Question 1

Graph 8-3
  
-According to Graph 8-3, producer surplus before the tax equals:

Accepted Answer

A)  $1200 
B)  $2400 
C)  $3200 
D)  $4800 
A)  $1200 
B)  $2400 
C)  $3200 
D)  $4800 A

Question 2

The Laffer curve indicates that income tax collections:

Accepted Answer

A)  will be very low if income tax rates are very low 
B)  will be very low if income tax rates are very high 
C)  will be at a maximum if income tax rates are at some intermediate level between very low and very high 
D)  all of the above are correct 
A)  will be very low if income tax rates are very low 
B)  will be very low if income tax rates are very high 
C)  will be at a maximum if income tax rates are at some intermediate level between very low and very high 
D)  all of the above are correct D

Question 3

Graph 8-3
  
-According to Graph 8-3, the price sellers receive after the tax is:

Accepted Answer

A)  $8 
B)  $12 
C)  $16 
D)  $20 
A)  $8 
B)  $12 
C)  $16 
D)  $20 B

Question 4

Suppose that instead of a supply-demand diagram, you are given the following information:
Qs = 90 + P
Qd = 300 - 2P
From this information, compute the equilibrium price (P) and quantity (Q).
Now suppose that a tax (T) is placed on buyers so that
Qd = 300 - 2(P + T).
If T = 12, solve for the new equilibrium price and quantity. (Note: P is the price received by sellers and P + T is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers. What does this show you?

Accepted Answer

Before the tax, the market equilibrium p

Question 5

Taxes cause deadweight losses because they prevent buyers and sellers from realising some of the gains from trade.

Accepted Answer

A) True 
 B)False

Question 6

Tax cuts and deregulation may cause output in an economy to increase by each of the following, except:

Accepted Answer

A)  increasing the value of output by reducing deadweight tax burdens 
B)  luring the underground economy to the surface 
C)  increasing incentives to produce 
D)  reducing competition 
A)  increasing the value of output by reducing deadweight tax burdens 
B)  luring the underground economy to the surface 
C)  increasing incentives to produce 
D)  reducing competition

Question 7

Although tax revenue eventually begins to fall as tax rates increase, the revenue will always be greater than zero, no matter how large the tax is.

Accepted Answer

A) True 
 B)False

Question 8

Suppose Australia puts the same tax on cycads harvested in the wild and ornamental ferns sold in nurseries. Cycads are a very slow growing plant that is subject to a small, regular harvest in the wild, often by Aborigines. Assume that the tax is the same for both plants and that the elasticity of demand is the same for both plants. What would be the difference in the tax burden for these cycads and ferns and why?

Accepted Answer

Cycads are basically drawn from a fixed,

Question 9

Graph 8-1
  
-According to Graph 8-1, producer surplus before the tax is represented by area:

Accepted Answer

A)  A 
B)  A + B + C 
C)  D + E + F 
D)  F 
A)  A 
B)  A + B + C 
C)  D + E + F 
D)  F

Question 10

The more inelastic the supply and demand curves in a market, the more taxes in that market distort behaviour, and the more likely it is that a tax cut will raise tax revenue.

Accepted Answer

A) True 
 B)False

Question 11

Graph 8-1
  
-According to Graph 8-1, the price buyers pay after the tax is:

Accepted Answer

A)  P3 
B)  P2 
C)  P1 
D)  impossible to determine 
A)  P3 
B)  P2 
C)  P1 
D)  impossible to determine

Question 12

Taxes on labour encourage all of the following, except:

Accepted Answer

A)  older workers to take early retirement from the labour force 
B)  mothers to stay at home rather than work in the labour force 
C)  workers to work overtime 
D)  people to be paid under the table 
A)  older workers to take early retirement from the labour force 
B)  mothers to stay at home rather than work in the labour force 
C)  workers to work overtime 
D)  people to be paid under the table

Question 13

Graph 8-1
  
-According to Graph 8-1, the total surplus (consumer, producer, and government) with the tax is represented by area:

Accepted Answer

A)  A + B + C 
B)  D + E + F 
C)  A + B + D + F 
D)  C + E 
A)  A + B + C 
B)  D + E + F 
C)  A + B + D + F 
D)  C + E

Question 14

A major political problem with collecting taxes to finance government spending is that:

Accepted Answer

A)  taxes make taxpayers worse off since government spending benefits no one 
B)  taxes make taxpayers worse off since government spending benefits only those on welfare 
C)  the people who pay the taxes are often not the same people who benefit from the government spending of tax funds 
D)  taxes reduce economic welfare more than the expenditure of tax funds benefits society 
A)  taxes make taxpayers worse off since government spending benefits no one 
B)  taxes make taxpayers worse off since government spending benefits only those on welfare 
C)  the people who pay the taxes are often not the same people who benefit from the government spending of tax funds 
D)  taxes reduce economic welfare more than the expenditure of tax funds benefits society

Question 15

Graph 8-1
  
-According to Graph 8-1, the loss in total welfare resulting from the levying of the tax is represented by area:

Accepted Answer

A)  A + B + C 
B)  C + E 
C)  D + E + F 
D)  A + B + D + F 
A)  A + B + C 
B)  C + E 
C)  D + E + F 
D)  A + B + D + F

Question 16

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

Accepted Answer

A) True 
 B)False

Question 17

A tax on luxuries will create a smaller deadweight loss than will the same tax on necessities, ceteris paribus.

Accepted Answer

A) True 
 B)False

Question 18

Assume that a tax is levied on a good and the government uses the funds to build statues of former prime ministers. In this case there would be:

Accepted Answer

A)  a decrease in consumer surplus to consumers of the taxed good 
B)  a decrease in producer surplus to producers of the taxed good 
C)  a probable decrease in the welfare of society that exceeded the deadweight economic loss from the tax 
D)  all of the above would occur 
A)  a decrease in consumer surplus to consumers of the taxed good 
B)  a decrease in producer surplus to producers of the taxed good 
C)  a probable decrease in the welfare of society that exceeded the deadweight economic loss from the tax 
D)  all of the above would occur

Question 19

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

Accepted Answer

A)  both buyers and sellers are economically worse off 
B)  only sellers are worse off because they have to pay the tax 
C)  only buyers are worse off because sellers pass the tax on to them 
D)  there is no change because sellers will produce a different good for buyers to purchase 
A)  both buyers and sellers are economically worse off 
B)  only sellers are worse off because they have to pay the tax 
C)  only buyers are worse off because sellers pass the tax on to them 
D)  there is no change because sellers will produce a different good for buyers to purchase

Question 20

The higher a country's tax rates, the more likely that country will be:

Accepted Answer

A)  on the top of the Laffer curve 
B)  on the positively sloped part of the Laffer curve 
C)  above the Laffer curve 
D)  on the negatively sloped part of the Laffer curve 
A)  on the top of the Laffer curve 
B)  on the positively sloped part of the Laffer curve 
C)  above the Laffer curve 
D)  on the negatively sloped part of the Laffer curve

Exam 8: Application: The Costs of Taxation

Graph 8-3 -According to Graph 8-3, producer surplus before the tax equals:

The Laffer curve indicates that income tax collections:

Graph 8-3 -According to Graph 8-3, the price sellers receive after the tax is:

Taxes cause deadweight losses because they prevent buyers and sellers from realising some of the gains from trade.

Tax cuts and deregulation may cause output in an economy to increase by each of the following, except:

Although tax revenue eventually begins to fall as tax rates increase, the revenue will always be greater than zero, no matter how large the tax is.

Graph 8-1 -According to Graph 8-1, producer surplus before the tax is represented by area:

The more inelastic the supply and demand curves in a market, the more taxes in that market distort behaviour, and the more likely it is that a tax cut will raise tax revenue.

Graph 8-1 -According to Graph 8-1, the price buyers pay after the tax is:

Taxes on labour encourage all of the following, except:

Graph 8-1 -According to Graph 8-1, the total surplus (consumer, producer, and government) with the tax is represented by area:

A major political problem with collecting taxes to finance government spending is that:

Graph 8-1 -According to Graph 8-1, the loss in total welfare resulting from the levying of the tax is represented by area:

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

A tax on luxuries will create a smaller deadweight loss than will the same tax on necessities, ceteris paribus.

Assume that a tax is levied on a good and the government uses the funds to build statues of former prime ministers. In this case there would be:

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

The higher a country's tax rates, the more likely that country will be:

Ten Lessons From 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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Business Strategy

Competition Policy

Monopolistic Competition

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment and the Financial System

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

Open-Economy Macroeconomics: Basic Concepts

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

Five Debates Over Macroeconomic Policy

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