Question 1

Both price floors and price ceilings,when effective,lead to

Accepted Answer

A) shortages. 
B) surpluses. 
C) an increase in the quantity traded. 
D) a reduction in the quantity traded. 
A) shortages. 
B) surpluses. 
C) an increase in the quantity traded. 
D) a reduction in the quantity traded.

Question 2

Use the figure below to answer the following question(s).
Figure 4-7
  
-Refer to Figure 4-7.The supply curve S₁ and the demand curve D indicate initial conditions in the market for gasoline.A $.60-per-gallon excise tax on gasoline is levied.How much revenue does the $.60-per-gallon tax generate for the government?

Accepted Answer

A) $40 billion 
B) $48 billion 
C) $50 billion 
D) $60 billion 
A) $40 billion 
B) $48 billion 
C) $50 billion 
D) $60 billion

Question 3

A tax is levied on products A and B,both of which have the same price elasticity of supply.The demand for A is more inelastic than is the demand for B.Other things constant,how will this affect the incidence of an excise tax on these products?

Accepted Answer

A) Producers will bear a smaller share (and consumers a larger share)of the tax burden on A than B. 
B) Consumers will bear a smaller share (and producers a larger share)of the tax burden on A than B. 
C) The deadweight loss (or excess burden)will be larger for good A than B. 
D) All of the above are true. 
A) Producers will bear a smaller share (and consumers a larger share)of the tax burden on A than B. 
B) Consumers will bear a smaller share (and producers a larger share)of the tax burden on A than B. 
C) The deadweight loss (or excess burden)will be larger for good A than B. 
D) All of the above are true.

Question 4

A payment the government makes to either the buyer or seller,usually on a per-unit basis,when a good or service is purchased or sold is called a

Accepted Answer

A) black market. 
B) interest rate. 
C) subsidy. 
D) tax. 
A) black market. 
B) interest rate. 
C) subsidy. 
D) tax.

Question 5

The benefit of a subsidy will go primarily to sellers when the

Accepted Answer

A) demand for the product is highly inelastic and supply is relatively elastic. 
B) demand for the product is highly elastic and the supply is relatively inelastic. 
C) subsidy is legally (statutorily)granted to the seller of the product. 
D) subsidy is legally (statutorily)granted to the buyer of the product. 
A) demand for the product is highly inelastic and supply is relatively elastic. 
B) demand for the product is highly elastic and the supply is relatively inelastic. 
C) subsidy is legally (statutorily)granted to the seller of the product. 
D) subsidy is legally (statutorily)granted to the buyer of the product.

Question 6

A regressive tax

Accepted Answer

A) taxes individuals with higher incomes at a higher rate than individuals with lower incomes. 
B) takes a similar percentage of income at all income levels. 
C) takes a higher percentage of the income of those with lower incomes than for those with higher incomes. 
D) taxes savings at a higher rate than consumption. 
A) taxes individuals with higher incomes at a higher rate than individuals with lower incomes. 
B) takes a similar percentage of income at all income levels. 
C) takes a higher percentage of the income of those with lower incomes than for those with higher incomes. 
D) taxes savings at a higher rate than consumption.

Question 7

Figure 4-22
  
-Refer to Figure 4-22.Sellers pay how much of the tax per unit?

Accepted Answer

A) $1.00. 
B) $1.50. 
C) $2.50. 
D) $3.00. 
A) $1.00. 
B) $1.50. 
C) $2.50. 
D) $3.00.

Question 8

If the federal government placed a 50 cent per pack excise tax on cigarette manufacturers,and if as a result,the price to consumers of a pack of cigarettes went up by 40 cents,the

Accepted Answer

A) actual burden of this tax falls mostly on consumers. 
B) actual burden of this tax falls mostly on manufacturers. 
C) actual burden of the tax would be shared equally by producers and consumers. 
D) tax would clearly be a progressive tax. 
A) actual burden of this tax falls mostly on consumers. 
B) actual burden of this tax falls mostly on manufacturers. 
C) actual burden of the tax would be shared equally by producers and consumers. 
D) tax would clearly be a progressive tax.

Question 9

A tax for which the average tax rate decreases with income is defined as a

Accepted Answer

A) regressive tax. 
B) proportional tax. 
C) neutral tax. 
D) progressive tax. 
A) regressive tax. 
B) proportional tax. 
C) neutral tax. 
D) progressive tax.

Question 10

The deadweight loss (or excess burden)resulting from levying a tax on an economic activity is the

Accepted Answer

A) tax revenue raised by the government as the result of the tax. 
B) loss of potential gains from trade from activities forgone because of the tax. 
C) increase in the price of an activity as the result of the tax levied on it. 
D) marginal benefits derived from the expansion in government activities made possible by the increase in tax revenues. 
A) tax revenue raised by the government as the result of the tax. 
B) loss of potential gains from trade from activities forgone because of the tax. 
C) increase in the price of an activity as the result of the tax levied on it. 
D) marginal benefits derived from the expansion in government activities made possible by the increase in tax revenues.

Question 11

Use the table below to choose the correct answer.
 
For the income range illustrated,the tax shown here is

Accepted Answer

A) regressive. 
B) proportional. 
C) progressive. 
D) progressive up to $20,000 but regressive beyond that. 
A) regressive. 
B) proportional. 
C) progressive. 
D) progressive up to $20,000 but regressive beyond that.

Question 12

An income tax is defined as regressive if

Accepted Answer

A) the tax liability of those with higher incomes exceeds the tax liability of those with low incomes. 
B) the tax liability of those with higher incomes is less than the tax liability of those with low incomes. 
C) those with higher incomes pay a higher percentage of their incomes in taxes than those with low incomes. 
D) those with higher incomes pay a lower percentage of their incomes in taxes than those with low incomes. 
A) the tax liability of those with higher incomes exceeds the tax liability of those with low incomes. 
B) the tax liability of those with higher incomes is less than the tax liability of those with low incomes. 
C) those with higher incomes pay a higher percentage of their incomes in taxes than those with low incomes. 
D) those with higher incomes pay a lower percentage of their incomes in taxes than those with low incomes.

Question 13

A tax for which the average tax rate rises with income is defined as a

Accepted Answer

A) regressive tax. 
B) proportional tax. 
C) neutral tax. 
D) progressive tax. 
A) regressive tax. 
B) proportional tax. 
C) neutral tax. 
D) progressive tax.

Question 14

The revenue generated by the tax illustrated in Figure 4-6 is given by the area

Accepted Answer

A) ACLH. 
B) BEKM. 
C) ACFG. 
D) 0AGJ. 
A) ACLH. 
B) BEKM. 
C) ACFG. 
D) 0AGJ.

Question 15

During the Prohibition period (when the production and sale of alcohol was illegal),

Accepted Answer

A) the quality of alcohol sold became less reliable. 
B) the murder rate increased. 
C) gangsters dominated the alcohol trade. 
D) all of the above occurred. 
A) the quality of alcohol sold became less reliable. 
B) the murder rate increased. 
C) gangsters dominated the alcohol trade. 
D) all of the above occurred.

Question 16

If a household has $40,000 in taxable income and its tax liability is $10,000,the household's average tax rate is

Accepted Answer

A) 10 percent. 
B) 25 percent. 
C) 40 percent. 
D) 50 percent 
A) 10 percent. 
B) 25 percent. 
C) 40 percent. 
D) 50 percent

Question 17

Figure 4-25
  
-Refer to Figure 4-25.The price that sellers receive after the tax is imposed is

Accepted Answer

A) P₁. 
B) P₂. 
C) P₃. 
D) impossible to determine from the figure. 
A) P₁. 
B) P₂. 
C) P₃. 
D) impossible to determine from the figure.

Question 18

Use the figure below illustrating the impact of an excise tax to answer the following question(s).
Figure 4-6
  
-Refer to Figure 4-6.The amount of the excise tax I is

Accepted Answer

A) $.50. 
B) $1.50. 
C) $1.00. 
D) $2.00. 
A) $.50. 
B) $1.50. 
C) $1.00. 
D) $2.00.

Question 19

If a $300 subsidy is legally (statutorily)granted to the buyers of computers and as a result the selling price of computers rises by $200,the actual benefit of the subsidy

Accepted Answer

A) goes completely to the buyers of computers. 
B) goes completely to the sellers of computers. 
C) is $100 to computer buyers and $200 to computer sellers. 
D) is $200 to computer buyers and $100 to computer sellers. 
A) goes completely to the buyers of computers. 
B) goes completely to the sellers of computers. 
C) is $100 to computer buyers and $200 to computer sellers. 
D) is $200 to computer buyers and $100 to computer sellers.

Question 20

Figure 4-25
  
-Refer to Figure 4-25.The tax causes a reduction in producer 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.

Exam 4: Asupply and Demand: Applications and Extensions

Both price floors and price ceilings,when effective,lead to

A tax is levied on products A and B,both of which have the same price elasticity of supply.The demand for A is more inelastic than is the demand for B.Other things constant,how will this affect the incidence of an excise tax on these products?

A payment the government makes to either the buyer or seller,usually on a per-unit basis,when a good or service is purchased or sold is called a

The benefit of a subsidy will go primarily to sellers when the

A regressive tax

Figure 4-22 -Refer to Figure 4-22.Sellers pay how much of the tax per unit?

If the federal government placed a 50 cent per pack excise tax on cigarette manufacturers,and if as a result,the price to consumers of a pack of cigarettes went up by 40 cents,the

A tax for which the average tax rate decreases with income is defined as a

The deadweight loss (or excess burden)resulting from levying a tax on an economic activity is the

Use the table below to choose the correct answer. For the income range illustrated,the tax shown here is

An income tax is defined as regressive if

A tax for which the average tax rate rises with income is defined as a

The revenue generated by the tax illustrated in Figure 4-6 is given by the area

During the Prohibition period (when the production and sale of alcohol was illegal),

If a household has $40,000 in taxable income and its tax liability is $10,000,the household's average tax rate is

Figure 4-25 -Refer to Figure 4-25.The price that sellers receive after the tax is imposed is

Use the figure below illustrating the impact of an excise tax to answer the following question(s). Figure 4-6 -Refer to Figure 4-6.The amount of the excise tax I is

If a $300 subsidy is legally (statutorily)granted to the buyers of computers and as a result the selling price of computers rises by $200,the actual benefit of the subsidy

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

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