Question 1

Figure 8-3
The vertical distance between points A and C represents a tax in the market.
  
-Refer to Figure 8-3.The per unit burden of the tax on buyers is

Accepted Answer

A)  P3 - P1. 
B)  P3 - P2. 
C)  P2 - P1. 
D)  P4 - P3. 
A)  P3 - P1. 
B)  P3 - P2. 
C)  P2 - P1. 
D)  P4 - P3.

Question 2

When a tax is imposed on sellers,consumer surplus and producer surplus both decrease.

Accepted Answer

A) True 
 B)False

Question 3

If the size of a tax triples,the deadweight loss increases by a factor of six.

Accepted Answer

A) True 
 B)False

Question 4

If the labor supply curve is very elastic,a tax on labor

Accepted Answer

A)  has a large deadweight loss. 
B)  raises enough tax revenue to offset the loss in welfare. 
C)  has a relatively small impact on the number of hours that workers choose to work. 
D)  results in a large tax burden on the firms that hire labor. 
A)  has a large deadweight loss. 
B)  raises enough tax revenue to offset the loss in welfare. 
C)  has a relatively small impact on the number of hours that workers choose to work. 
D)  results in a large tax burden on the firms that hire labor.

Question 5

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.

Question 6

The Social Security tax is a labor tax.

Accepted Answer

A) True 
 B)False

Question 7

A tax on a good causes the size of the market to shrink.

Accepted Answer

A) True 
 B)False

Question 8

Scenario 8-1
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week.
-Refer to Scenario 8-1.Assume Erin is required to pay a tax of $15 when she hires someone to clean her house.Which of the following is true?

Accepted Answer

A)  Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline. 
B)  Ernesto will continue to clean Erin's house, and his producer surplus will increase. 
C)  Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will decrease. 
D)  All of the above are correct. 
A)  Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline. 
B)  Ernesto will continue to clean Erin's house, and his producer surplus will increase. 
C)  Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will decrease. 
D)  All of the above are correct.

Question 9

Assume the price of gasoline is $2.00 per gallon,and the equilibrium quantity of gasoline is 10 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)  The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.20 per gallon. 
B)  The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.4; and the gasoline tax amounts to $0.20 per gallon. 
C)  The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon. 
D)  There is insufficient information to make this determination. 
A)  The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.20 per gallon. 
B)  The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.4; and the gasoline tax amounts to $0.20 per gallon. 
C)  The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon. 
D)  There is insufficient information to make this determination.

Question 10

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 11

Figure 8-4
The vertical distance between points A and B represents a tax in the market.
  
-Refer to Figure 8-4.The price that buyers effectively pay after the tax is imposed is

Accepted Answer

A)  $12. 
B)  between $8 and $12. 
C)  between $5 and $8. 
D)  $5. 
A)  $12. 
B)  between $8 and $12. 
C)  between $5 and $8. 
D)  $5.

Question 12

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 13

The deadweight loss from a $3 tax will be largest in a market with

Accepted Answer

A)  inelastic supply and elastic demand. 
B)  inelastic supply and inelastic demand. 
C)  elastic supply and elastic demand. 
D)  elastic supply and inelastic demand. 
A)  inelastic supply and elastic demand. 
B)  inelastic supply and inelastic demand. 
C)  elastic supply and elastic demand. 
D)  elastic supply and inelastic demand.

Question 14

According to Arthur Laffer,the graph that represents the amount of tax revenue (measured on the vertical axis)as a function of the size of the tax (measured on the horizontal axis)looks like

Accepted Answer

A)  a U. 
B)  an upside-down U. 
C)  a horizontal straight line. 
D)  an upward-sloping line or curve. 
A)  a U. 
B)  an upside-down U. 
C)  a horizontal straight line. 
D)  an upward-sloping line or curve.

Question 15

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

Accepted Answer

A)  buyers of the good will bear most of the burden of the tax. 
B)  sellers of the good will bear most of the burden of the tax. 
C)  buyers and sellers will each bear 50 percent of the burden of the tax. 
D)  both equilibrium price and quantity will increase. 
A)  buyers of the good will bear most of the burden of the tax. 
B)  sellers of the good will bear most of the burden of the tax. 
C)  buyers and sellers will each bear 50 percent of the burden of the tax. 
D)  both equilibrium price and quantity will increase.

Question 16

Figure 8-6
The vertical distance between points A and B represents a tax in the market.
  
-Refer to Figure 8-6.What happens to producer surplus when the tax is imposed in this market?

Accepted Answer

A)  Producer surplus falls by $600. 
B)  Producer surplus falls by $900. 
C)  Producer surplus falls by $1,800. 
D)  Producer surplus falls by $2,100. 
A)  Producer surplus falls by $600. 
B)  Producer surplus falls by $900. 
C)  Producer surplus falls by $1,800. 
D)  Producer surplus falls by $2,100.

Question 17

A tax on a good causes the size of the market to increase.

Accepted Answer

A) True 
 B)False

Question 18

Figure 8-10
  
-Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.With the tax,the total surplus is

Accepted Answer

A)  [   x (P0-P5) x Q5] + [   x (P5-0) x Q5]. 
B)  [   x (P0-P2) x Q2] +[(P2-P8) x Q2] + [   x (P8-0) x Q2]. 
C)  (P2-P8) x Q2. 
D)    x (P2-P8) x (Q5-Q2). 
A)  [   x (P0-P5) x Q5] + [   x (P5-0) x Q5]. 
B)  [   x (P0-P2) x Q2] +[(P2-P8) x Q2] + [   x (P8-0) x Q2]. 
C)  (P2-P8) x Q2. 
D)    x (P2-P8) x (Q5-Q2).

Question 19

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100.If the tax is increased to $2.50 per unit,the deadweight loss from the new tax would be

Accepted Answer

A)  $200. 
B)  $250. 
C)  $500. 
D)  $2,500. 
A)  $200. 
B)  $250. 
C)  $500. 
D)  $2,500.

Question 20

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 the tax on each unit of the good is

Accepted Answer

A)  $5. 
B)  $7. 
C)  $8. 
D)  $12. 
A)  $5. 
B)  $7. 
C)  $8. 
D)  $12.

Exam 8: Application: The Costs of Taxation.

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3.The per unit burden of the tax on buyers is

When a tax is imposed on sellers,consumer surplus and producer surplus both decrease.

If the size of a tax triples,the deadweight loss increases by a factor of six.

If the labor supply curve is very elastic,a tax on labor

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

The Social Security tax is a labor tax.

A tax on a good causes the size of the market to shrink.

Assume the price of gasoline is $2.00 per gallon,and the equilibrium quantity of gasoline is 10 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?

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

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4.The price that buyers effectively pay after the tax is imposed is

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

The deadweight loss from a $3 tax will be largest in a market with

According to Arthur Laffer,the graph that represents the amount of tax revenue (measured on the vertical axis)as a function of the size of the tax (measured on the horizontal axis)looks like

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6.What happens to producer surplus when the tax is imposed in this market?

A tax on a good causes the size of the market to increase.

Figure 8-10 -Refer to Figure 8-10.Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2.With the tax,the total surplus is

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100.If the tax is increased to $2.50 per unit,the deadweight loss from the new tax would be

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 the tax on each unit of the good 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 Market For the Factors of Production.

Earnings and Discrimination.

Income Inequality and Poverty.

The Theory of Consumer Choice.

Frontiers in Microeconomics.

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