Question 1

Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will

Accepted Answer

A)  fall entirely on the buyers of fast-food French fries. 
B)  fall entirely on the sellers of fast-food French fries. 
C)  be shared equally by the buyers and sellers of fast-food French fries. 
D)  be shared by the buyers and sellers of fast-food French fries but not necessarily equally. 
A)  fall entirely on the buyers of fast-food French fries. 
B)  fall entirely on the sellers of fast-food French fries. 
C)  be shared equally by the buyers and sellers of fast-food French fries. 
D)  be shared by the buyers and sellers of fast-food French fries but not necessarily equally.

Question 2

The demand for energy drinks is more elastic than the demand for milk. Would a tax on energy drinks or a tax on milk have a larger deadweight loss? Explain.

Accepted Answer

A tax on energy drinks would have a larg

Question 3

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

Accepted Answer

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

Question 4

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. The price that sellers effectively receive after the tax is imposed is

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  P4. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  P4.

Question 5

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that the market for product X is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $4 tax per unit?

Accepted Answer

The deadweight loss will be $8

Question 7

For a good that is taxed, the area on the relevant supply­and­demand 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 8

The government's benefit from a tax can be measured by

Accepted Answer

A)  consumer surplus. 
B)  producer surplus. 
C)  tax revenue. 
D)  All of the above are correct. 
A)  consumer surplus. 
B)  producer surplus. 
C)  tax revenue. 
D)  All of the above are correct.

Question 9

What happens to the total surplus in a market when the government imposes a tax?

Accepted Answer

A)  Total surplus increases by the amount of the tax. 
B)  Total surplus increases but by less than the amount of the tax. 
C)  Total surplus decreases. 
D)  Total surplus is unaffected by the tax. 
A)  Total surplus increases by the amount of the tax. 
B)  Total surplus increases but by less than the amount of the tax. 
C)  Total surplus decreases. 
D)  Total surplus is unaffected by the tax.

Question 10

Figure 8-9
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-9. The producer surplus with the tax is

Accepted Answer

A)  $3,000. 
B)  $6,000. 
C)  $9,000. 
D)  $12,000. 
A)  $3,000. 
B)  $6,000. 
C)  $9,000. 
D)  $12,000.

Question 11

Figure 8-22  
-Refer to Figure 8-22. Suppose the government changed the per-unit tax from $3.00 to $4.50. Compared to the original tax rate, this higher 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 12

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 13

Figure 8-26  
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much tax revenue is collected after the tax is imposed?

Accepted Answer

Total tax revenue is

Question 14

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4. The per-unit burden of the tax on buyers is

Accepted Answer

A)  $3. 
B)  $4. 
C)  $5. 
D)  $8. 
A)  $3. 
B)  $4. 
C)  $5. 
D)  $8.

Question 15

Figure 8-21  
-Refer to Figure 8-21. Suppose the market is represented by Demand 1 and Supply 1. At first the government places a $3 per-unit tax on this good. Then the government decides to raise the tax to $6 per unit. How would you characterize the decision to raise the tax rate from $3 to $6 per unit? The decision is

Accepted Answer

A)  a good one because it increases tax revenue while decreasing the deadweight loss from the tax. 
B)  a bad one because it does not increase tax revenue yet increases the deadweight loss from the tax. 
C)  a bad one because it decreases tax revenue while increasing the deadweight loss from the tax. 
D)  unclear because it increases tax revenue yet also increases the deadweight loss from the tax. 
A)  a good one because it increases tax revenue while decreasing the deadweight loss from the tax. 
B)  a bad one because it does not increase tax revenue yet increases the deadweight loss from the tax. 
C)  a bad one because it decreases tax revenue while increasing the deadweight loss from the tax. 
D)  unclear because it increases tax revenue yet also increases the deadweight loss from the tax.

Question 16

Figure 8-13  
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The producer surplus after this tax is

Accepted Answer

A)  $60. 
B)  $45. 
C)  $30. 
D)  $15. 
A)  $60. 
B)  $45. 
C)  $30. 
D)  $15.

Question 17

Economists generally agree that the most important tax in the U.S. economy is the

Accepted Answer

A)  investment tax. 
B)  sales tax. 
C)  property tax. 
D)  labor tax. 
A)  investment tax. 
B)  sales tax. 
C)  property tax. 
D)  labor tax.

Question 18

In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez asserted the following:

Accepted Answer

A)  Since World War II, higher tax rates on individuals with the highest incomes tend to be associated with higher rates of economic growth - not with lower rates of economic growth. 
B)  The average federal income tax rate on the top 1 percent of income-earners in the United States more than doubled between 1970 and 2010. 
C)  A "reasonable" increase in the tax rate on top income earners is all that is needed to solve long­term fiscal problems faced by the United States. 
D)  All of the above are correct. 
A)  Since World War II, higher tax rates on individuals with the highest incomes tend to be associated with higher rates of economic growth - not with lower rates of economic growth. 
B)  The average federal income tax rate on the top 1 percent of income-earners in the United States more than doubled between 1970 and 2010. 
C)  A "reasonable" increase in the tax rate on top income earners is all that is needed to solve long­term fiscal problems faced by the United States. 
D)  All of the above are correct.

Question 19

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 buyers effectively pay is

Accepted Answer

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

Question 20

If the size of a tax triples, the deadweight loss increases by a factor of six.

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will

The demand for energy drinks is more elastic than the demand for milk. Would a tax on energy drinks or a tax on milk have a larger deadweight loss? Explain.

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

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The price that sellers effectively receive after the tax is imposed is

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

Suppose that the market for product X is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $4 tax per unit?

For a good that is taxed, the area on the relevant supply­and­demand graph that represents government's tax revenue is

The government's benefit from a tax can be measured by

What happens to the total surplus in a market when the government imposes a tax?

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The producer surplus with the tax is

Figure 8-22 -Refer to Figure 8-22. Suppose the government changed the per-unit tax from $3.00 to $4.50. Compared to the original tax rate, this higher tax rate would

Taxes cause deadweight losses because taxes

Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much tax revenue is collected after the tax is imposed?

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The per-unit burden of the tax on buyers is

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The producer surplus after this tax is

Economists generally agree that the most important tax in the U.S. economy is the

In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez asserted the following:

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 buyers effectively pay is

If the size of a tax triples, the deadweight loss increases by a factor of six.

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

Filters

For a good that is taxed, the area on the relevant supplyanddemand graph that represents government's tax revenue is