Question 1

The Laffer Curve indicates that

Accepted Answer

A) when tax rates are high,a rate reduction may lead to an increase in tax revenue. 
B) when tax rates are low,an increase in tax rates will generally lead to a reduction in tax revenues. 
C) an increase in tax rates will always lead to an increase in tax revenues. 
D) the deadweight losses resulting from taxation are small at the tax rate that maximizes the revenues derived by the government. 
A) when tax rates are high,a rate reduction may lead to an increase in tax revenue. 
B) when tax rates are low,an increase in tax rates will generally lead to a reduction in tax revenues. 
C) an increase in tax rates will always lead to an increase in tax revenues. 
D) the deadweight losses resulting from taxation are small at the tax rate that maximizes the revenues derived by the government.

Question 2

Which of the following generalizations about the benefit of a subsidy is correct?

Accepted Answer

A) The more inelastic the supply of a product,the larger the portion of the benefit will be to buyers. 
B) The more inelastic the demand for a product,the larger the portion of the benefit will be to buyers. 
C) The more elastic the supply of a product,the smaller the portion of the benefit will be to buyers. 
D) The distribution of the benefit of a subsidy is not affected by the elasticity of the supply and demand for the product for which the subsidy is granted. 
A) The more inelastic the supply of a product,the larger the portion of the benefit will be to buyers. 
B) The more inelastic the demand for a product,the larger the portion of the benefit will be to buyers. 
C) The more elastic the supply of a product,the smaller the portion of the benefit will be to buyers. 
D) The distribution of the benefit of a subsidy is not affected by the elasticity of the supply and demand for the product for which the subsidy is granted.

Question 3

Which of the following statements is correct?

Accepted Answer

A) Whenever a per-unit tax is imposed,sellers always pass on the full amount of the tax to consumers in the form of higher prices. 
B) The burden of a per-unit tax on cigarettes would likely fall more on consumers than would the burden of a tax on imported bottled water. 
C) The burden of a per-unit tax is always equally shared between producers and consumers. 
D) When a per-unit tax is imposed,the total losses to producers and consumers exactly equal the amount of revenue collected by the government. 
A) Whenever a per-unit tax is imposed,sellers always pass on the full amount of the tax to consumers in the form of higher prices. 
B) The burden of a per-unit tax on cigarettes would likely fall more on consumers than would the burden of a tax on imported bottled water. 
C) The burden of a per-unit tax is always equally shared between producers and consumers. 
D) When a per-unit tax is imposed,the total losses to producers and consumers exactly equal the amount of revenue collected by the government.

Question 4

Kathy works full time during the day as an economist and faces a 60 percent marginal tax rate.If Kathy were to get an offer to work a second job in the evenings doing consulting work for a local business for $10,000 per year,how much of this additional income would she be able to keep as net pay after taxes?

Accepted Answer

A) $1,000 
B) $4,000 
C) $6,000 
D) $10,000 
A) $1,000 
B) $4,000 
C) $6,000 
D) $10,000

Question 5

A subsidy on a product will generate more actual benefit for producers (and less for consumers)when

Accepted Answer

A) the supply of the product is relatively inelastic. 
B) the supply of the product is relatively elastic. 
C) the demand for the product is relatively inelastic. 
D) either b or c is true 
A) the supply of the product is relatively inelastic. 
B) the supply of the product is relatively elastic. 
C) the demand for the product is relatively inelastic. 
D) either b or c is true

Question 6

Figure 4-25
  
-Refer to Figure 4-25.Consumer surplus before the tax was levied is represented by area

Accepted Answer

A) A. 
B) A + B + C. 
C) D + E + F. 
D) F. 
A) A. 
B) A + B + C. 
C) D + E + F. 
D) F.

Question 7

Use the figure below to answer the following question(s).
Figure 4-11
  
-Refer to Figure 4-11.On the Laffer curve shown,which of the following is true?

Accepted Answer

A) Tax revenue would increase if marginal tax rates were lowered from point C. 
B) Tax revenue would decrease if marginal tax rates were lowered from point A. 
C) Tax revenues are maximized at a tax rate corresponding to point B. 
D) All of the above are true. 
A) Tax revenue would increase if marginal tax rates were lowered from point C. 
B) Tax revenue would decrease if marginal tax rates were lowered from point A. 
C) Tax revenues are maximized at a tax rate corresponding to point B. 
D) All of the above are true.

Question 8

Use the figure below to answer the following question(s).
Figure 4-11
  
-Refer to Figure 4-11.On the Laffer curve shown,tax revenue could be increased by

Accepted Answer

A) decreasing the marginal tax rates if we were currently at point A. 
B) decreasing the marginal tax rates if we were currently at point C. 
C) increasing the marginal tax rates if we were currently at point B. 
D) increasing the marginal tax rates if we were currently at point C. 
A) decreasing the marginal tax rates if we were currently at point A. 
B) decreasing the marginal tax rates if we were currently at point C. 
C) increasing the marginal tax rates if we were currently at point B. 
D) increasing the marginal tax rates if we were currently at point C.

Question 9

Data from the effects of the substantial tax rate reductions in the 1980s

Accepted Answer

A) cast serious doubt on the Laffer curve as a guide for tax policy. 
B) are consistent with the principles illustrated in the Laffer curve. 
C) generally reject the idea that lower tax rates can lead to higher tax revenue. 
D) support an "inverted Laffer curve" in which reducing tax rates for those with high incomes leads to lower tax revenue. 
A) cast serious doubt on the Laffer curve as a guide for tax policy. 
B) are consistent with the principles illustrated in the Laffer curve. 
C) generally reject the idea that lower tax rates can lead to higher tax revenue. 
D) support an "inverted Laffer curve" in which reducing tax rates for those with high incomes leads to lower tax revenue.

Question 10

A legal system that provides secure private property rights and unbiased enforcement of contracts

Accepted Answer

A) is unnecessary for the smooth operation of markets. 
B) reduces the efficiency of markets. 
C) enhances the efficiency of markets. 
D) makes it easier for sellers to cheat or defraud consumers. 
A) is unnecessary for the smooth operation of markets. 
B) reduces the efficiency of markets. 
C) enhances the efficiency of markets. 
D) makes it easier for sellers to cheat or defraud consumers.

Question 11

If the supply of health care services is highly inelastic,programs that subsidize the cost of purchasing medical services will

Accepted Answer

A) lead to higher prices for medical services. 
B) lead to lower prices for medical services. 
C) not affect the price of medical services. 
D) help the buyers of medical services more than the sellers of those services. 
A) lead to higher prices for medical services. 
B) lead to lower prices for medical services. 
C) not affect the price of medical services. 
D) help the buyers of medical services more than the sellers of those services.

Question 12

Which of the following will most likely occur when government price controls fix the price of a good above market equilibrium?

Accepted Answer

A) Waiting lines to buy the good will develop. 
B) The quality of the good will deteriorate. 
C) Consumers will buy more than they would at the market equilibrium price. 
D) A surplus of the good will develop. 
A) Waiting lines to buy the good will develop. 
B) The quality of the good will deteriorate. 
C) Consumers will buy more than they would at the market equilibrium price. 
D) A surplus of the good will develop.

Question 13

Figure 4-25
  
-Refer to Figure 4-25.Producer surplus before the tax was levied is represented by area

Accepted Answer

A) A. 
B) A + B + C. 
C) D + E + F. 
D) F. 
A) A. 
B) A + B + C. 
C) D + E + F. 
D) F.

Question 14

Price controls will tend to cause misallocation of resources because

Accepted Answer

A) production (or opportunity)cost no longer corresponds to market price. 
B) people are unable to determine their preferences at the high or low price. 
C) producers no longer have incentive to be profitable. 
D) consumers no longer have incentive to spend their income efficiently. 
A) production (or opportunity)cost no longer corresponds to market price. 
B) people are unable to determine their preferences at the high or low price. 
C) producers no longer have incentive to be profitable. 
D) consumers no longer have incentive to spend their income efficiently.

Question 15

A deadweight loss results from the imposition of a tax on a good because the tax

Accepted Answer

A) induces the government to increase its expenditures. 
B) reduces the quantity of exchanges between buyers and sellers. 
C) causes a disequilibrium in the market. 
D) imposes a loss on buyers that is greater than the loss to sellers. 
A) induces the government to increase its expenditures. 
B) reduces the quantity of exchanges between buyers and sellers. 
C) causes a disequilibrium in the market. 
D) imposes a loss on buyers that is greater than the loss to sellers.

Question 16

Figure 4-25
  
-Refer to Figure 4-25.The tax causes a reduction in consumer surplus that is represented by area

Accepted Answer

A) A. 
B) B + C. 
C) D + E. 
D) F. 
A) A. 
B) B + C. 
C) D + E. 
D) F.

Question 17

In the supply and demand model,a subsidy granted to buyers is illustrated by

Accepted Answer

A) a downward shift in the demand curve,by the per unit amount of the subsidy. 
B) an upward shift in the demand curve,by the per unit amount of the subsidy. 
C) a downward shift in the supply curve,by the per unit amount of the subsidy. 
D) an upward shift in the supply curve,by the per unit amount of the subsidy. 
A) a downward shift in the demand curve,by the per unit amount of the subsidy. 
B) an upward shift in the demand curve,by the per unit amount of the subsidy. 
C) a downward shift in the supply curve,by the per unit amount of the subsidy. 
D) an upward shift in the supply curve,by the per unit amount of the subsidy.

Question 18

Use the figure below to answer the following question(s).
Figure 4-9
  
-Refer to Figure 4-9.The market for gasoline was initially in equilibrium at point b and a $.40 excise tax is illustrated.What does the triangular area abc represent?

Accepted Answer

A) the revenue the government derives from the tax 
B) the tax paid by consumers 
C) the tax paid by producers 
D) the deadweight loss (or excess burden)created by the tax 
A) the revenue the government derives from the tax 
B) the tax paid by consumers 
C) the tax paid by producers 
D) the deadweight loss (or excess burden)created by the tax

Question 19

An increase in the demand for a product will cause the

Accepted Answer

A) demand for and prices of the resources used to produce the product to increase. 
B) demand for and prices of the resources used to produce the product to decrease. 
C) demand for and prices of the resources used to produce the product to remain unchanged. 
D) price of the product to decrease. 
A) demand for and prices of the resources used to produce the product to increase. 
B) demand for and prices of the resources used to produce the product to decrease. 
C) demand for and prices of the resources used to produce the product to remain unchanged. 
D) price of the product to decrease.

Question 20

The Laffer curve indicates that

Accepted Answer

A) when tax rates are low,a decrease in tax rates is likely to increase tax revenues. 
B) when tax rates are high,an increase in tax rates is likely to a decrease in tax revenues. 
C) tax revenue will always increase when tax rates are increased. 
D) tax revenue will always decrease when tax rates are lowered. 
A) when tax rates are low,a decrease in tax rates is likely to increase tax revenues. 
B) when tax rates are high,an increase in tax rates is likely to a decrease in tax revenues. 
C) tax revenue will always increase when tax rates are increased. 
D) tax revenue will always decrease when tax rates are lowered.

Exam 4: Asupply and Demand: Applications and Extensions

The Laffer Curve indicates that

Which of the following generalizations about the benefit of a subsidy is correct?

Which of the following statements is correct?

A subsidy on a product will generate more actual benefit for producers (and less for consumers)when

Figure 4-25 -Refer to Figure 4-25.Consumer surplus before the tax was levied is represented by area

Use the figure below to answer the following question(s). Figure 4-11 -Refer to Figure 4-11.On the Laffer curve shown,which of the following is true?

Use the figure below to answer the following question(s). Figure 4-11 -Refer to Figure 4-11.On the Laffer curve shown,tax revenue could be increased by

Data from the effects of the substantial tax rate reductions in the 1980s

A legal system that provides secure private property rights and unbiased enforcement of contracts

If the supply of health care services is highly inelastic,programs that subsidize the cost of purchasing medical services will

Which of the following will most likely occur when government price controls fix the price of a good above market equilibrium?

Figure 4-25 -Refer to Figure 4-25.Producer surplus before the tax was levied is represented by area

Price controls will tend to cause misallocation of resources because

A deadweight loss results from the imposition of a tax on a good because the tax

Figure 4-25 -Refer to Figure 4-25.The tax causes a reduction in consumer surplus that is represented by area

In the supply and demand model,a subsidy granted to buyers is illustrated by

Use the figure below to answer the following question(s). Figure 4-9 -Refer to Figure 4-9.The market for gasoline was initially in equilibrium at point b and a $.40 excise tax is illustrated.What does the triangular area abc represent?

An increase in the demand for a product will cause the

The Laffer curve indicates that

The Economic Approach

Asome Tools of the Economist

Asupply,demand,and the Market Process

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

Dynamic Change, economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, output, and Employment

Creating an Environment for Growth and Prosperity

Institutions,policies,and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

Filters