Question 1

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

Accepted Answer

A) The greater are the price elasticities of supply and demand, the greater is the deadweight loss. 
B) The greater is the price elasticity of supply and the smaller is the price elasticity of demand, the greater is the deadweight loss. 
C) The smaller are the decreases in quantity demanded and quantity supplied, the greater the deadweight loss. 
D) The smaller is the wedge between the effective price to sellers and the effective price to buyers, the greater is the deadweight loss. 
A) The greater are the price elasticities of supply and demand, the greater is the deadweight loss. 
B) The greater is the price elasticity of supply and the smaller is the price elasticity of demand, the greater is the deadweight loss. 
C) The smaller are the decreases in quantity demanded and quantity supplied, the greater the deadweight loss. 
D) The smaller is the wedge between the effective price to sellers and the effective price to buyers, the greater is the deadweight loss.

Question 2

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

Accepted Answer

A) True 
 B)False

Question 3

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. Without the tax, the consumer surplus is

Accepted Answer

A) (P0-P2) x Q2. 
B) x (P0-P2) x Q2. 
C) (P0-P5) x Q5. 
D) x (P0-P5) x Q5. 
A) (P0-P2) x Q2. 
B) x (P0-P2) x Q2. 
C) (P0-P5) x Q5. 
D) x (P0-P5) x Q5.

Question 4

Taxes cause deadweight losses because taxes

Accepted Answer

A) reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. 
B) prevent buyers and sellers from realizing some of the gains from trade. 
C) cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. 
D) All of the above are correct. 
A) reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. 
B) prevent buyers and sellers from realizing some of the gains from trade. 
C) cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. 
D) All of the above are correct.

Question 5

Deadweight loss measures the loss

Accepted Answer

A) in a market to buyers and sellers that is not offset by an increase in government revenue. 
B) in revenue to the government when buyers choose to buy less of the product because of the tax. 
C) of equality in a market due to government intervention. 
D) of total revenue to business firms due to the price wedge caused by the tax. 
A) in a market to buyers and sellers that is not offset by an increase in government revenue. 
B) in revenue to the government when buyers choose to buy less of the product because of the tax. 
C) of equality in a market due to government intervention. 
D) of total revenue to business firms due to the price wedge caused by the tax.

Question 6

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 7

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

Accepted Answer

A) P3ACP1. 
B) ABC. 
C) P2DAP3. 
D) P1CDP2. 
A) P3ACP1. 
B) ABC. 
C) P2DAP3. 
D) P1CDP2.

Question 8

Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

Accepted Answer

A) a head tax (that is, a tax everyone must pay regardless of what one does or buys) 
B) an income tax 
C) a tax on compact discs 
D) a tax on caviar 
A) a head tax (that is, a tax everyone must pay regardless of what one does or buys) 
B) an income tax 
C) a tax on compact discs 
D) a tax on caviar

Question 9

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

Accepted Answer

A) As the size of the tax increases, tax revenue continually rises and deadweight loss continually falls. 
B) As the size of the tax increases, tax revenue and deadweight loss rise initially, but both eventually begin to fall. 
C) As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises. 
D) As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss falls initially, but eventually it begins to rise. 
A) As the size of the tax increases, tax revenue continually rises and deadweight loss continually falls. 
B) As the size of the tax increases, tax revenue and deadweight loss rise initially, but both eventually begin to fall. 
C) As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises. 
D) As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss falls initially, but eventually it begins to rise.

Question 10

Figure 8-1  
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

Accepted Answer

A) deadweight loss due to the tax. 
B) loss in consumer surplus due to the tax. 
C) loss in producer surplus due to the tax. 
D) total surplus before the tax. 
A) deadweight loss due to the tax. 
B) loss in consumer surplus due to the tax. 
C) loss in producer surplus due to the tax. 
D) total surplus before the tax.

Question 11

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

Accepted Answer

A) True 
 B)False

Question 12

Figure 8-20. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.  
-Refer to Figure 8-20. Suppose the figure pertains to the labor tax, and suppose also that point B represents the position on the curve of the typical European country. Then, according to a recent research paper published by the European Central Bank, the position on the curve of the U.S. would most likely be point

Accepted Answer

A) A. 
B) C. 
C) D. 
D) F. 
A) A. 
B) C. 
C) D. 
D) F.

Question 13

When the government imposes taxes on buyers or sellers of a good, society

Accepted Answer

A) loses some of the benefits of market efficiency. 
B) gains efficiency but loses equality. 
C) is better off because the government's tax revenues exceed the deadweight loss. 
D) moves from an elastic supply curve to an inelastic supply curve. 
A) loses some of the benefits of market efficiency. 
B) gains efficiency but loses equality. 
C) is better off because the government's tax revenues exceed the deadweight loss. 
D) moves from an elastic supply curve to an inelastic supply curve.

Question 14

The price elasticities of supply and demand affect

Accepted Answer

A) both the size of the deadweight loss from a tax and the tax incidence. 
B) the size of the deadweight loss from a tax but not the tax incidence. 
C) the tax incidence but not the size of the deadweight loss from a tax. 
D) neither the size of the deadweight loss from a tax nor the tax incidence. 
A) both the size of the deadweight loss from a tax and the tax incidence. 
B) the size of the deadweight loss from a tax but not the tax incidence. 
C) the tax incidence but not the size of the deadweight loss from a tax. 
D) neither the size of the deadweight loss from a tax nor the tax incidence.

Question 15

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. Without the tax, the total surplus is

Accepted Answer

A) [x (P0-P5) x Q5] + [x (P5-0) x Q5]. 
B) [x (P0-P2) x Q2] +[(P2-P8) x Q2] + [x (P8-0) x Q2]. 
C) (P2-P8) x Q2. 
D) x (P2-P8) x (Q5-Q2). 
A) [x (P0-P5) x Q5] + [x (P5-0) x Q5]. 
B) [x (P0-P2) x Q2] +[(P2-P8) x Q2] + [x (P8-0) x Q2]. 
C) (P2-P8) x Q2. 
D) x (P2-P8) x (Q5-Q2).

Question 16

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

Accepted Answer

A) True 
 B)False

Question 17

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Accepted Answer

A) True 
 B)False

Question 18

For good X, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on good X. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is

Accepted Answer

A) $1,750. 
B) $2,250. 
C) $3,000. 
D) $4,500. 
A) $1,750. 
B) $2,250. 
C) $3,000. 
D) $4,500.

Question 19

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is

Accepted Answer

A) $0. 
B) $1. 
C) $2. 
D) $3. 
A) $0. 
B) $1. 
C) $2. 
D) $3.

Question 20

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The price that buyers effectively pay after the tax is imposed is

Accepted Answer

A) P1. 
B) P2. 
C) P3. 
D) P4. 
A) P1. 
B) P2. 
C) P3. 
D) P4.

Exam 8: Application: The Costs of Taxation

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

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. Without the tax, the consumer surplus is

Taxes cause deadweight losses because taxes

Deadweight loss measures the loss

When a good is taxed, the burden of the tax

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

When the government imposes taxes on buyers or sellers of a good, society

The price elasticities of supply and demand affect

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. Without the tax, the total surplus is

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

For good X, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on good X. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The price that buyers effectively pay after the tax is imposed is

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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