Question 1

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

Accepted Answer

A)  M. 
B)  L+M+N+Y+B. 
C)  L+M+Y. 
D)  J. 
A)  M. 
B)  L+M+N+Y+B. 
C)  L+M+Y. 
D)  J.

Question 2

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. The amount of the tax on each unit of the good is

Accepted Answer

A)  $6. 
B)  $8. 
C)  $10. 
D)  $12. 
A)  $6. 
B)  $8. 
C)  $10. 
D)  $12.

Question 3

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is

Accepted Answer

A)  $600. 
B)  $900. 
C)  $1,500. 
D)  $3,000. 
A)  $600. 
B)  $900. 
C)  $1,500. 
D)  $3,000.

Question 4

If the labor supply curve is nearly vertical, a tax on labor

Accepted Answer

A)  has a large deadweight loss. 
B)  raises a small amount of tax revenue. 
C)  has little impact on the amount of work that workers are willing to do. 
D)  results in a large tax burden on the firms that hire labor. 
A)  has a large deadweight loss. 
B)  raises a small amount of tax revenue. 
C)  has little impact on the amount of work that workers are willing to do. 
D)  results in a large tax burden on the firms that hire labor.

Question 5

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 6

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

Accepted Answer

A)  buyers of the good will bear most of the burden of the tax. 
B)  sellers of the good will bear most of the burden of the tax. 
C)  buyers and sellers will each bear 50 percent of the burden of the tax. 
D)  both equilibrium price and quantity will increase. 
A)  buyers of the good will bear most of the burden of the tax. 
B)  sellers of the good will bear most of the burden of the tax. 
C)  buyers and sellers will each bear 50 percent of the burden of the tax. 
D)  both equilibrium price and quantity will increase.

Question 7

Who once said that taxes are the price we pay for a civilized society?

Accepted Answer

A)  Aristotle 
B)  George Washington 
C)  Oliver Wendell Holmes, Jr. 
D)  Ronald Reagan 
A)  Aristotle 
B)  George Washington 
C)  Oliver Wendell Holmes, Jr. 
D)  Ronald Reagan

Question 8

Concerning the labor market and taxes on labor, economists disagree about

Accepted Answer

A)  the size of the tax on labor. 
B)  the size of the deadweight loss of the tax on labor. 
C)  whether or not a tax on labor places a wedge between the wage that firms pay and the wage that workers receive. 
D)  All of the above are correct. 
A)  the size of the tax on labor. 
B)  the size of the deadweight loss of the tax on labor. 
C)  whether or not a tax on labor places a wedge between the wage that firms pay and the wage that workers receive. 
D)  All of the above are correct.

Question 9

If a tax shifts the supply curve downward (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 10

The Laffer curve illustrates that

Accepted Answer

A)  deadweight loss rises by the square of the increase in a tax. 
B)  deadweight loss rises exponentially as a tax increases. 
C)  tax revenue first rises, then falls as a tax increases. 
D)  Both a) and b) are correct. 
A)  deadweight loss rises by the square of the increase in a tax. 
B)  deadweight loss rises exponentially as a tax increases. 
C)  tax revenue first rises, then falls as a tax increases. 
D)  Both a) and b) are correct.

Question 11

Figure 8-13  
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price received by sellers to

Accepted Answer

A)  decrease by $5. 
B)  decrease by $3. 
C)  decrease by $2. 
D)  increase by $5. 
A)  decrease by $5. 
B)  decrease by $3. 
C)  decrease by $2. 
D)  increase by $5.

Question 12

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The tax is levied on

Accepted Answer

A)  buyers only. 
B)  sellers only. 
C)  both buyers and sellers. 
D)  This is impossible to determine from the figure. 
A)  buyers only. 
B)  sellers only. 
C)  both buyers and sellers. 
D)  This is impossible to determine from the figure.

Question 13

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Accepted Answer

A) True 
 B)False

Question 14

In the early 1980s, which of the following countries had a marginal tax rate of about 80 percent?

Accepted Answer

A)  United States 
B)  Canada 
C)  Japan 
D)  Sweden 
A)  United States 
B)  Canada 
C)  Japan 
D)  Sweden

Question 15

Figure 8-27  
-Refer to Figure 8-27. Suppose that Market A is characterized by Demand 1 and Supply 1, and Market B is characterized by Demand 2 and Supply 1. If an identical tax is imposed on each market, the tax will create a larger deadweight loss in which market? Explain.

Accepted Answer

The deadweight loss will be larger in Ma

Question 16

Taxes on labor tend to encourage second earners to stay at home rather than work in the labor force.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following quantities decrease in response to a tax on a good?

Accepted Answer

A)  the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus 
B)  the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good 
C)  the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus 
D)  None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers. 
A)  the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus 
B)  the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good 
C)  the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus 
D)  None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

When a tax is levied on buyers of a good,

Accepted Answer

A)  government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax. 
B)  there is an increase in the quantity of the good supplied. 
C)  a wedge is placed between the price buyers pay and the price sellers effectively receive. 
D)  the effective price to buyers decreases because the demand curve shifts leftward. 
A)  government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax. 
B)  there is an increase in the quantity of the good supplied. 
C)  a wedge is placed between the price buyers pay and the price sellers effectively receive. 
D)  the effective price to buyers decreases because the demand curve shifts leftward.

Question 20

A tax placed on a good

Accepted Answer

A)  causes the effective price to sellers to increase. 
B)  affects the welfare of buyers of the good but not the welfare of sellers. 
C)  causes the equilibrium quantity of the good to decrease. 
D)  creates a burden that is usually borne entirely by the sellers of the good. 
A)  causes the effective price to sellers to increase. 
B)  affects the welfare of buyers of the good but not the welfare of sellers. 
C)  causes the equilibrium quantity of the good to decrease. 
D)  creates a burden that is usually borne entirely by the sellers of the good.

Exam 8: Application: The Costs of Taxation

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus after 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 amount of the tax on each unit of the good is

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is

If the labor supply curve is nearly vertical, a tax on labor

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

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

Who once said that taxes are the price we pay for a civilized society?

Concerning the labor market and taxes on labor, economists disagree about

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

The Laffer curve illustrates that

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price received by sellers to

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax is levied on

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

In the early 1980s, which of the following countries had a marginal tax rate of about 80 percent?

Figure 8-27 -Refer to Figure 8-27. Suppose that Market A is characterized by Demand 1 and Supply 1, and Market B is characterized by Demand 2 and Supply 1. If an identical tax is imposed on each market, the tax will create a larger deadweight loss in which market? Explain.

Taxes on labor tend to encourage second earners to stay at home rather than work in the labor force.

Which of the following quantities decrease in response to a tax on a good?

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

When a tax is levied on buyers of a good,

A tax placed on a good

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

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