Question 1

Economists disagree on whether labor taxes have a small or large deadweight loss.

Accepted Answer

A) True 
 B)False

Question 2

Because the supply of land is perfectly elastic,the deadweight loss of a tax on land is very large.

Accepted Answer

A) True 
 B)False

Question 3

Suppose that instead of a supply-demand diagram,you are given the following information:
Qs = 100 + 3P
Qd = 400 - 2P
From this information compute equilibrium price and quantity.Now suppose that a tax is placed on buyers so that
Qd = 400 - (2P + T).
If T = 15,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

Prior to the tax,the equilibrium price w

Question 4

A tax of $0.25 is imposed on each bag of potato chips that is sold.The tax decreases producer surplus by $600 per day,generates tax revenue of $1,220 per day,and decreases the equilibrium quantity of potato chips by 120 bags per day.The tax

Accepted Answer

A)  decreases consumer surplus by $645 per day. 
B)  decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day. 
C)  decreases total surplus from $3,000 to $1,800 per day. 
D)  creates a deadweight loss of $15 per day. 
A)  decreases consumer surplus by $645 per day. 
B)  decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day. 
C)  decreases total surplus from $3,000 to $1,800 per day. 
D)  creates a deadweight loss of $15 per day.

Question 5

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4.The amount of deadweight loss as a result of the tax is

Accepted Answer

A)  $210. 
B)  $420. 
C)  $980. 
D)  $1,600. 
A)  $210. 
B)  $420. 
C)  $980. 
D)  $1,600.

Question 6

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 7

If a tax shifts the demand curve upward (or to the right),we can infer that the tax was levied on

Accepted Answer

A)  buyers of the good. 
B)  sellers of the good. 
C)  both buyers and sellers of the good. 
D)  We cannot infer anything because the shift described is not consistent with a tax. 
A)  buyers of the good. 
B)  sellers of the good. 
C)  both buyers and sellers of the good. 
D)  We cannot infer anything because the shift described is not consistent with a tax.

Question 8

When alcohol is taxed and sellers of alcohol are required to pay the tax to the government,

Accepted Answer

A)  the quantity of alcohol bought and sold in the market is reduced. 
B)  the price paid by buyers of alcohol decreases. 
C)  the demand for alcohol decreases. 
D)  there is a movement downward and to the right along the demand curve for alcohol. 
A)  the quantity of alcohol bought and sold in the market is reduced. 
B)  the price paid by buyers of alcohol decreases. 
C)  the demand for alcohol decreases. 
D)  there is a movement downward and to the right along the demand curve for alcohol.

Question 9

For a good that is taxed,the area on the relevant supply-and-demand graph that represents government's tax revenue is

Accepted Answer

A)  smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax. 
B)  bounded by the supply curve,the demand curve,the effective price paid by buyers,and the effective price received by sellers. 
C)  a right triangle. 
D)  a triangle,but not necessarily a right triangle. 
A)  smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax. 
B)  bounded by the supply curve,the demand curve,the effective price paid by buyers,and the effective price received by sellers. 
C)  a right triangle. 
D)  a triangle,but not necessarily a right triangle.

Question 10

When a good is taxed,the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

Accepted Answer

A) True 
 B)False

Question 11

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6.What happens to producer surplus when the tax is imposed in this market?

Accepted Answer

A)  Producer surplus falls by $600. 
B)  Producer surplus falls by $900. 
C)  Producer surplus falls by $1,800. 
D)  Producer surplus falls by $2,100. 
A)  Producer surplus falls by $600. 
B)  Producer surplus falls by $900. 
C)  Producer surplus falls by $1,800. 
D)  Producer surplus falls by $2,100.

Question 12

Tax revenues increase in direct proportion to increases in the size of the tax.

Accepted Answer

A) True 
 B)False

Question 13

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 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

Consider a good to which a per-unit tax applies.The greater the price elasticities of demand and supply for the good,the

Accepted Answer

A)  smaller the deadweight loss from the tax. 
B)  greater the deadweight loss from the tax. 
C)  more efficient is the tax. 
D)  more equitable is the distribution of the tax burden between buyers and sellers. 
A)  smaller the deadweight loss from the tax. 
B)  greater the deadweight loss from the tax. 
C)  more efficient is the tax. 
D)  more equitable is the distribution of the tax burden between buyers and sellers.

Question 16

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

Accepted Answer

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

Question 17

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 tax revenue received by the government is

Accepted Answer

A)  $2.50. 
B)  $4. 
C)  $5. 
D)  $9. 
A)  $2.50. 
B)  $4. 
C)  $5. 
D)  $9.

Question 18

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

Accepted Answer

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

Question 19

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

Accepted Answer

A)  California economics. 
B)  welfare economics. 
C)  supply-side economics. 
D)  elasticity economics. 
A)  California economics. 
B)  welfare economics. 
C)  supply-side economics. 
D)  elasticity economics.

Question 20

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.

Exam 8: Application: The Costs of Taxation

Economists disagree on whether labor taxes have a small or large deadweight loss.

Because the supply of land is perfectly elastic,the deadweight loss of a tax on land is very large.

A tax of $0.25 is imposed on each bag of potato chips that is sold.The tax decreases producer surplus by $600 per day,generates tax revenue of $1,220 per day,and decreases the equilibrium quantity of potato chips by 120 bags per day.The tax

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4.The amount of deadweight loss as a result of the tax is

The Laffer curve relates

If a tax shifts the demand curve upward (or to the right),we can infer that the tax was levied on

When alcohol is taxed and sellers of alcohol are required to pay the tax to the government,

For a good that is taxed,the area on the relevant supply-and-demand graph that represents government's tax revenue is

When a good is taxed,the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6.What happens to producer surplus when the tax is imposed in this market?

Tax revenues increase in direct proportion to increases in the size of the tax.

When a tax is levied on a good,

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?

Consider a good to which a per-unit tax applies.The greater the price elasticities of demand and supply for the good,the

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

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 tax revenue received by the government is

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

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

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

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

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