Question 1

The amount of deadweight loss from a tax depends upon the

Accepted Answer

A) price elasticity of demand. 
B) price elasticity of supply. 
C) amount of the tax per unit. 
D) All of the above are correct. 
A) price elasticity of demand. 
B) price elasticity of supply. 
C) amount of the tax per unit. 
D) All of the above are correct.

Question 2

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

Accepted Answer

A) As the size of the tax increases, tax revenue continually rises and deadweight loss continually falls. 
B) As the size of the tax increases, tax revenue and deadweight loss rise initially, but both eventually begin to fall. 
C) As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises. 
D) As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss falls initially, but eventually it begins to rise. 
A) As the size of the tax increases, tax revenue continually rises and deadweight loss continually falls. 
B) As the size of the tax increases, tax revenue and deadweight loss rise initially, but both eventually begin to fall. 
C) As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises. 
D) As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss falls initially, but eventually it begins to rise.

Question 3

Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

Accepted Answer

A) True 
 B)False

Question 4

Taxes cause deadweight losses because they

Accepted Answer

A) lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. 
B) distort incentives to both buyers and sellers. 
C) prevent buyers and sellers from realizing some of the gains from trade. 
D) All of the above are correct. 
A) lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. 
B) distort incentives to both buyers and sellers. 
C) prevent buyers and sellers from realizing some of the gains from trade. 
D) All of the above are correct.

Question 5

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4. The amount of tax revenue received by the government is equal to

Accepted Answer

A) $245. 
B) $350. 
C) $490. 
D) $700. 
A) $245. 
B) $350. 
C) $490. 
D) $700.

Question 6

When a good is taxed,

Accepted Answer

A) both buyers and sellers of the good are made worse off. 
B) only buyers are made worse off, because they ultimately bear the burden of the tax. 
C) only sellers are made worse off, because they ultimately bear the burden of the tax. 
D) neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy. 
A) both buyers and sellers of the good are made worse off. 
B) only buyers are made worse off, because they ultimately bear the burden of the tax. 
C) only sellers are made worse off, because they ultimately bear the burden of the tax. 
D) neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy.

Question 7

Figure 8-11  
-Refer to Figure 8-11. The price labeled as P2 on the vertical axis represents the

Accepted Answer

A) difference between the price paid by buyers after the tax is imposed and the price paid by buyers before the tax is imposed. 
B) difference between the price received by sellers before the tax is imposed and the price received by sellers after the tax is imposed. 
C) price of the good before the tax is imposed. 
D) price of the good after the tax is imposed. 
A) difference between the price paid by buyers after the tax is imposed and the price paid by buyers before the tax is imposed. 
B) difference between the price received by sellers before the tax is imposed and the price received by sellers after the tax is imposed. 
C) price of the good before the tax is imposed. 
D) price of the good after the tax is imposed.

Question 8

Figure 8-13  
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The amount of tax revenue collected by the government is

Accepted Answer

A) $120. 
B) $80. 
C) $50. 
D) $30. 
A) $120. 
B) $80. 
C) $50. 
D) $30.

Question 9

A tax on a good

Accepted Answer

A) gives buyers an incentive to buy less of the good than they otherwise would buy. 
B) gives sellers an incentive to produce more of the good than they otherwise would produce. 
C) creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers. 
D) All of the above are correct. 
A) gives buyers an incentive to buy less of the good than they otherwise would buy. 
B) gives sellers an incentive to produce more of the good than they otherwise would produce. 
C) creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers. 
D) All of the above are correct.

Question 10

The most important tax in the U.S. economy is the tax on corporations' profits.

Accepted Answer

A) True 
 B)False

Question 11

As more people become self-employed, which allows them to determine how many hours they work per week, we would expect the deadweight loss from the Social Security tax to

Accepted Answer

A) increase, and the revenue generated from the tax to increase. 
B) increase, and the revenue generated from the tax to decrease. 
C) decrease, and the revenue generated from the tax to increase. 
D) decrease, and the revenue generated from the tax to decrease. 
A) increase, and the revenue generated from the tax to increase. 
B) increase, and the revenue generated from the tax to decrease. 
C) decrease, and the revenue generated from the tax to increase. 
D) decrease, and the revenue generated from the tax to decrease.

Question 12

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

Accepted Answer

A) smaller is the response of quantity supplied to the tax. 
B) larger is the tax burden on sellers relative to the tax burden on buyers. 
C) larger is the deadweight loss of the tax. 
D) All of the above are correct. 
A) smaller is the response of quantity supplied to the tax. 
B) larger is the tax burden on sellers relative to the tax burden on buyers. 
C) larger is the deadweight loss of the tax. 
D) All of the above are correct.

Question 13

If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.

Accepted Answer

A) True 
 B)False

Question 14

With linear demand and supply curves in a market, suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40. If the tax is increased to $0.50 per unit, the deadweight loss from the new tax will be

Accepted Answer

A) $200. 
B) $250. 
C) $475. 
D) $625. 
A) $200. 
B) $250. 
C) $475. 
D) $625.

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 $2.50, then the price paid by buyers would be $7.50, the price received by sellers would be $5, and the quantity sold in the market would be 1.5 units. Compared to the original tax rate, this lower 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 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. Consumer surplus before the tax was levied is represented by area

Accepted Answer

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

Question 17

Which of the following is a tax on labor?

Accepted Answer

A) Medicare tax 
B) inheritance tax 
C) sales tax 
D) All of the above are labor taxes. 
A) Medicare tax 
B) inheritance tax 
C) sales tax 
D) All of the above are labor taxes.

Question 18

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

Accepted Answer

A) $80, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
B) $80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. 
C) $60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
D) $60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. 
A) $80, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
B) $80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. 
C) $60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
D) $60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.

Question 19

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to

Accepted Answer

A) decrease by $2. 
B) increase by $3. 
C) decrease by $4. 
D) increase by $5. 
A) decrease by $2. 
B) increase by $3. 
C) decrease by $4. 
D) increase by $5.

Question 20

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The benefit to the government is measured by

Accepted Answer

A) tax revenue and is represented by area A+B. 
B) tax revenue and is represented by area B+D. 
C) the net gain in total surplus and is represented by area B+D. 
D) the net gain in total surplus and is represented by area C+H. 
A) tax revenue and is represented by area A+B. 
B) tax revenue and is represented by area B+D. 
C) the net gain in total surplus and is represented by area B+D. 
D) the net gain in total surplus and is represented by area C+H.

Exam 8: Applications: the Costs of Taxation

The amount of deadweight loss from a tax depends upon the

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

Taxes cause deadweight losses because they

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The amount of tax revenue received by the government is equal to

When a good is taxed,

Figure 8-11 -Refer to Figure 8-11. The price labeled as P2 on the vertical axis represents the

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The amount of tax revenue collected by the government is

A tax on a good

The most important tax in the U.S. economy is the tax on corporations' profits.

As more people become self-employed, which allows them to determine how many hours they work per week, we would expect the deadweight loss from the Social Security tax to

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

If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.

With linear demand and supply curves in a market, suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40. If the tax is increased to $0.50 per unit, the deadweight loss from the new tax will be

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. Consumer surplus before the tax was levied is represented by area

Which of the following is a tax on labor?

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The benefit to the government is measured by

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

Figure 8-11 -Refer to Figure 8-11. The price labeled as P₂ on the vertical axis represents the