 
B) The tax rate is very high, and tax revenue is very low. 
C) The tax rate is very high, and tax revenue is very high. 
D) The tax rate is moderate (between very high and very low), and tax revenue is relatively high.

Question 6

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 $10 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 still is willing to pay Roland to mow her lawn, but Roland will decline her offer. 
C) Roland still 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 still is willing to pay Roland to mow her lawn, but Roland will decline her offer. 
C) Roland still 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 7

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 8

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 9

Figure 8-9
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-9. The loss of consumer surplus as a result of the tax is

Accepted Answer

A) $2,000. 
B) $4,000. 
C) $6,000. 
D) $8,000. 
A) $2,000. 
B) $4,000. 
C) $6,000. 
D) $8,000.

Exam 8: Applications: the Costs of Taxation

The decrease in total surplus that results from a market distortion, such as a tax, is called a

In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9?

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

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

Which of the following scenarios is not consistent with the Laffer curve?

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?

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

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The loss of consumer surplus as a result of the tax 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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