Question 1

If a $2 tax on cigarettes decreases both consumer and producer surplus:

Accepted Answer

A)  tax revenues will exactly equal the amount of the lost consumer and producer surplus. 
B)  tax revenues will be less than the amount of the lost consumer and producer surplus. 
C)  tax revenues will be more than the amount of the lost consumer and producer surplus. 
D)  there will be no deadweight loss. 
A)  tax revenues will exactly equal the amount of the lost consumer and producer surplus. 
B)  tax revenues will be less than the amount of the lost consumer and producer surplus. 
C)  tax revenues will be more than the amount of the lost consumer and producer surplus. 
D)  there will be no deadweight loss.

Question 2

Use the following to answer questions:
Figure: Taxes and Deadweight Loss  
-(Figure: Taxes and Deadweight Loss) In the diagram, producer surpluses before and after the tax are ______ and ______, respectively.

Accepted Answer

A)  A + B; D + E 
B)  A + B + D + F; D + F 
C)  D + E + F; F 
D)  B + C; D 
A)  A + B; D + E 
B)  A + B + D + F; D + F 
C)  D + E + F; F 
D)  B + C; D

Question 3

Use the following to answer questions:
Figure: Tax on Supply and Demand  
-(Figure: Tax on Supply and Demand) According to the figure, if the tax is placed on buyers, the equilibrium is at Point:

Accepted Answer

A)  B, and the equilibrium price and quantity are P3 and Q2. 
B)  C, and the equilibrium price and quantity are P3 and Q2. 
C)  C, and the equilibrium price and quantity are P1 and Q2. 
D)  D, and the equilibrium price and quantity are P2 and Q1. 
A)  B, and the equilibrium price and quantity are P3 and Q2. 
B)  C, and the equilibrium price and quantity are P3 and Q2. 
C)  C, and the equilibrium price and quantity are P1 and Q2. 
D)  D, and the equilibrium price and quantity are P2 and Q1.

Question 4

When demand is more elastic than supply, buyers bear more of the tax burden.

Accepted Answer

A) True 
 B)False

Question 5

If demand is more elastic than supply, the majority of a tax is paid by the buyers.

Accepted Answer

A) True 
 B)False

Question 6

Use the following to answer questions:
Figure: Demand and Supply with Subsidy  
-(Figure: Supply and Demand with Subsidy) Refer to the figure. What is the total cost of the subsidy for taxpayers?

Accepted Answer

A)  $400 
B)  $800 
C)  $3,200 
D)  $2,400 
A)  $400 
B)  $800 
C)  $3,200 
D)  $2,400

Question 7

When the supply of a good is perfectly elastic:

Accepted Answer

A)  no one benefits from the subsidy. 
B)  everyone benefits from the subsidy. 
C)  all of the benefits of the subsidy go to producers. 
D)  all of the benefits of the subsidy go to consumers. 
A)  no one benefits from the subsidy. 
B)  everyone benefits from the subsidy. 
C)  all of the benefits of the subsidy go to producers. 
D)  all of the benefits of the subsidy go to consumers.

Question 8

Use the following to answer questions:
Figure: Supply Tax  
-(Figure: Supply Tax) In the accompanying pizza market, with a $2 tax imposed on the sellers, how much of the tax is paid by the buyers and how much of the tax burden is borne by the sellers?

Accepted Answer

A)  Buyers pay all of the $2 tax. 
B)  Sellers pay all of the $2 tax. 
C)  Buyers pay $1.50 and sellers pay $0.50 of the tax. 
D)  Sellers pay $1.50 and buyers pay $0.50 of the tax. 
A)  Buyers pay all of the $2 tax. 
B)  Sellers pay all of the $2 tax. 
C)  Buyers pay $1.50 and sellers pay $0.50 of the tax. 
D)  Sellers pay $1.50 and buyers pay $0.50 of the tax.

Question 9

Martin's maximum willingness to pay for an electric boat motor is $250. Because of a tax, the price of the motor increases from $230 to $280. The deadweight loss of the tax attributable to Martin is:

Accepted Answer

A)  $20. 
B)  $250. 
C)  $50. 
D)  $30. 
A)  $20. 
B)  $250. 
C)  $50. 
D)  $30.

Question 10

Suppose the demand for pizza is inelastic and the supply of pizza is elastic, and the demand for cigarettes is inelastic and the supply of cigarettes is elastic. If a tax were levied on the sellers of both of these commodities, we would expect that the burden of:

Accepted Answer

A)  the pizza tax would fall more heavily on sellers than on buyers, and the burden of the cigarette tax would fall more heavily on buyers than on sellers. 
B)  the pizza tax would fall more heavily on buyers than on sellers, and the burden of the cigarette tax would fall more heavily on sellers than on buyers. 
C)  both the pizza and the cigarette taxes would fall more heavily on buyers than on sellers. 
D)  both the pizza and the cigarette taxes would fall more heavily on sellers than on buyers. 
A)  the pizza tax would fall more heavily on sellers than on buyers, and the burden of the cigarette tax would fall more heavily on buyers than on sellers. 
B)  the pizza tax would fall more heavily on buyers than on sellers, and the burden of the cigarette tax would fall more heavily on sellers than on buyers. 
C)  both the pizza and the cigarette taxes would fall more heavily on buyers than on sellers. 
D)  both the pizza and the cigarette taxes would fall more heavily on sellers than on buyers.

Question 11

Use the following to answer questions:
Figure: Deadweight Loss  
-(Figure: Deadweight Loss) Which of the areas in this figure represents the lost consumer surplus resulting from a $2 tax?

Accepted Answer

A)  A 
B)  B 
C)  B + E 
D)  B + C 
A)  A 
B)  B 
C)  B + E 
D)  B + C

Question 12

Ceteris paribus, the more elastic the supply curve, the larger the total subsidy.

Accepted Answer

A) True 
 B)False

Question 13

If demand is perfectly elastic, then supply receives the full benefit of a subsidy and the subsidy creates no deadweight loss.

Accepted Answer

A) True 
 B)False

Question 14

Use the following to answer questions:
Figure: Wage Subsidy  
-(Figure: Wage Subsidy) Refer to the figure. If a minimum wage of $8 had been implemented instead of a wage subsidy, how many workers would have been unemployed?

Accepted Answer

A)  60 
B)  30 
C)  180 
D)  120 
A)  60 
B)  30 
C)  180 
D)  120

Question 15

The typical teen-age smoker has a more elastic demand for cigarettes than does a typical older smoker. We expect a given cigarette tax to ______ a teen-age smoker's consumption by______ than an older smoker's consumption.

Accepted Answer

A)  increase; less 
B)  increase; more 
C)  reduce; less 
D)  reduce; more 
A)  increase; less 
B)  increase; more 
C)  reduce; less 
D)  reduce; more

Question 16

Figure: Elasticities of Supply and Demand   Which combination of demand and supply curves results in the greatest tax burden to buyers?

Accepted Answer

A)  D0 and S0 
B)  D1 and S1 
C)  D0 and S1 
D)  D1 and S0 
A)  D0 and S0 
B)  D1 and S1 
C)  D0 and S1 
D)  D1 and S0

Question 17

A subsidy causes deadweight loss:

Accepted Answer

A)  only because of inefficient increases in trade. 
B)  only because of unexploited gains from trade. 
C)  because of both inefficient increases in trade and the unexploited gains from trade. 
D)  only if the supply of the good being subsidized is unit elastic. 
A)  only because of inefficient increases in trade. 
B)  only because of unexploited gains from trade. 
C)  because of both inefficient increases in trade and the unexploited gains from trade. 
D)  only if the supply of the good being subsidized is unit elastic.

Question 18

Use the following to answer questions:
Figure: Wage Subsidy  
-(Figure: Wage Subsidy) Refer to the figure. How many additional workers have been hired as a result of the wage subsidy?

Accepted Answer

A)  150 
B)  180 
C)  30 
D)  No additional workers have been hired as a result of the wage subsidy. 
A)  150 
B)  180 
C)  30 
D)  No additional workers have been hired as a result of the wage subsidy.

Question 19

With a tax on producers, supply:

Accepted Answer

A)  increases. 
B)  decreases. 
C)  remains in the same location. 
D)  shifts in an indeterminate direction. 
A)  increases. 
B)  decreases. 
C)  remains in the same location. 
D)  shifts in an indeterminate direction.

Question 20

A tax on the seller of a product:

Accepted Answer

A)  causes the seller's take-home price to rise above that paid by the buyer. 
B)  causes the demand curve for the product to shift to the right. 
C)  causes the supply curve for the product to shift to the left. 
D)  always causes the equilibrium quantity traded in the market to increase. 
A)  causes the seller's take-home price to rise above that paid by the buyer. 
B)  causes the demand curve for the product to shift to the right. 
C)  causes the supply curve for the product to shift to the left. 
D)  always causes the equilibrium quantity traded in the market to increase.

Exam 6: Taxes and Subsidies

If a $2 tax on cigarettes decreases both consumer and producer surplus:

Use the following to answer questions: Figure: Taxes and Deadweight Loss -(Figure: Taxes and Deadweight Loss) In the diagram, producer surpluses before and after the tax are ______ and ______, respectively.

Use the following to answer questions: Figure: Tax on Supply and Demand -(Figure: Tax on Supply and Demand) According to the figure, if the tax is placed on buyers, the equilibrium is at Point:

When demand is more elastic than supply, buyers bear more of the tax burden.

If demand is more elastic than supply, the majority of a tax is paid by the buyers.

Use the following to answer questions: Figure: Demand and Supply with Subsidy -(Figure: Supply and Demand with Subsidy) Refer to the figure. What is the total cost of the subsidy for taxpayers?

When the supply of a good is perfectly elastic:

Use the following to answer questions: Figure: Supply Tax -(Figure: Supply Tax) In the accompanying pizza market, with a $2 tax imposed on the sellers, how much of the tax is paid by the buyers and how much of the tax burden is borne by the sellers?

Martin's maximum willingness to pay for an electric boat motor is $250. Because of a tax, the price of the motor increases from $230 to $280. The deadweight loss of the tax attributable to Martin is:

Suppose the demand for pizza is inelastic and the supply of pizza is elastic, and the demand for cigarettes is inelastic and the supply of cigarettes is elastic. If a tax were levied on the sellers of both of these commodities, we would expect that the burden of:

Use the following to answer questions: Figure: Deadweight Loss -(Figure: Deadweight Loss) Which of the areas in this figure represents the lost consumer surplus resulting from a $2 tax?

Ceteris paribus, the more elastic the supply curve, the larger the total subsidy.

If demand is perfectly elastic, then supply receives the full benefit of a subsidy and the subsidy creates no deadweight loss.

Use the following to answer questions: Figure: Wage Subsidy -(Figure: Wage Subsidy) Refer to the figure. If a minimum wage of $8 had been implemented instead of a wage subsidy, how many workers would have been unemployed?

The typical teen-age smoker has a more elastic demand for cigarettes than does a typical older smoker. We expect a given cigarette tax to ______ a teen-age smoker's consumption by______ than an older smoker's consumption.

Figure: Elasticities of Supply and Demand Which combination of demand and supply curves results in the greatest tax burden to buyers?

A subsidy causes deadweight loss:

Use the following to answer questions: Figure: Wage Subsidy -(Figure: Wage Subsidy) Refer to the figure. How many additional workers have been hired as a result of the wage subsidy?

With a tax on producers, supply:

A tax on the seller of a product:

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

Use the following to answer questions: Figure: Taxes and Deadweight Loss -(Figure: Taxes and Deadweight Loss) In the diagram, producer surpluses before and after the tax are and , respectively.

The typical teen-age smoker has a more elastic demand for cigarettes than does a typical older smoker. We expect a given cigarette tax to a teen-age smoker's consumption by than an older smoker's consumption.