Question 1

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is

Accepted Answer

A) smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax. 
B) bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers. 
C) a right triangle. 
D) a triangle, but not necessarily a right triangle. 
A) smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax. 
B) bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers. 
C) a right triangle. 
D) a triangle, but not necessarily a right triangle.

Question 2

Figure 8-3
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-3. As a result of the tax,

Accepted Answer

A) consumer surplus decreases from $200 to $80. 
B) producer surplus decreases from $200 to $145. 
C) the market experiences a deadweight loss of $80. 
D) total surplus increases from $180 to $200. 
A) consumer surplus decreases from $200 to $80. 
B) producer surplus decreases from $200 to $145. 
C) the market experiences a deadweight loss of $80. 
D) total surplus increases from $180 to $200.

Question 3

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low.

Accepted Answer

A) True 
 B)False

Question 4

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Accepted Answer

A) True 
 B)False

Question 5

A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases producer surplus by $600 per day, generates tax revenue of $1,220 per day, and decreases the equilibrium quantity of potato chips by 120 bags per day. The tax

Accepted Answer

A) decreases consumer surplus by $645 per day. 
B) decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day. 
C) decreases total surplus from $3,000 to $1,800 per day. 
D) creates a deadweight loss of $15 per day. 
A) decreases consumer surplus by $645 per day. 
B) decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day. 
C) decreases total surplus from $3,000 to $1,800 per day. 
D) creates a deadweight loss of $15 per day.

Question 6

To fully understand how taxes affect economic well-being, we must

Accepted Answer

A) assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed. 
B) compare the taxes raised in the United States with those raised in France. 
C) compare the reduced welfare of buyers and sellers to the amount of revenue the government raises. 
D) remember that taxes reduce the welfare of buyers, increase the welfare of sellers, and raise government revenue. 
A) assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed. 
B) compare the taxes raised in the United States with those raised in France. 
C) compare the reduced welfare of buyers and sellers to the amount of revenue the government raises. 
D) remember that taxes reduce the welfare of buyers, increase the welfare of sellers, and raise government revenue.

Question 7

A tax levied on the buyers of a good shifts the

Accepted Answer

A) demand curve downward (or to the left). 
B) supply curve upward (or to the left). 
C) supply curve downward (or to the right). 
D) demand curve upward (or to the right). 
A) demand curve downward (or to the left). 
B) supply curve upward (or to the left). 
C) supply curve downward (or to the right). 
D) demand curve upward (or to the right).

Question 8

The idea that tax cuts would increase the quantity of labor supplied, thus increasing tax revenue, became known as supply-side economics.

Accepted Answer

A) True 
 B)False

Question 9

For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 250 units. The deadweight loss from the tax is

Accepted Answer

A) $3,750. 
B) $1,875. 
C) $132.5. 
D) $117.5. 
A) $3,750. 
B) $1,875. 
C) $132.5. 
D) $117.5.

Question 10

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 11

Figure 8-10
​
   ​
-Refer to Figure 8-10. Suppose the government places a $3 tax per unit on this good. How much is total surplus after the tax is imposed?

Accepted Answer

Total surplus is the sum of co

Question 12

In the market for doodads, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for doodads is 150 per month when there is no tax. Then a tax of $3 per doodad is imposed. As a result, the government is able to raise $300 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by

Accepted Answer

A) 50 per month. 
B) 100 per month. 
C) 150 per month. 
D) 53 per month. 
A) 50 per month. 
B) 100 per month. 
C) 150 per month. 
D) 53 per month.

Question 13

If the tax on a good is increased from $1 per unit to $4 per unit, the deadweight loss from the tax increases by a factor of

Accepted Answer

A) 5. 
B) 9. 
C) 16. 
D) 24. 
A) 5. 
B) 9. 
C) 16. 
D) 24.

Question 14

Kate is a personal trainer whose client William pays $80 per hour-long session. William values this service at $100 per hour, while the opportunity cost of Kate's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training?

Accepted Answer

A) Kate and William will agree to a new price somewhere between $85 and $100. 
B) Kate and William will agree to a new price somewhere between $70 and $110. 
C) Kate will no longer offer personal training services to William because she must charge more than $100 in order to cover her opportunity costs and pay the tax. 
D) The price will remain at $80, and Kate will pay the $10 tax. 
A) Kate and William will agree to a new price somewhere between $85 and $100. 
B) Kate and William will agree to a new price somewhere between $70 and $110. 
C) Kate will no longer offer personal training services to William because she must charge more than $100 in order to cover her opportunity costs and pay the tax. 
D) The price will remain at $80, and Kate will pay the $10 tax.

Question 15

Which of the following scenarios is consistent with the Laffer curve?

Accepted Answer

A) An increase in the tax rate always increases tax revenue. 
B) The tax rate is 1 percent, and tax revenue is very high. 
C) The tax rate is 99 percent, and tax revenue is very high. 
D) A decrease in the tax rate always increases tax revenue. 
A) An increase in the tax rate always increases tax revenue. 
B) The tax rate is 1 percent, and tax revenue is very high. 
C) The tax rate is 99 percent, and tax revenue is very high. 
D) A decrease in the tax rate always increases tax revenue.

Question 16

The size of a tax and the deadweight loss that results from the tax are

Accepted Answer

A) positively related. 
B) negatively related. 
C) independent of each other. 
D) equal to each other. 
A) positively related. 
B) negatively related. 
C) independent of each other. 
D) equal to each other.

Question 17

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 18

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

Accepted Answer

A) True 
 B)False

Question 19

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will

Accepted Answer

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

Question 20

Scenario 8-3
​
Suppose the market demand and market supply curves are given by the equations:
​
QS1U1P1D S1S1P0= 200 - P
-Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:
QD = 200 - (P + T)
If T = 40, how many units will be bought and sold after the tax is imposed?

Accepted Answer

120 units will be bo

Exam 8: Applications: The Costs of Taxation

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is

Figure 8-3 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-3. As a result of the tax,

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low.

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases producer surplus by $600 per day, generates tax revenue of $1,220 per day, and decreases the equilibrium quantity of potato chips by 120 bags per day. The tax

To fully understand how taxes affect economic well-being, we must

A tax levied on the buyers of a good shifts the

The idea that tax cuts would increase the quantity of labor supplied, thus increasing tax revenue, became known as supply-side economics.

For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 250 units. The deadweight loss from the tax is

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

Figure 8-10 ​ ​ -Refer to Figure 8-10. Suppose the government places a $3 tax per unit on this good. How much is total surplus after the tax is imposed?

If the tax on a good is increased from $1 per unit to $4 per unit, the deadweight loss from the tax increases by a factor of

Which of the following scenarios is consistent with the Laffer curve?

The size of a tax and the deadweight loss that results from the tax are

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

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will

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 Nations 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 8-10 -Refer to Figure 8-10. Suppose the government places a $3 tax per unit on this good. How much is total surplus after the tax is imposed?