Question 1

Taxes are costly to market participants because they

Accepted Answer

A)  transfer resources from market participants to the government. 
B)  alter incentives. 
C)  distort market outcomes. 
D)  All of the above are correct. 
A)  transfer resources from market participants to the government. 
B)  alter incentives. 
C)  distort market outcomes. 
D)  All of the above are correct.

Question 2

When a tax is imposed on the sellers of a good,the

Accepted Answer

A)  demand curve shifts downward by less than the amount of the tax. 
B)  demand curve shifts downward by the amount of the tax. 
C)  supply curve shifts upward by less than the amount of the tax. 
D)  supply curve shifts upward by the amount of the tax. 
A)  demand curve shifts downward by less than the amount of the tax. 
B)  demand curve shifts downward by the amount of the tax. 
C)  supply curve shifts upward by less than the amount of the tax. 
D)  supply curve shifts upward by the amount of the tax.

Question 3

Nobel Prize-winning economist Milton Friedman said that,"In my opinion,the least bad tax is the property tax on the unimproved value of land." Why?

Accepted Answer

A)  Land owners can afford the tax better than other people. 
B)  A tax on unimproved land would be sufficient to fund government,so all other taxes could be abolished. 
C)  Such a tax could generate more government revenue than any tax on labor or capital. 
D)  A tax on unimproved land would have no deadweight loss. 
A)  Land owners can afford the tax better than other people. 
B)  A tax on unimproved land would be sufficient to fund government,so all other taxes could be abolished. 
C)  Such a tax could generate more government revenue than any tax on labor or capital. 
D)  A tax on unimproved land would have no deadweight loss.

Question 4

As the price elasticities of supply and demand increase,the deadweight loss from a tax increases.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is a tax on labor?

Accepted Answer

A)  Medicare tax 
B)  Social Security tax 
C)  federal income tax 
D)  All of the above are labor taxes. 
A)  Medicare tax 
B)  Social Security tax 
C)  federal income tax 
D)  All of the above are labor taxes.

Question 6

As more people become self-employed,which allows them to determine how many hours they work per week,we would expect the deadweight loss from the Social Security tax to

Accepted Answer

A)  increase,and the revenue generated from the tax to increase. 
B)  increase,and the revenue generated from the tax to decrease. 
C)  decrease,and the revenue generated from the tax to increase. 
D)  decrease,and the revenue generated from the tax to decrease. 
A)  increase,and the revenue generated from the tax to increase. 
B)  increase,and the revenue generated from the tax to decrease. 
C)  decrease,and the revenue generated from the tax to increase. 
D)  decrease,and the revenue generated from the tax to decrease.

Question 7

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4.The tax results in a loss of producer surplus that amounts to

Accepted Answer

A)  $90. 
B)  $180. 
C)  $420. 
D)  $510. 
A)  $90. 
B)  $180. 
C)  $420. 
D)  $510.

Question 8

Buyers of a product will bear the larger part of the tax burden,and sellers will bear a smaller part of the tax burden,when the

Accepted Answer

A)  tax is placed on the sellers of the product. 
B)  tax is placed on the buyers of the product. 
C)  supply of the product is more elastic than the demand for the product. 
D)  demand for the product is more elastic than the supply of the product. 
A)  tax is placed on the sellers of the product. 
B)  tax is placed on the buyers of the product. 
C)  supply of the product is more elastic than the demand for the product. 
D)  demand for the product is more elastic than the supply of the product.

Question 9

When a country is on the downward-sloping side of the Laffer curves,a cut in the tax rate will

Accepted Answer

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

Question 10

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

Accepted Answer

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

Question 11

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8.After the tax goes into effect,producer surplus is the area

Accepted Answer

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

Question 12

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.

Question 13

Figure 8-1  
-Refer to Figure 8-1.Suppose the government imposes a tax of P' - P'''.The area measured by J+K+I 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 14

The more freedom young mothers have to work outside the home,the

Accepted Answer

A)  more elastic the supply of labor will be. 
B)  less elastic the supply of labor will be. 
C)  more vertical the labor supply curve will be. 
D)  smaller is the decrease in employment that will result from a tax on labor. 
A)  more elastic the supply of labor will be. 
B)  less elastic the supply of labor will be. 
C)  more vertical the labor supply curve will be. 
D)  smaller is the decrease in employment that will result from a tax on labor.

Question 15

A tax levied on the sellers of a good shifts the

Accepted Answer

A)  supply curve upward (or to the left). 
B)  supply curve downward (or to the right). 
C)  demand curve upward (or to the right). 
D)  demand curve downward (or to the left). 
A)  supply curve upward (or to the left). 
B)  supply curve downward (or to the right). 
C)  demand curve upward (or to the right). 
D)  demand curve downward (or to the left).

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8.One effect of the tax is to

Accepted Answer

A)  reduce consumer surplus from $60 to $24. 
B)  reduce producer surplus from $32 to $8. 
C)  create a deadweight loss of $24. 
D)  All of the above are correct. 
A)  reduce consumer surplus from $60 to $24. 
B)  reduce producer surplus from $32 to $8. 
C)  create a deadweight loss of $24. 
D)  All of the above are correct.

Question 18

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7.The deadweight loss associated with this tax amounts to

Accepted Answer

A)  $60,and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
B)  $60,and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. 
C)  $40,and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
D)  $40,and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. 
A)  $60,and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
B)  $60,and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. 
C)  $40,and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
D)  $40,and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.

Question 19

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is doubled,the

Accepted Answer

A)  base of the triangle that represents the deadweight loss doubles. 
B)  height of the triangle that represents the deadweight loss doubles. 
C)  deadweight loss of the tax quadruples. 
D)  All of the above are correct. 
A)  base of the triangle that represents the deadweight loss doubles. 
B)  height of the triangle that represents the deadweight loss doubles. 
C)  deadweight loss of the tax quadruples. 
D)  All of the above are correct.

Question 20

Scenario 8-1
Claudia would be willing to pay as much as $100 per week to have her house cleaned.John's opportunity cost of cleaning Claudia's house is $70 per week.
-Refer to Scenario 8-1.If Claudia pays John $80 to clean her house,Claudia's consumer surplus is

Accepted Answer

A)  $80. 
B)  $30. 
C)  $20. 
D)  $10. 
A)  $80. 
B)  $30. 
C)  $20. 
D)  $10.

Exam 8: Application: The Costs of Taxation

Taxes are costly to market participants because they

When a tax is imposed on the sellers of a good,the

Nobel Prize-winning economist Milton Friedman said that,"In my opinion,the least bad tax is the property tax on the unimproved value of land." Why?

As the price elasticities of supply and demand increase,the deadweight loss from a tax increases.

Which of the following is a tax on labor?

As more people become self-employed,which allows them to determine how many hours they work per week,we would expect the deadweight loss from the Social Security tax to

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4.The tax results in a loss of producer surplus that amounts to

Buyers of a product will bear the larger part of the tax burden,and sellers will bear a smaller part of the tax burden,when the

When a country is on the downward-sloping side of the Laffer curves,a cut in the tax rate will

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

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8.After the tax goes into effect,producer surplus is the area

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

The more freedom young mothers have to work outside the home,the

A tax levied on the sellers of a good shifts the

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

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8.One effect of the tax is to

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7.The deadweight loss associated with this tax amounts to

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is doubled,the

Scenario 8-1 Claudia would be willing to pay as much as $100 per week to have her house cleaned.John's opportunity cost of cleaning Claudia's house is $70 per week. -Refer to Scenario 8-1.If Claudia pays John $80 to clean her house,Claudia's consumer surplus 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

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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