Question 1

Which of the following scenarios is consistent with the Laffer curve?

Accepted Answer

A)  The tax rate is 1 percent, and tax revenue is very low. 
B)  The tax rate is 1 percent, and tax revenue is very high. 
C)  The tax rate is 99 percent, and tax revenue is very high. 
D)  The tax rate is moderate (between very high and very low), and tax revenue is very low. 
A)  The tax rate is 1 percent, and tax revenue is very low. 
B)  The tax rate is 1 percent, and tax revenue is very high. 
C)  The tax rate is 99 percent, and tax revenue is very high. 
D)  The tax rate is moderate (between very high and very low), and tax revenue is very low.

Question 2

Taxes on labor have the effect of encouraging

Accepted Answer

A)  workers to work more hours. 
B)  the elderly to postpone retirement. 
C)  second earners within a family to take a joc. 
D)  unscrupulous people to take part in the underground economy. 
A)  workers to work more hours. 
B)  the elderly to postpone retirement. 
C)  second earners within a family to take a joc. 
D)  unscrupulous people to take part in the underground economy.

Question 3

The price elasticities of supply and demand affect

Accepted Answer

A)  both the size of the deadweight loss from a tax and the tax incidence. 
B)  the size of the deadweight loss from a tax but not the tax incidence. 
C)  the tax incidence but not the size of the deadweight loss from a tax. 
D)  neither the size of the deadweight loss from a tax nor the tax incidence. 
A)  both the size of the deadweight loss from a tax and the tax incidence. 
B)  the size of the deadweight loss from a tax but not the tax incidence. 
C)  the tax incidence but not the size of the deadweight loss from a tax. 
D)  neither the size of the deadweight loss from a tax nor the tax incidence.

Question 4

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The total surplus with the tax is represented by area

Accepted Answer

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

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The loss of consumer surplus as a result of the tax is

Accepted Answer

A)  $1.50. 
B)  $3. 
C)  $4.50. 
D)  $6. 
A)  $1.50. 
B)  $3. 
C)  $4.50. 
D)  $6.

Question 7

Figure 8-22  
-Refer to Figure 8-22. Suppose the government changed the per-unit tax on this good from $3.00 to $1.50. Compared to the original tax rate, this lower tax rate would

Accepted Answer

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

Question 8

When a tax is imposed on a good, the

Accepted Answer

A)  supply curve for the good always shifts. 
B)  demand curve for the good always shifts. 
C)  amount of the good that buyers are willing to buy at each price always remains unchanged. 
D)  equilibrium quantity of the good always decreases. 
A)  supply curve for the good always shifts. 
B)  demand curve for the good always shifts. 
C)  amount of the good that buyers are willing to buy at each price always remains unchanged. 
D)  equilibrium quantity of the good always decreases.

Question 9

Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

Accepted Answer

A)  the larger is the decrease in quantity demanded as a result of the tax. 
B)  the smaller is the tax burden on buyers relative to the tax burden on sellers. 
C)  the larger is the deadweight loss of the tax. 
D)  All of the above are correct. 
A)  the larger is the decrease in quantity demanded as a result of the tax. 
B)  the smaller is the tax burden on buyers relative to the tax burden on sellers. 
C)  the larger is the deadweight loss of the tax. 
D)  All of the above are correct.

Question 10

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The imposition of the tax causes the price paid by buyers to

Accepted Answer

A)  decrease by $2. 
B)  increase by $3. 
C)  decrease by $4. 
D)  increase by $5. 
A)  decrease by $2. 
B)  increase by $3. 
C)  decrease by $4. 
D)  increase by $5.

Question 11

When a tax is levied on a good,

Accepted Answer

A)  government revenues exceed the loss in total welfare. 
B)  there is a decrease in the quantity of the good bought and sold in the market. 
C)  the price that sellers receive exceeds the price that buyers pay. 
D)  All of the above are correct. 
A)  government revenues exceed the loss in total welfare. 
B)  there is a decrease in the quantity of the good bought and sold in the market. 
C)  the price that sellers receive exceeds the price that buyers pay. 
D)  All of the above are correct.

Question 12

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

Accepted Answer

A)  total surplus before the tax. 
B)  total surplus after the tax. 
C)  consumer surplus before the tax. 
D)  deadweight loss from the tax. 
A)  total surplus before the tax. 
B)  total surplus after the tax. 
C)  consumer surplus before the tax. 
D)  deadweight loss from the tax.

Question 13

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 14

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area

Accepted Answer

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

Question 15

When a tax is imposed on the buyers of a good, the demand curve shifts

Accepted Answer

A)  downward by the amount of the tax. 
B)  upward by the amount of the tax. 
C)  downward by less than the amount of the tax. 
D)  upward by more than the amount of the tax. 
A)  downward by the amount of the tax. 
B)  upward by the amount of the tax. 
C)  downward by less than the amount of the tax. 
D)  upward by more than the amount of the tax.

Question 16

Figure 8-9
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-9. The equilibrium price and quantity before the imposition of the tax is

Accepted Answer

A)  P=$800 and Q=20. 
B)  P=$600 and Q=20. 
C)  P=$300 and Q=20. 
D)  P=$600 and Q=40. 
A)  P=$800 and Q=20. 
B)  P=$600 and Q=20. 
C)  P=$300 and Q=20. 
D)  P=$600 and Q=40.

Question 17

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax?

Accepted Answer

A)  the maximum value that Rebecca would pay for dog sitting 
B)  the $30 tax 
C)  the lost benefit to Rebecca and Susan because after the tax, Susan will not dog sit for Rebecca 
D)  the lost benefit to Rebecca of being unable to hire a dog sitter because Rebecca is the one who would pay the tax 
A)  the maximum value that Rebecca would pay for dog sitting 
B)  the $30 tax 
C)  the lost benefit to Rebecca and Susan because after the tax, Susan will not dog sit for Rebecca 
D)  the lost benefit to Rebecca of being unable to hire a dog sitter because Rebecca is the one who would pay the tax

Question 18

Figure 8-10  
-Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. With the tax, the producer surplus is

Accepted Answer

A)  (P5-0) x Q5. 
B)  1/2 x (P5-0) x Q5. 
C)  (P8-0) x Q2. 
D)  1/2 x (P8-0) x Q2. 
A)  (P5-0) x Q5. 
B)  1/2 x (P5-0) x Q5. 
C)  (P8-0) x Q2. 
D)  1/2 x (P8-0) x Q2.

Question 19

The size of the deadweight loss generated from a tax is affected by the

Accepted Answer

A)  elasticities of both supply and demand. 
B)  elasticity of demand only. 
C)  elasticity of supply only. 
D)  total revenue collected by the government. 
A)  elasticities of both supply and demand. 
B)  elasticity of demand only. 
C)  elasticity of supply only. 
D)  total revenue collected by the government.

Question 20

In terms of gains from trade, why is it true that taxes cause deadweight losses?

Accepted Answer

Taxes cause deadweight losses

Exam 8: Application: The Costs of Taxation

Which of the following scenarios is consistent with the Laffer curve?

Taxes on labor have the effect of encouraging

The price elasticities of supply and demand affect

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The total surplus with the tax is represented by area

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

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of consumer surplus as a result of the tax is

Figure 8-22 -Refer to Figure 8-22. Suppose the government changed the per-unit tax on this good from $3.00 to $1.50. Compared to the original tax rate, this lower tax rate would

When a tax is imposed on a good, the

Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The imposition of the tax causes the price paid by buyers to

When a tax is levied on a good,

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

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

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area

When a tax is imposed on the buyers of a good, the demand curve shifts

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The equilibrium price and quantity before the imposition of the tax is

Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. With the tax, the producer surplus is

The size of the deadweight loss generated from a tax is affected by the

In terms of gains from trade, why is it true that taxes cause deadweight losses?

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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