Question 1

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

Accepted Answer

A)  consumer surplus to the producer surplus. 
B)  price paid by buyers to the price received by sellers. 
C)  reduced welfare of buyers and sellers to the revenue raised by the government. 
D)  consumer surplus to the deadweight loss. 
A)  consumer surplus to the producer surplus. 
B)  price paid by buyers to the price received by sellers. 
C)  reduced welfare of buyers and sellers to the revenue raised by the government. 
D)  consumer surplus to the deadweight loss. C

Question 2

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,the price sellers effectively receive is

Accepted Answer

A)  $4. 
B)  $6. 
C)  $10. 
D)  $16. 
A)  $4. 
B)  $6. 
C)  $10. 
D)  $16. B

Question 3

When a tax is imposed on a good for which both demand and supply are very elastic,

Accepted Answer

A)  sellers effectively pay the majority of the tax. 
B)  buyers effectively pay the majority of the tax. 
C)  the tax burden is equally divided between buyers and sellers. 
D)  None of the above is correct;further information would be required to determine how the burden of the tax is distributed between buyers and sellers. 
A)  sellers effectively pay the majority of the tax. 
B)  buyers effectively pay the majority of the tax. 
C)  the tax burden is equally divided between buyers and sellers. 
D)  None of the above is correct;further information would be required to determine how the burden of the tax is distributed between buyers and sellers. D

Question 4

Since the amount of land is fixed,the total supply of land is

Accepted Answer

A)  relatively elastic. 
B)  perfectly elastic. 
C)  perfectly inelastic. 
D)  relatively inelastic. 
A)  relatively elastic. 
B)  perfectly elastic. 
C)  perfectly inelastic. 
D)  relatively inelastic.

Question 5

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

Accepted Answer

A)  tax revenue. 
B)  consumer surplus before the tax. 
C)  producer surplus after the tax. 
D)  total surplus before the tax. 
A)  tax revenue. 
B)  consumer surplus before the tax. 
C)  producer surplus after the tax. 
D)  total surplus before the tax.

Question 6

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 7

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6.The tax results in a deadweight loss that amounts to

Accepted Answer

A)  $600. 
B)  $900. 
C)  $1,500. 
D)  $1,800. 
A)  $600. 
B)  $900. 
C)  $1,500. 
D)  $1,800.

Question 8

The benefit that government receives from a tax is measured by

Accepted Answer

A)  the change in the equilibrium quantity of the good. 
B)  the change in the equilibrium price of the good. 
C)  tax revenue. 
D)  total surplus. 
A)  the change in the equilibrium quantity of the good. 
B)  the change in the equilibrium price of the good. 
C)  tax revenue. 
D)  total surplus.

Question 9

Figure 8-10
The vertical distance between points A and B represents the original tax.  
-Refer to Figure 8-10.If the government changed the per-unit tax from $5.00 to $2.50,then the price paid by buyers would be $7.50,the price received by sellers would be $5,and the quantity sold in the market would be 1.5 units.Compared to the original tax rate,this lower tax rate would

Accepted Answer

A)  increase government revenue and increase the deadweight loss from the tax. 
B)  increase government revenue and decrease the deadweight loss from the tax. 
C)  decrease government revenue and increase the deadweight loss from the tax. 
D)  decrease government revenue and decrease the deadweight loss from the tax. 
A)  increase government revenue and increase the deadweight loss from the tax. 
B)  increase government revenue and decrease the deadweight loss from the tax. 
C)  decrease government revenue and increase the deadweight loss from the tax. 
D)  decrease government revenue and decrease the deadweight loss from the tax.

Question 10

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 11

Normally,both buyers and sellers of a good become worse off when the good is taxed.

Accepted Answer

A) True 
 B)False

Question 12

Assume the price of gasoline is $2.40 per gallon,and the equilibrium quantity of gasoline is 12 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)  A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent;and the tax on gasoline amounts to $0.40 per gallon. 
B)  A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent;and the tax on gasoline amounts to $0.40 per gallon. 
C)  A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent;and the tax on gasoline amounts to $0.35 per gallon. 
D)  There is insufficient information to make this determination. 
A)  A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent;and the tax on gasoline amounts to $0.40 per gallon. 
B)  A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent;and the tax on gasoline amounts to $0.40 per gallon. 
C)  A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent;and the tax on gasoline amounts to $0.35 per gallon. 
D)  There is insufficient information to make this determination.

Question 13

According to Arthur Laffer,the graph that represents the amount of tax revenue (measured on the vertical axis)as a function of the size of the tax (measured on the horizontal axis)looks like

Accepted Answer

A)  a U. 
B)  an upside-down U. 
C)  a horizontal straight line. 
D)  an upward-sloping line or curve. 
A)  a U. 
B)  an upside-down U. 
C)  a horizontal straight line. 
D)  an upward-sloping line or curve.

Question 14

Which of the following is a tax on labor?

Accepted Answer

A)  Medicare tax 
B)  inheritance tax 
C)  sales tax 
D)  All of the above are labor taxes. 
A)  Medicare tax 
B)  inheritance tax 
C)  sales tax 
D)  All of the above are labor taxes.

Question 15

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

Accepted Answer

A)  supply curve shifts upward by the amount of the tax. 
B)  quantity supplied increases for all conceivable prices of the good. 
C)  buyers of the good will send tax payments to the government. 
D)  demand curve shifts to the right by the horizontal distance of the tax. 
A)  supply curve shifts upward by the amount of the tax. 
B)  quantity supplied increases for all conceivable prices of the good. 
C)  buyers of the good will send tax payments to the government. 
D)  demand curve shifts to the right by the horizontal distance of the tax.

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

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,consumer surplus in this market is

Accepted Answer

A)  $1,500. 
B)  $2,400. 
C)  $3,000. 
D)  $3,600. 
A)  $1,500. 
B)  $2,400. 
C)  $3,000. 
D)  $3,600.

Question 18

The more inelastic are demand and supply,the greater is the deadweight loss of a tax.

Accepted Answer

A) True 
 B)False

Question 19

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5.After the tax is levied,producer surplus is represented by area

Accepted Answer

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

Question 20

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

Accepted Answer

A)  assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed. 
B)  compare the taxes raised in the United States with those raised in other countries,especially France. 
C)  compare the reduced welfare of buyers and sellers to the amount of revenue the government raises. 
D)  take into account the fact that almost all taxes reduce the welfare of buyers,increase the welfare of sellers,and raise revenue for the government. 
A)  assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed. 
B)  compare the taxes raised in the United States with those raised in other countries,especially France. 
C)  compare the reduced welfare of buyers and sellers to the amount of revenue the government raises. 
D)  take into account the fact that almost all taxes reduce the welfare of buyers,increase the welfare of sellers,and raise revenue for the government.

Exam 8: Application: The Costs of Taxation

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

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,the price sellers effectively receive is

When a tax is imposed on a good for which both demand and supply are very elastic,

Since the amount of land is fixed,the total supply of land is

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

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 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6.The tax results in a deadweight loss that amounts to

The benefit that government receives from a tax is measured by

Taxes cause deadweight losses because taxes

Normally,both buyers and sellers of a good become worse off when the good is taxed.

Assume the price of gasoline is $2.40 per gallon,and the equilibrium quantity of gasoline is 12 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?

According to Arthur Laffer,the graph that represents the amount of tax revenue (measured on the vertical axis)as a function of the size of the tax (measured on the horizontal axis)looks like

Which of the following is a tax on labor?

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

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

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,consumer surplus in this market is

The more inelastic are demand and supply,the greater is the deadweight loss of a tax.

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5.After the tax is levied,producer surplus is represented by area

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

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality 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 Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

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

Filters