Question 1

When a tax is levied on buyers, the

Accepted Answer

A) supply curves shifts upward by the amount of the tax. 
B) tax creates a wedge between the price buyers pay and the price sellers receive. 
C) tax has no effect on the well-being of sellers. 
D) buyers bear the entire burden of the tax. 
A) supply curves shifts upward by the amount of the tax. 
B) tax creates a wedge between the price buyers pay and the price sellers receive. 
C) tax has no effect on the well-being of sellers. 
D) buyers bear the entire burden of the tax.

Question 2

The larger the deadweight loss from taxation, the larger the cost of government programs.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements regarding a Laffer curve 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 4

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 5

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

Accepted Answer

A) True 
 B)False

Question 6

Taxes on labor tend to encourage the elderly to retire early.

Accepted Answer

A) True 
 B)False

Question 7

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 8

Figure 8-13
  
-Refer to Figure 8-13. As the size of the tax increases from $3 to $6 to $9, what happens to tax revenues?

Accepted Answer

When the tax is $3, tax revenue is $3 x

Question 9

The more elastic the supply, the larger the deadweight loss from a tax, all else equal.

Accepted Answer

A) True 
 B)False

Question 10

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

Accepted Answer

A) True 
 B)False

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 consumer surplus after the tax is imposed?

Accepted Answer

Consumer surplus is

Question 12

The Social Security tax is a labor tax.

Accepted Answer

A) True 
 B)False

Question 13

Figure 8-1  
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents

Accepted Answer

A) consumer surplus after the tax. 
B) consumer surplus before the tax. 
C) producer surplus after the tax. 
D) producer surplus before the tax. 
A) consumer surplus after the tax. 
B) consumer surplus before the tax. 
C) producer surplus after the tax. 
D) producer surplus before the tax.

Question 14

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Accepted Answer

A) True 
 B)False

Question 15

Figure 8-1  
-Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by L + M + Y represents

Accepted Answer

A) consumer surplus after the tax. 
B) consumer surplus before the tax. 
C) producer surplus after the tax. 
D) producer surplus before the tax. 
A) consumer surplus after the tax. 
B) consumer surplus before the tax. 
C) producer surplus after the tax. 
D) producer surplus before the tax.

Question 16

Suppose the demand curve and the supply curve in a market are both linear. To begin, there was a $5 tax per unit, and the $5 tax resulted in a deadweight loss of $1,500. Now, the tax per unit is higher, with the higher tax resulting in a deadweight loss of $6,000. What is the amount of the new tax per unit?

Accepted Answer

The new tax per unit is $10. D

Question 17

Taxes create deadweight losses.

Accepted Answer

A) True 
 B)False

Question 18

Figure 8-2
The vertical distance between points C and D represents a tax in the market.
​   ​
​
​
​
-Refer to Figure 8-2. The amount of tax revenue received by the government is

Accepted Answer

A) $2. 
B) $24. 
C) $20. 
D) $12. 
A) $2. 
B) $24. 
C) $20. 
D) $12.

Question 19

Figure 8-10
​
   ​
-Refer to Figure 8-10. Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Accepted Answer

Total tax revenue will increas

Question 20

Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:
 $$Q ^ { D } = 200 - ( P + T )$$ If T = 40, how much will be the deadweight loss from this tax?

Accepted Answer

The deadwe

Exam 8: Applications: The Costs of Taxation

When a tax is levied on buyers, the

The larger the deadweight loss from taxation, the larger the cost of government programs.

Which of the following statements regarding a Laffer curve is the most plausible?

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

Taxes on labor tend to encourage the elderly to retire early.

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.

Figure 8-13 -Refer to Figure 8-13. As the size of the tax increases from $3 to $6 to $9, what happens to tax revenues?

The more elastic the supply, the larger the deadweight loss from a tax, all else equal.

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

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

The Social Security tax is a labor tax.

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P'-P'''. The area measured by L + M + Y represents

Taxes create deadweight losses.

Figure 8-2 The vertical distance between points C and D represents a tax in the market. ​ ​ ​ ​ ​ -Refer to Figure 8-2. The amount of tax revenue received by the government is

Figure 8-10 ​ ​ -Refer to Figure 8-10. Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

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)Q ^ { D } = 200 - ( P + T )QD=200−(P+T) If T = 40, how much will be the deadweight loss from this tax?

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 consumer surplus after the tax is imposed?

Figure 8-2 The vertical distance between points C and D represents a tax in the market. -Refer to Figure 8-2. The amount of tax revenue received by the government is

Figure 8-10 -Refer to Figure 8-10. Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: $Q ^ { D } = 200 - ( P + T )$ If T = 40, how much will be the deadweight loss from this tax?