Exam 8: Application: the Costs of Taxation

According to the famous economist Milton Friedman, the 'least bad' tax is a tax on:

'Assume that the supply of forest products is relatively inelastic and the supply of coffee is relatively elastic'.According to this statement, suppose both forest products and coffee have the same percentage tax applied to them, the fall in quantity supplied of forest products will be:

A tax on land will distort economic incentives unless the tax applies only to raw (unimproved) land.

According to the information provided, if Jane cleans Joe's house, the consumer surplus is:

If an economy is on the downward sloping section of the Laffer curve, then decreasing taxes would lead to an increase in tax revenue.

Graph 8-1 -According to Graph 8-1, the loss in total welfare resulting from the levying of the tax is represented by area:

Taxes are costly to market participants because they transfer resources from those participants to the government, even though they do not usually distort incentives or resource allocation.

Graph 8-3 -According to Graph 8-3, consumer surplus before the tax is levied equals:

The appropriate measure of the benefit from a tax is the:

Taxes cause deadweight losses because they prevent buyers and sellers from realising some of the gains from trade.

Suppose the supply curve becomes more inelastic, but nothing else changes.This implies that the deadweight loss of a tax will be smaller.

Studies indicate that if income tax rates in Sweden had been reduced, income tax collections would have:

When a tax is levied on a good:

Deadweight loss is the:

Graph 8-1 -According to Graph 8-1, after the tax is levied, consumer surplus is represented by area:

Labour taxes encourage workers to work fewer hours, second earners to stay at home, the elderly to retire early, and the unscrupulous to engage in illegal activities.

Suppose the demand curve becomes more elastic, but nothing else changes, this implies that the deadweight loss from a given tax will be smaller.

The benefit received by the sellers of a good in a market is measured by:

The effect of a tax on a good makes both sellers and buyers better off.

Government revenue from a tax equals the sum of the lost producer surplus and lost consumer surplus.