Question 1

A deadweight loss is a consequence of a tax on a good because the tax

Accepted Answer

A) induces the government to increase its expenditures. 
B) induces buyers to consume less, and sellers to produce less. 
C) increases the equilibrium price 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) induces buyers to consume less, and sellers to produce less. 
C) increases the equilibrium price in the market. 
D) imposes a loss on buyers that is greater than the loss to sellers.

Question 2

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The amount of deadweight loss as a result of the tax is

Accepted Answer

A) $2.50. 
B) $5. 
C) $7.50. 
D) $10. 
A) $2.50. 
B) $5. 
C) $7.50. 
D) $10.

Question 3

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 is correct?

Accepted Answer

A) The loss of producer surplus that is associated with some sellers dropping out of the market as a result of the tax is $30. 
B) The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $60. 
C) The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax. 
D) This tax produces $200 in tax revenue for the government. 
A) The loss of producer surplus that is associated with some sellers dropping out of the market as a result of the tax is $30. 
B) The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $60. 
C) The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax. 
D) This tax produces $200 in tax revenue for the government.

Question 4

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, total surplus in this market is

Accepted Answer

A) $3,000. 
B) $4,800. 
C) $6,000. 
D) $7,200. 
A) $3,000. 
B) $4,800. 
C) $6,000. 
D) $7,200.

Question 5

Figure 8-14  
-Refer to Figure 8-14. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (b), Panel (a) illustrates which of the following statements?

Accepted Answer

A) When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic. 
B) When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic. 
C) When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic. 
D) When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic. 
A) When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic. 
B) When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic. 
C) When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic. 
D) When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic.

Question 6

If the size of a tax doubles, the deadweight loss doubles.

Accepted Answer

A) True 
 B)False

Question 7

Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct?

Accepted Answer

A) The demand for cigars is less elastic than the supply of cigars. 
B) The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50. 
C) The deadweight loss of the tax is $12.50. 
D) All of the above are correct. 
A) The demand for cigars is less elastic than the supply of cigars. 
B) The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50. 
C) The deadweight loss of the tax is $12.50. 
D) All of the above are correct.

Question 8

Figure 8-11  
-Refer to Figure 8-11. The size of the tax is represented by the

Accepted Answer

A) length of the line segment connecting points A and B. 
B) length of the line segment connecting points A and C. 
C) length of the line segment connecting points B and C. 
D) area of the triangle bounded by the points A, B, and C. 
A) length of the line segment connecting points A and B. 
B) length of the line segment connecting points A and C. 
C) length of the line segment connecting points B and C. 
D) area of the triangle bounded by the points A, B, and C.

Question 9

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 250 per month when there is no tax. Then a tax of $6 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the after-tax quantity of widgets is

Accepted Answer

A) 75 per month. 
B) 100 per month. 
C) 125 per month. 
D) 150 per month. 
A) 75 per month. 
B) 100 per month. 
C) 125 per month. 
D) 150 per month.

Question 10

Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

Accepted Answer

A) the larger is the decrease in quantity demanded as a result of the tax. 
B) the smaller is the tax burden on buyers relative to the tax burden on sellers. 
C) the larger is the deadweight loss of the tax. 
D) All of the above are correct. 
A) the larger is the decrease in quantity demanded as a result of the tax. 
B) the smaller is the tax burden on buyers relative to the tax burden on sellers. 
C) the larger is the deadweight loss of the tax. 
D) All of the above are correct.

Question 11

To fully understand how taxes affect economic well-being, we must compare the

Accepted Answer

A) benefit to buyers with the loss to sellers. 
B) price paid by buyers to the price received by sellers. 
C) profits earned by firms to the losses incurred by consumers. 
D) decrease in total surplus to the increase in revenue raised by the government. 
A) benefit to buyers with the loss to sellers. 
B) price paid by buyers to the price received by sellers. 
C) profits earned by firms to the losses incurred by consumers. 
D) decrease in total surplus to the increase in revenue raised by the government.

Question 12

Which of the following statements is correct regarding the imposition of a tax on gasoline?

Accepted Answer

A) The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. 
B) The incidence of the tax depends upon the price elasticities of demand and supply. 
C) The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. 
D) The amount of tax revenue raised by the tax does not depend upon the amount of the tax per unit. 
A) The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. 
B) The incidence of the tax depends upon the price elasticities of demand and supply. 
C) The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. 
D) The amount of tax revenue raised by the tax does not depend upon the amount of the tax per unit.

Question 13

Suppose that policymakers are considering placing a tax on either of two markets. In Market A, the tax will have a significant effect on the price consumers pay, but it will not affect equilibrium quantity very much. In Market B, the same tax will have only a small effect on the price consumers pay, but it will have a large effect on the equilibrium quantity. Other factors are held constant. In which market will the tax have a larger deadweight loss?

Accepted Answer

A) Market A 
B) Market B 
C) The deadweight loss will be the same in both markets. 
D) There is not enough information to answer the question. 
A) Market A 
B) Market B 
C) The deadweight loss will be the same in both markets. 
D) There is not enough information to answer the question.

Question 14

Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

Accepted Answer

A) The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.20 per gallon. 
B) The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.4; and the gasoline tax amounts to $0.20 per gallon. 
C) The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon. 
D) There is insufficient information to make this determination. 
A) The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.20 per gallon. 
B) The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.4; and the gasoline tax amounts to $0.20 per gallon. 
C) The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon. 
D) There is insufficient information to make this determination.

Question 15

Total surplus is always equal to the sum of consumer surplus and producer surplus.

Accepted Answer

A) True 
 B)False

Question 16

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 is correct?

Accepted Answer

A) Total surplus before the tax is imposed is $250. 
B) After the tax is imposed, consumer surplus is 45 percent of its pre-tax value. 
C) After the tax is imposed, producer surplus is 45 percent of its pre-tax value. 
D) All of the above are correct. 
A) Total surplus before the tax is imposed is $250. 
B) After the tax is imposed, consumer surplus is 45 percent of its pre-tax value. 
C) After the tax is imposed, producer surplus is 45 percent of its pre-tax value. 
D) All of the above are correct.

Question 17

Figure 8-9
The vertical distance between points A and C represent a tax in the market.  
-Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is

Accepted Answer

A) $4,000. 
B) $5,000. 
C) $6,000. 
D) $10,000. 
A) $4,000. 
B) $5,000. 
C) $6,000. 
D) $10,000.

Question 18

In a recent research paper published by the European Central Bank, two economists concluded that U.S. tax revenues would

Accepted Answer

A) increase if labor taxes were increased or if capital income taxes were increased. 
B) increase if labor taxes were increased, but tax revenues would decrease if capital income taxes were increased. 
C) decrease if labor taxes were increased, but tax revenues would increase if capital income taxes were increased. 
D) decrease if labor taxes were increased or if capital income taxes were increased. 
A) increase if labor taxes were increased or if capital income taxes were increased. 
B) increase if labor taxes were increased, but tax revenues would decrease if capital income taxes were increased. 
C) decrease if labor taxes were increased, but tax revenues would increase if capital income taxes were increased. 
D) decrease if labor taxes were increased or if capital income taxes were increased.

Question 19

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

Accepted Answer

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

Question 20

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 is correct?

Accepted Answer

A) Total surplus before the tax is imposed is $45. 
B) After the tax is imposed, consumer surplus is 25 percent of its pre-tax value. 
C) After the tax is imposed, producer surplus is 36 percent of its pre-tax value. 
D) All of the above are correct. 
A) Total surplus before the tax is imposed is $45. 
B) After the tax is imposed, consumer surplus is 25 percent of its pre-tax value. 
C) After the tax is imposed, producer surplus is 36 percent of its pre-tax value. 
D) All of the above are correct.

A deadweight loss is a consequence of a tax on a good because the tax

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The amount of deadweight loss as a result of the tax is

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 is correct?

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, total surplus in this market is

Figure 8-14 -Refer to Figure 8-14. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (b), Panel (a) illustrates which of the following statements?

If the size of a tax doubles, the deadweight loss doubles.

Figure 8-11 -Refer to Figure 8-11. The size of the tax is represented by the

Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

To fully understand how taxes affect economic well-being, we must compare the

Which of the following statements is correct regarding the imposition of a tax on gasoline?

Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

Total surplus is always equal to the sum of consumer surplus and producer surplus.

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 is correct?

Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is

In a recent research paper published by the European Central Bank, two economists concluded that U.S. tax revenues would

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

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 is correct?

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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Exam 8: Application: The Costs of Taxation

A deadweight loss is a consequence of a tax on a good because the tax

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The amount of deadweight loss as a result of the tax is

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 is correct?

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, total surplus in this market is

Figure 8-14 -Refer to Figure 8-14. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (b), Panel (a) illustrates which of the following statements?

If the size of a tax doubles, the deadweight loss doubles.

Figure 8-11 -Refer to Figure 8-11. The size of the tax is represented by the

Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

To fully understand how taxes affect economic well-being, we must compare the

Which of the following statements is correct regarding the imposition of a tax on gasoline?

Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

Total surplus is always equal to the sum of consumer surplus and producer surplus.

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 is correct?

Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is

In a recent research paper published by the European Central Bank, two economists concluded that U.S. tax revenues would

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

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 is correct?

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