Question 1

The decrease in total surplus that results from a market distortion, such as a tax, is called a

Accepted Answer

A) wedge loss. 
B) revenue loss. 
C) deadweight loss. 
D) consumer surplus loss. 
A) wedge loss. 
B) revenue loss. 
C) deadweight loss. 
D) consumer surplus loss.

Question 2

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

Accepted Answer

A) True 
 B)False

Question 3

When a tax is levied on a good,

Accepted Answer

A) neither buyers nor sellers are made worse off. 
B) only sellers are made worse off. 
C) only buyers are made worse off. 
D) both buyers and sellers are made worse off. 
A) neither buyers nor sellers are made worse off. 
B) only sellers are made worse off. 
C) only buyers are made worse off. 
D) both buyers and sellers are made worse off.

Question 4

Who once said that taxes are the price we pay for a civilized society?

Accepted Answer

A) Milton Friedman 
B) Theodore Roosevelt 
C) Arthur Laffer 
D) Oliver Wendell Holmes, Jr. 
A) Milton Friedman 
B) Theodore Roosevelt 
C) Arthur Laffer 
D) Oliver Wendell Holmes, Jr.

Question 5

The Laffer curve relates

Accepted Answer

A) the tax rate to tax revenue raised by the tax. 
B) the tax rate to the deadweight loss of the tax. 
C) the price elasticity of supply to the deadweight loss of the tax. 
D) government welfare payments to the birth rate. 
A) the tax rate to tax revenue raised by the tax. 
B) the tax rate to the deadweight loss of the tax. 
C) the price elasticity of supply to the deadweight loss of the tax. 
D) government welfare payments to the birth rate.

Question 6

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

Accepted Answer

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

Question 7

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. The price that sellers receive is

Accepted Answer

A) P0. 
B) P2. 
C) P5. 
D) P8. 
A) P0. 
B) P2. 
C) P5. 
D) P8.

Question 8

In a recent research paper published by the European Central Bank, two economists concluded that

Accepted Answer

A) tax revenue would increase in Denmark and Sweden if tax rates on capital income were reduced in those countries. 
B) tax revenue would increase in Denmark and Sweden if tax rates on labor income were reduced in those countries. 
C) tax revenue would increase in the U.S. if tax rates on capital income were reduced in the U.S. 
D) tax revenue would increase in the U.S. if tax rates on labor income were reduced in the U.S. 
A) tax revenue would increase in Denmark and Sweden if tax rates on capital income were reduced in those countries. 
B) tax revenue would increase in Denmark and Sweden if tax rates on labor income were reduced in those countries. 
C) tax revenue would increase in the U.S. if tax rates on capital income were reduced in the U.S. 
D) tax revenue would increase in the U.S. if tax rates on labor income were reduced in the U.S.

Question 9

The supply curve for cameras is the typical upward-sloping straight line, and the demand curve for cameras is the typical downward-sloping straight line. When cameras are taxed, the area on the relevant supply-and-demand graph that represents

Accepted Answer

A) government's tax revenue is a rectangle. 
B) the deadweight loss of the tax is a triangle. 
C) the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle. 
D) All of the above are correct. 
A) government's tax revenue is a rectangle. 
B) the deadweight loss of the tax is a triangle. 
C) the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle. 
D) All of the above are correct.

Question 10

When a tax is levied on the sellers of a good, the

Accepted Answer

A) supply curve shifts upward by the amount of the tax. 
B) quantity demanded decreases for all conceivable prices of the good. 
C) quantity supplied increases for all conceivable prices of the good. 
D) None of the above is correct. 
A) supply curve shifts upward by the amount of the tax. 
B) quantity demanded decreases for all conceivable prices of the good. 
C) quantity supplied increases for all conceivable prices of the good. 
D) None of the above is correct.

Question 11

When a tax is levied on a good,

Accepted Answer

A) government collects revenues which might justify the loss in total welfare. 
B) there is a decrease in the quantity of the good bought and sold in the market. 
C) a wedge is placed between the price buyers pay and the price sellers effectively receive. 
D) All of the above are correct. 
A) government collects revenues which might justify the loss in total welfare. 
B) there is a decrease in the quantity of the good bought and sold in the market. 
C) a wedge is placed between the price buyers pay and the price sellers effectively receive. 
D) All of the above are correct.

Question 12

Figure 8-9
The vertical distance between points A and C represent a tax in the market.  
-Refer to Figure 8-9. The total surplus without the tax is

Accepted Answer

A) $8,000. 
B) $12,000. 
C) $20,000. 
D) $40,000. 
A) $8,000. 
B) $12,000. 
C) $20,000. 
D) $40,000.

Question 13

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 14

Deadweight loss is the

Accepted Answer

A) decline in total surplus that results from a tax. 
B) decline in government revenue when taxes are reduced in a market. 
C) decline in consumer surplus when a tax is placed on buyers. 
D) loss of profits to business firms when a tax is imposed. 
A) decline in total surplus that results from a tax. 
B) decline in government revenue when taxes are reduced in a market. 
C) decline in consumer surplus when a tax is placed on buyers. 
D) loss of profits to business firms when a tax is imposed.

Question 15

Figure 8-15  
-Refer to Figure 8-15. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the market represented by

Accepted Answer

A) D1. 
B) D2. 
C) D3. 
D) D4. 
A) D1. 
B) D2. 
C) D3. 
D) D4.

Question 16

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are

Accepted Answer

A) $16 and 300. 
B) $10 and 600. 
C) $10 and 300. 
D) $6 and 300. 
A) $16 and 300. 
B) $10 and 600. 
C) $10 and 300. 
D) $6 and 300.

Question 17

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubled, the

Accepted Answer

A) base of the triangle that represents the deadweight loss doubles. 
B) height of the triangle that represents the deadweight loss doubles. 
C) deadweight loss of the tax quadruples. 
D) All of the above are correct. 
A) base of the triangle that represents the deadweight loss doubles. 
B) height of the triangle that represents the deadweight loss doubles. 
C) deadweight loss of the tax quadruples. 
D) All of the above are correct.

Question 18

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. Which of the following statements summarizes the incidence of the tax?

Accepted Answer

A) For each unit of the good that is sold, buyers bear one-half of the tax burden, and sellers bear one-half of the tax burden. 
B) For each unit of the good that is sold, buyers bear one-third of the tax burden, and sellers bear two-thirds of the tax burden. 
C) For each unit of the good that is sold, buyers bear one-fourth of the tax burden, and sellers bear three-fourths of the tax burden. 
D) For each unit of the good that is sold, buyers bear three-fourths of the tax burden, and sellers bear one-fourth of the tax burden. 
A) For each unit of the good that is sold, buyers bear one-half of the tax burden, and sellers bear one-half of the tax burden. 
B) For each unit of the good that is sold, buyers bear one-third of the tax burden, and sellers bear two-thirds of the tax burden. 
C) For each unit of the good that is sold, buyers bear one-fourth of the tax burden, and sellers bear three-fourths of the tax burden. 
D) For each unit of the good that is sold, buyers bear three-fourths of the tax burden, and sellers bear one-fourth of the tax burden.

Question 19

Figure 8-9
The vertical distance between points A and C represent a tax in the market.  
-Refer to Figure 8-9. The consumer surplus without the tax is

Accepted Answer

A) $2,000. 
B) $5,000. 
C) $8,000. 
D) $16,000. 
A) $2,000. 
B) $5,000. 
C) $8,000. 
D) $16,000.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

The decrease in total surplus that results from a market distortion, such as a tax, is called a

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

When a tax is levied on a good,

Who once said that taxes are the price we pay for a civilized society?

The Laffer curve relates

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

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. The price that sellers receive is

In a recent research paper published by the European Central Bank, two economists concluded that

The supply curve for cameras is the typical upward-sloping straight line, and the demand curve for cameras is the typical downward-sloping straight line. When cameras are taxed, the area on the relevant supply-and-demand graph that represents

When a tax is levied on the sellers of a good, the

When a tax is levied on a good,

Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The total surplus without the tax is

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

Deadweight loss is the

Figure 8-15 -Refer to Figure 8-15. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the market represented by

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubled, the

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Which of the following statements summarizes the incidence of the tax?

Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The consumer surplus without the tax is

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

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

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