Question 1

When a good is taxed,the burden of the tax

Accepted Answer

A) falls more heavily on the side of the market that is more elastic. 
B) falls more heavily on the side of the market that is more inelastic. 
C) falls more heavily on the side of the market that is closer to unit elastic. 
D) is distributed independently of relative elasticities of supply and demand. 
A) falls more heavily on the side of the market that is more elastic. 
B) falls more heavily on the side of the market that is more inelastic. 
C) falls more heavily on the side of the market that is closer to unit elastic. 
D) is distributed independently of relative elasticities of supply and demand.

Question 2

A tax on insulin is likely to cause a tremendous deadweight loss to society.

Accepted Answer

A) True 
 B)False

Question 3

Consider a good to which a per-unit tax applies.The size of the deadweight that results from the tax is smaller,the

Accepted Answer

A) larger is the price elasticity of demand. 
B) smaller is the price elasticity of supply. 
C) larger is the amount of the tax. 
D) All of the above are correct. 
A) larger is the price elasticity of demand. 
B) smaller is the price elasticity of supply. 
C) larger is the amount of the tax. 
D) All of the above are correct.

Question 4

The more freedom people are given to choose the date of their retirement,the

Accepted Answer

A) more elastic is the supply of labor. 
B) less elastic is the supply of labor. 
C) steeper is the labor supply curve. 
D) smaller is the decrease in employment that will result from a tax on labor. 
A) more elastic is the supply of labor. 
B) less elastic is the supply of labor. 
C) steeper is the labor supply curve. 
D) smaller is the decrease in employment that will result from a tax on labor.

Question 5

The loss in total surplus resulting from a tax is called

Accepted Answer

A) a deficit. 
B) economic loss. 
C) deadweight loss. 
D) inefficiency. 
A) a deficit. 
B) economic loss. 
C) deadweight loss. 
D) inefficiency.

Question 6

When the government places a tax on a product,

Accepted Answer

A) the cost of the tax to buyers and sellers is less than the revenue raised from the tax by the government. 
B) the cost of the tax to buyers and sellers is equal to the revenue raised from the tax by the government. 
C) the cost of the tax to buyers and sellers exceeds the revenue raised from the tax by the government. 
D) Without additional information, such as the elasticity of demand for this product, it is impossible to compare the cost of a tax to buyers and sellers with tax revenue. 
A) the cost of the tax to buyers and sellers is less than the revenue raised from the tax by the government. 
B) the cost of the tax to buyers and sellers is equal to the revenue raised from the tax by the government. 
C) the cost of the tax to buyers and sellers exceeds the revenue raised from the tax by the government. 
D) Without additional information, such as the elasticity of demand for this product, it is impossible to compare the cost of a tax to buyers and sellers with tax revenue.

Question 7

Assume the price of gasoline is $2.40 per gallon and the equilibrium quantity of gasoline is 12 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) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent; and the tax on gasoline amounts to $0.40 per gallon. 
B) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent; and the tax on gasoline amounts to $0.40 per gallon. 
C) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent; and the tax on gasoline amounts to $0.35 per gallon. 
D) There is insufficient information to make this determination. 
A) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent; and the tax on gasoline amounts to $0.40 per gallon. 
B) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent; and the tax on gasoline amounts to $0.40 per gallon. 
C) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent; and the tax on gasoline amounts to $0.35 per gallon. 
D) There is insufficient information to make this determination.

Question 8

Suppose the tax on liquor is increased so that the tax goes from being a "medium" tax to being a "large" tax.As a result,it is likely that

Accepted Answer

A) tax revenue increases and the deadweight loss increases. 
B) tax revenue increases and the deadweight loss decreases. 
C) tax revenue decreases and the deadweight loss increases. 
D) tax revenue decreases and the deadweight loss decreases. 
A) tax revenue increases and the deadweight loss increases. 
B) tax revenue increases and the deadweight loss decreases. 
C) tax revenue decreases and the deadweight loss increases. 
D) tax revenue decreases and the deadweight loss decreases.

Question 9

Figure 8-6
  
-Refer to Figure 8-6.As a result of the tax,

Accepted Answer

A) buyers effectively pay $16 for each unit of the good and sellers effectively receive $12 for each unit of the good. 
B) buyers effectively pay $16 for each unit of the good and sellers effectively receive $8 for each unit of the good. 
C) buyers effectively pay $12 for each unit of the good and sellers effectively receive $8 for each unit of the good. 
D) buyers effectively pay $14 for each unit of the good and sellers effectively receive $10 for each unit of the good. 
A) buyers effectively pay $16 for each unit of the good and sellers effectively receive $12 for each unit of the good. 
B) buyers effectively pay $16 for each unit of the good and sellers effectively receive $8 for each unit of the good. 
C) buyers effectively pay $12 for each unit of the good and sellers effectively receive $8 for each unit of the good. 
D) buyers effectively pay $14 for each unit of the good and sellers effectively receive $10 for each unit of the good.

Question 10

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 11

Other things equal,the deadweight loss of a tax

Accepted Answer

A) decreases as the size of the tax increases. 
B) increases as the size of the tax increases, but the increase in the deadweight loss is less rapid than the increase in the size of the tax. 
C) increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax. 
D) increases as the price elasticities of demand and/or supply increase, but the deadweight loss does not change as the size of the tax increases. 
A) decreases as the size of the tax increases. 
B) increases as the size of the tax increases, but the increase in the deadweight loss is less rapid than the increase in the size of the tax. 
C) increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax. 
D) increases as the price elasticities of demand and/or supply increase, but the deadweight loss does not change as the size of the tax increases.

Question 12

In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9?

Accepted Answer

A) The tax on airline tickets increases from $20 per ticket to $60 per ticket. 
B) The tax on airline tickets increases from $20 per ticket to $90 per ticket. 
C) The tax on airline tickets increases from $15 per ticket to $60 per ticket. 
D) The tax on airline tickets increases from $15 per ticket to $135 per ticket. 
A) The tax on airline tickets increases from $20 per ticket to $60 per ticket. 
B) The tax on airline tickets increases from $20 per ticket to $90 per ticket. 
C) The tax on airline tickets increases from $15 per ticket to $60 per ticket. 
D) The tax on airline tickets increases from $15 per ticket to $135 per ticket.

Question 13

Economists disagree on whether labor taxes cause small or large deadweight losses.This disagreement arises primarily because economists hold different views about

Accepted Answer

A) the size of labor taxes. 
B) the importance of labor taxes imposed by the federal government relative to the importance of labor taxes imposed by the various states. 
C) the elasticity of labor supply. 
D) the elasticity of labor demand. 
A) the size of labor taxes. 
B) the importance of labor taxes imposed by the federal government relative to the importance of labor taxes imposed by the various states. 
C) the elasticity of labor supply. 
D) the elasticity of labor demand.

Question 14

If the supply of land is fixed,the burden of a tax on land falls

Accepted Answer

A) partly on landowners and partly on users of land. 
B) entirely on the renters or users of land. 
C) entirely on workers. 
D) entirely on landowners. 
A) partly on landowners and partly on users of land. 
B) entirely on the renters or users of land. 
C) entirely on workers. 
D) entirely on landowners.

Question 15

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

Accepted Answer

A) The price elasticity of demand is small and the price elasticity of supply is large. 
B) The price elasticity of demand is large and the price elasticity of supply is small. 
C) The price elasticity of demand and the price elasticity of supply are both small. 
D) The price elasticity of demand and the price elasticity of supply are both large. 
A) The price elasticity of demand is small and the price elasticity of supply is large. 
B) The price elasticity of demand is large and the price elasticity of supply is small. 
C) The price elasticity of demand and the price elasticity of supply are both small. 
D) The price elasticity of demand and the price elasticity of supply are both large.

Question 16

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 17

When a tax is imposed on the buyers of a good,the demand curve shifts

Accepted Answer

A) downward by the amount of the tax. 
B) upward by the amount of the tax. 
C) downward by less than the amount of the tax. 
D) upward by more than the amount of the tax. 
A) downward by the amount of the tax. 
B) upward by the amount of the tax. 
C) downward by less than the amount of the tax. 
D) upward by more than the amount of the tax.

Question 18

Figure 8-2
  
-Refer to Figure 8-2.The amount of the tax on each unit of the good is

Accepted Answer

A) P₃ - P₁. 
B) P₃ - P₂. 
C) P₂ - P₁. 
D) Q₂ - Q₁. 
A) P₃ - P₁. 
B) P₃ - P₂. 
C) P₂ - P₁. 
D) Q₂ - Q₁.

Question 19

The deadweight loss of a tax rises even more rapidly than the size of the tax.

Accepted Answer

A) True 
 B)False

Question 20

Taxes on labor have the effect of encouraging

Accepted Answer

A) workers to work more hours. 
B) the elderly to postpone retirement. 
C) second earners within a family to take a job. 
D) unscrupulous people to take part in the underground economy. 
A) workers to work more hours. 
B) the elderly to postpone retirement. 
C) second earners within a family to take a job. 
D) unscrupulous people to take part in the underground economy.

Exam 8: Application: the Costs of Taxation

When a good is taxed,the burden of the tax

A tax on insulin is likely to cause a tremendous deadweight loss to society.

Consider a good to which a per-unit tax applies.The size of the deadweight that results from the tax is smaller,the

The more freedom people are given to choose the date of their retirement,the

The loss in total surplus resulting from a tax is called

When the government places a tax on a product,

Assume the price of gasoline is $2.40 per gallon and the equilibrium quantity of gasoline is 12 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?

Suppose the tax on liquor is increased so that the tax goes from being a "medium" tax to being a "large" tax.As a result,it is likely that

Figure 8-6 -Refer to Figure 8-6.As a result of the tax,

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

Other things equal,the deadweight loss of a tax

In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9?

Economists disagree on whether labor taxes cause small or large deadweight losses.This disagreement arises primarily because economists hold different views about

If the supply of land is fixed,the burden of a tax on land falls

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

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 tax is imposed on the buyers of a good,the demand curve shifts

Figure 8-2 -Refer to Figure 8-2.The amount of the tax on each unit of the good is

The deadweight loss of a tax rises even more rapidly than the size of the tax.

Taxes on labor have the effect of encouraging

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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