Question 1

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.

Question 2

Taxes drive a wedge into the market by raising the price that sellers receive and lowering the price that buyers pay.

Accepted Answer

A) True 
 B)False

Question 3

Figure 8-1  
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The consumer surplus after the tax is measured by the area

Accepted Answer

A) J+K+I. 
B) J. 
C) M. 
D) L+M+Y. 
A) J+K+I. 
B) J. 
C) M. 
D) L+M+Y.

Question 4

Figure 8-19. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.  
-Refer to Figure 8-19. According to a recent research paper published by the European Central Bank, the U.S.

Accepted Answer

A) is more likely at a point such as point A rather than point B if the tax in question is the tax on capital income. 
B) is more likely at a point such as point B rather than point A if the tax in question is the tax on labor income. 
C) could increase tax revenues more by raising taxes on capital income than by raising taxes on labor income. 
D) All of the above are correct. 
A) is more likely at a point such as point A rather than point B if the tax in question is the tax on capital income. 
B) is more likely at a point such as point B rather than point A if the tax in question is the tax on labor income. 
C) could increase tax revenues more by raising taxes on capital income than by raising taxes on labor income. 
D) All of the above are correct.

Question 5

The Laffer curve illustrates that

Accepted Answer

A) deadweight loss rises by the square of the increase in a tax. 
B) deadweight loss rises exponentially as a tax increases. 
C) tax revenue first rises, then falls as a tax increases. 
D) Both a) and b) are correct. 
A) deadweight loss rises by the square of the increase in a tax. 
B) deadweight loss rises exponentially as a tax increases. 
C) tax revenue first rises, then falls as a tax increases. 
D) Both a) and b) are correct.

Question 6

As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Accepted Answer

A) True 
 B)False

Question 7

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. As a result of the tax, consumer surplus decreases by

Accepted Answer

A) $65, producer surplus decreases by $85, tax revenue is $120, and deadweight loss is $30. 
B) $75, producer surplus decreases by $75, tax revenue is $120, and deadweight loss is $30. 
C) $80, producer surplus decreases by $80, tax revenue is $120, and deadweight loss is $40. 
D) $120, producer surplus decreases by $120, tax revenue is $200, and deadweight loss is $40. 
A) $65, producer surplus decreases by $85, tax revenue is $120, and deadweight loss is $30. 
B) $75, producer surplus decreases by $75, tax revenue is $120, and deadweight loss is $30. 
C) $80, producer surplus decreases by $80, tax revenue is $120, and deadweight loss is $40. 
D) $120, producer surplus decreases by $120, tax revenue is $200, and deadweight loss is $40.

Question 8

Figure 8-1  
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The tax revenue is measured by the area

Accepted Answer

A) K+L. 
B) I+Y. 
C) J+K+L+M. 
D) I+J+K+L+M+Y. 
A) K+L. 
B) I+Y. 
C) J+K+L+M. 
D) I+J+K+L+M+Y.

Question 9

As the size of a tax rises, the deadweight loss

Accepted Answer

A) rises, and tax revenue first rises, then falls. 
B) rises as does tax revenue. 
C) falls, and tax revenue first rises, then falls. 
D) falls as does tax revenue. 
A) rises, and tax revenue first rises, then falls. 
B) rises as does tax revenue. 
C) falls, and tax revenue first rises, then falls. 
D) falls as does tax revenue.

Question 10

What happens to the total surplus in a market when the government imposes a tax?

Accepted Answer

A) Total surplus increases by the amount of the tax. 
B) Total surplus increases but by less than the amount of the tax. 
C) Total surplus decreases. 
D) Total surplus is unaffected by the tax. 
A) Total surplus increases by the amount of the tax. 
B) Total surplus increases but by less than the amount of the tax. 
C) Total surplus decreases. 
D) Total surplus is unaffected by the tax.

Question 11

Figure 8-11  
-Refer to Figure 8-11. The price labeled as P3 on the vertical axis represents the price

Accepted Answer

A) received by sellers before the tax is imposed. 
B) received by sellers after the tax is imposed. 
C) paid by buyers before the tax is imposed. 
D) paid by buyers after the tax is imposed. 
A) received by sellers before the tax is imposed. 
B) received by sellers after the tax is imposed. 
C) paid by buyers before the tax is imposed. 
D) paid by buyers after the tax is imposed.

Question 12

Figure 8-11  
-Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

Accepted Answer

A) consumer surplus decreases by $11. 
B) producer surplus decreases by $11. 
C) the deadweight loss amounts to $6. 
D) All of the above are correct. 
A) consumer surplus decreases by $11. 
B) producer surplus decreases by $11. 
C) the deadweight loss amounts to $6. 
D) All of the above are correct.

Question 13

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

Accepted Answer

A) $450. 
B) $600. 
C) $900. 
D) $1,500. 
A) $450. 
B) $600. 
C) $900. 
D) $1,500.

Question 14

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. The tax causes producer surplus to decrease by the area

Accepted Answer

A) D+F. 
B) D+F+G. 
C) D+F+J. 
D) D+F+G+H. 
A) D+F. 
B) D+F+G. 
C) D+F+J. 
D) D+F+G+H.

Question 15

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. The loss in producer surplus caused by the tax is measured by the area

Accepted Answer

A) ABC. 
B) P1P3ABC. 
C) P1P2BC. 
D) P1C0. 
A) ABC. 
B) P1P3ABC. 
C) P1P2BC. 
D) P1C0.

Question 16

Figure 8-11  
-Refer to Figure 8-11. The length of the line segment connecting points A and B represents

Accepted Answer

A) the difference between the price paid by buyers after the tax is imposed and the price received by sellers after the tax is imposed. 
B) the size of the tax. 
C) the "tax wedge." 
D) All of the above are correct. 
A) the difference between the price paid by buyers after the tax is imposed and the price received by sellers after the tax is imposed. 
B) the size of the tax. 
C) the "tax wedge." 
D) All of the above are correct.

Question 17

If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.

Accepted Answer

A) True 
 B)False

Question 18

The more freedom young mothers have to work outside the home, the

Accepted Answer

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

Question 19

Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100. If the tax is increased to $0.25 per unit, the deadweight loss from the new tax would be

Accepted Answer

A) $200. 
B) $250. 
C) $475. 
D) $625. 
A) $200. 
B) $250. 
C) $475. 
D) $625.

Question 20

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

Taxes on labor have the effect of encouraging

Taxes drive a wedge into the market by raising the price that sellers receive and lowering the price that buyers pay.

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The consumer surplus after the tax is measured by the area

Figure 8-19. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-19. According to a recent research paper published by the European Central Bank, the U.S.

The Laffer curve illustrates that

As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. As a result of the tax, consumer surplus decreases by

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The tax revenue is measured by the area

As the size of a tax rises, the deadweight loss

What happens to the total surplus in a market when the government imposes a tax?

Figure 8-11 -Refer to Figure 8-11. The price labeled as P3 on the vertical axis represents the price

Figure 8-11 -Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

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

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The tax causes producer surplus to decrease by the area

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The loss in producer surplus caused by the tax is measured by the area

Figure 8-11 -Refer to Figure 8-11. The length of the line segment connecting points A and B represents

If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.

The more freedom young mothers have to work outside the home, the

Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100. If the tax is increased to $0.25 per unit, the deadweight loss from the new tax would be

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

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

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 Macroeconomic Models

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

Six Debates Over Macroeconomic Policy

Filters

Figure 8-11 -Refer to Figure 8-11. The price labeled as P₃ on the vertical axis represents the price

Figure 8-11 -Refer to Figure 8-11. Suppose Q₁ = 4; Q₂ = 7; P₁ = $6; P₂ = $8; and P₃= $10. Then, when the tax is imposed,