Question 1

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 2

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. Which of the following equations is valid for the deadweight loss of the tax?

Accepted Answer

A)  Deadweight loss = (1/2)(P2 - P1)(Q2 + Q1) 
B)  Deadweight loss = (1/2)(P3 - P1)(Q2 + Q1) 
C)  Deadweight loss = (1/2)(P3 - P2)(Q2 - Q1) 
D)  Deadweight loss = (1/2)(P3 - P1)(Q2 - Q1) 
A)  Deadweight loss = (1/2)(P2 - P1)(Q2 + Q1) 
B)  Deadweight loss = (1/2)(P3 - P1)(Q2 + Q1) 
C)  Deadweight loss = (1/2)(P3 - P2)(Q2 - Q1) 
D)  Deadweight loss = (1/2)(P3 - P1)(Q2 - Q1)

Question 3

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented by area

Accepted Answer

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

Question 4

Figure 8-9
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to increase by

Accepted Answer

A)  $20. 
B)  $200. 
C)  $300. 
D)  $500. 
A)  $20. 
B)  $200. 
C)  $300. 
D)  $500.

Question 5

The deadweight loss from a tax of $x per unit will be smallest in a market

Accepted Answer

A)  in which demand is elastic and supply is inelastic. 
B)  in which demand is inelastic and supply is elastic. 
C)  in which demand is inelastic and supply is inelastic. 
D)  None of the above are correct; we need to know the value of x in order to determine the answer. 
A)  in which demand is elastic and supply is inelastic. 
B)  in which demand is inelastic and supply is elastic. 
C)  in which demand is inelastic and supply is inelastic. 
D)  None of the above are correct; we need to know the value of x in order to determine the answer.

Question 6

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Accepted Answer

A) True 
 B)False

Question 7

The loss in total surplus resulting from a tax is called

Accepted Answer

A)  a deficit. 
B)  economic loss. 
C)  deadweight loss. 
D)  inefficiency. 
A)  a deficit. 
B)  economic loss. 
C)  deadweight loss. 
D)  inefficiency.

Question 8

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. Suppose a 20th unit of the good were sold by a seller to a buyer. Which of the following statements is correct?

Accepted Answer

A)  For the 20th unit, the difference between the buyer's value and the seller's cost is less than the tax per unit. 
B)  For the 20th unit, the difference between the buyer's value and the seller's cost is greater than the tax per unit. 
C)  For the 20th unit, the difference between the buyer's value and the seller's cost is equal to the tax per unit. 
D)  It makes sense for the buyer to buy and for the seller to sell the 20th unit, with or without the tax in place. 
A)  For the 20th unit, the difference between the buyer's value and the seller's cost is less than the tax per unit. 
B)  For the 20th unit, the difference between the buyer's value and the seller's cost is greater than the tax per unit. 
C)  For the 20th unit, the difference between the buyer's value and the seller's cost is equal to the tax per unit. 
D)  It makes sense for the buyer to buy and for the seller to sell the 20th unit, with or without the tax in place.

Question 9

Deadweight loss measures the loss

Accepted Answer

A)  in a market to buyers and sellers that is not offset by an increase in government revenue. 
B)  in revenue to the government when buyers choose to buy less of the product because of the tax. 
C)  of equality in a market due to government intervention. 
D)  of total revenue to business firms due to the price wedge caused by the tax. 
A)  in a market to buyers and sellers that is not offset by an increase in government revenue. 
B)  in revenue to the government when buyers choose to buy less of the product because of the tax. 
C)  of equality in a market due to government intervention. 
D)  of total revenue to business firms due to the price wedge caused by the tax.

Question 10

Figure 8-13  
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on sellers is

Accepted Answer

A)  $1. 
B)  $2. 
C)  $3. 
D)  $5. 
A)  $1. 
B)  $2. 
C)  $3. 
D)  $5.

Question 11

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The per-unit burden of the tax on buyers is

Accepted Answer

A)  $2. 
B)  $3. 
C)  $4. 
D)  $5. 
A)  $2. 
B)  $3. 
C)  $4. 
D)  $5.

Question 12

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. The price that buyers pay is

Accepted Answer

A)  P0. 
B)  P2. 
C)  P5. 
D)  P8. 
A)  P0. 
B)  P2. 
C)  P5. 
D)  P8.

Question 13

Which of the following is a tax on labor?

Accepted Answer

A)  Medicare tax 
B)  inheritance tax 
C)  sales tax 
D)  All of the above are labor taxes. 
A)  Medicare tax 
B)  inheritance tax 
C)  sales tax 
D)  All of the above are labor taxes.

Question 14

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

Accepted Answer

Producer surplus is

Question 15

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

Accepted Answer

A)  deadweight loss due to the tax. 
B)  loss in consumer surplus due to the tax. 
C)  loss in producer surplus due to the tax. 
D)  total surplus before the tax. 
A)  deadweight loss due to the tax. 
B)  loss in consumer surplus due to the tax. 
C)  loss in producer surplus due to the tax. 
D)  total surplus before the tax.

Question 16

Scenario 8-2
Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28.
-Refer to Scenario 8-2. If Karla hires Roland to mow her lawn, Roland's producer surplus is

Accepted Answer

A)  $2. 
B)  $3. 
C)  $5. 
D)  $25. 
A)  $2. 
B)  $3. 
C)  $5. 
D)  $25.

Question 17

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. 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 18

Labor taxes may distort labor markets greatly if

Accepted Answer

A)  labor supply is highly inelastic. 
B)  many workers choose to work 40 hours per week regardless of their earnings. 
C)  the number of hours many part-time workers want to work is very sensitive to the wage rate. 
D)  "underground" workers do not respond to changes in the wages of legal jobs because they prefer not to pay taxes. 
A)  labor supply is highly inelastic. 
B)  many workers choose to work 40 hours per week regardless of their earnings. 
C)  the number of hours many part-time workers want to work is very sensitive to the wage rate. 
D)  "underground" workers do not respond to changes in the wages of legal jobs because they prefer not to pay taxes.

Question 19

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

Accepted Answer

A)  $2,000. 
B)  $4,000. 
C)  $6,000. 
D)  $8,000. 
A)  $2,000. 
B)  $4,000. 
C)  $6,000. 
D)  $8,000.

Question 20

Figure 8-26  
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. What price will consumers pay for the good after the tax is imposed?

Accepted Answer

Consumers will pay $

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 area measured by L+M+Y represents

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. Which of the following equations is valid for the deadweight loss of the tax?

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented by area

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to increase by

The deadweight loss from a tax of $x per unit will be smallest in a market

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

The loss in total surplus resulting from a tax is called

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Suppose a 20th unit of the good were sold by a seller to a buyer. Which of the following statements is correct?

Deadweight loss measures the loss

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on sellers is

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The per-unit burden of the tax on buyers 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. The price that buyers pay is

Which of the following is a tax on labor?

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

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

Scenario 8-2 Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. -Refer to Scenario 8-2. If Karla hires Roland to mow her lawn, Roland's producer surplus is

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The price that sellers effectively receive after the tax is imposed is

Labor taxes may distort labor markets greatly if

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

Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. What price will consumers pay for the good after the tax is imposed?

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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