Question 1

With a tax on consumers, demand:

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 2

The supply of financial capital is very internationally mobile. People can move their bank and brokerage accounts around the world and invest in foreign corporations with a click of the mouse. The supply of labor is less internationally mobile. People have strong ties to the countries in which they live. Assuming that the demand for labor and for financial capital have similar elasticities, which of the following is TRUE?

Accepted Answer

A)  Taxes on financial capital will raise more revenue than similar taxes on labor. 
B)  Taxes on labor will have less deadweight loss than similar taxes on financial capital. 
C)  Taxes on labor and financial capital are interchangeable. 
D)  Taxes on labor will have no deadweight loss at all. 
A)  Taxes on financial capital will raise more revenue than similar taxes on labor. 
B)  Taxes on labor will have less deadweight loss than similar taxes on financial capital. 
C)  Taxes on labor and financial capital are interchangeable. 
D)  Taxes on labor will have no deadweight loss at all.

Question 3

If the elasticity of demand is 1 in absolute value, and the elasticity of supply is 1 in absolute value, how much of a tax burden will the buyer bear relative to the seller?

Accepted Answer

A)  The buyer will bear more of the tax burden than will the seller. 
B)  The seller will bear more of the tax burden than will the buyer. 
C)  The buyer and seller will share the tax burden equally. 
D)  The buyer will not bear any of the tax burden since demand is unit elastic. 
A)  The buyer will bear more of the tax burden than will the seller. 
B)  The seller will bear more of the tax burden than will the buyer. 
C)  The buyer and seller will share the tax burden equally. 
D)  The buyer will not bear any of the tax burden since demand is unit elastic.

Question 4

When a payroll tax is enacted or a mandate requires firms to provide health insurance the wage paid to workers ______ and the wage paid by firms ______.

Accepted Answer

A)  rises; rises 
B)  rises; falls 
C)  falls; falls 
D)  falls; rises 
A)  rises; rises 
B)  rises; falls 
C)  falls; falls 
D)  falls; rises

Question 5

Which of the following statements is TRUE? The buyer will pay more of the tax burden if:
I. the good is a luxury good.
II. the good is a necessity.
III. the good has no substitutes.

Accepted Answer

A)  I only 
B)  II only 
C)  II and III only 
D)  I and III only 
A)  I only 
B)  II only 
C)  II and III only 
D)  I and III only

Question 6

Why do cotton growers spend billions of dollars to dam rivers and transport water hundreds of miles to grow cotton in California deserts?

Accepted Answer

A)  Cotton growers in California don't pay payroll taxes. 
B)  The water used to grow California cotton is highly subsidized by the government. 
C)  Cotton growers in California are mostly operated as nonprofit enterprises. 
D)  The water used to grow California cotton is high in mineral contents, making for a bigger cotton yield. 
A)  Cotton growers in California don't pay payroll taxes. 
B)  The water used to grow California cotton is highly subsidized by the government. 
C)  Cotton growers in California are mostly operated as nonprofit enterprises. 
D)  The water used to grow California cotton is high in mineral contents, making for a bigger cotton yield.

Question 7

Use the following to answer questions:
Figure: Supply and Demand with Subsidy  
-(Figure: Supply and Demand with Subsidy) Refer to the figure. The deadweight loss from a $2 subsidy is:

Accepted Answer

A)  $100. 
B)  $800. 
C)  $50. 
D)  $400. 
A)  $100. 
B)  $800. 
C)  $50. 
D)  $400.

Question 8

Figure: Soda Market   If Congress imposed a subsidy of the same value instead of the 70-cent tax, how much would consumers pay for one can of soda?

Accepted Answer

A)  $0.00 
B)  $0.60 
C)  $0.70 
D)  $1.20 
A)  $0.00 
B)  $0.60 
C)  $0.70 
D)  $1.20

Question 9

Taxes lead to a loss of beneficial trades.

Accepted Answer

A) True 
 B)False

Question 10

Figure: Supply and Demand with Tax on Suppliers   
Using the graph shown, answer the following questions.
a. What was the equilibrium price in this market before the tax?
b. What is the amount of the tax?
c. How much of the tax will the buyers pay?
d. How much of the tax will the sellers pay?
e. How much will the buyer pay for the product after the tax is imposed?
f. How much will the seller receive after the tax is imposed?
g. As a result of the tax, what has happened to the level of market activity?

Accepted Answer

a. $10.00
b. $5.00
c. $2.50
d.

Question 11

With a tax on consumers, 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 12

Let the price elasticity of supply for a good be 1.8, and the absolute value of the price elasticity of demand be 1.8. Which of the following is TRUE in this case?

Accepted Answer

A)  Producers carry the majority of the tax burden. 
B)  Consumers carry the majority of the tax burden. 
C)  Producers and consumers carry an equal amount of the tax burden. 
D)  Consumers carry the entire tax burden. 
A)  Producers carry the majority of the tax burden. 
B)  Consumers carry the majority of the tax burden. 
C)  Producers and consumers carry an equal amount of the tax burden. 
D)  Consumers carry the entire tax burden.

Question 13

The difference between what buyers pay for a unit of a good and what sellers receive is known as the:

Accepted Answer

A)  cost of production. 
B)  tax. 
C)  brokerage fee. 
D)  overhead. 
A)  cost of production. 
B)  tax. 
C)  brokerage fee. 
D)  overhead.

Question 14

A tax imposed on sellers will:

Accepted Answer

A)  shift the supply curve up by the amount of the tax. 
B)  shift the supply curve down by the amount of the tax. 
C)  shift the demand curve down by the amount of the tax. 
D)  shift the demand curve up by the amount of the tax. 
A)  shift the supply curve up by the amount of the tax. 
B)  shift the supply curve down by the amount of the tax. 
C)  shift the demand curve down by the amount of the tax. 
D)  shift the demand curve up by the amount of the tax.

Question 15

Taxes reduce the gains from trade, despite increasing consumer and producer surplus.

Accepted Answer

A) True 
 B)False

Question 16

In a market with a downward-sloping demand curve and an upward sloping supply curve, a tax placed on sellers will cause sellers to receive a lower price and buyers to pay a higher price.

Accepted Answer

A) True 
 B)False

Question 17

Use the following to answer questions:
Figure: Imposition of a Tax  
-(Figure: Imposition of a Tax) Refer to the figure. With a $4 tax, the deadweight loss is:

Accepted Answer

A)  $10. 
B)  $35. 
C)  $20. 
D)  $40. 
A)  $10. 
B)  $35. 
C)  $20. 
D)  $40.

Question 18

Use the following to answer questions:
Figure: Tax on Buyers 2  
-(Figure: Tax on Buyers 2) In the diagram, the sellers receive _____ without the tax and receive _____ with the tax.

Accepted Answer

A)  $8.50; $6.50 
B)  $6.50; $8.50 
C)  $7.00; $6.50 
D)  $7.00; $5.00 
A)  $8.50; $6.50 
B)  $6.50; $8.50 
C)  $7.00; $6.50 
D)  $7.00; $5.00

Question 19

Use the following to answer questions:
Figure: Deadweight Loss  
-(Figure: Deadweight Loss) Which of the areas represent the area of government revenue resulting from a $2 tax?

Accepted Answer

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

Question 20

If consumers pay 100 percent of a commodity tax, what could one conclude?

Accepted Answer

A)  Suppliers have more effective lobbying in Washington than consumers. 
B)  The commodity in question has a perfectly elastic supply curve. 
C)  The commodity in question has a perfectly elastic demand curve. 
D)  Neither side has a perfectly elastic curve but the supply side is more elastic than the demand side. 
A)  Suppliers have more effective lobbying in Washington than consumers. 
B)  The commodity in question has a perfectly elastic supply curve. 
C)  The commodity in question has a perfectly elastic demand curve. 
D)  Neither side has a perfectly elastic curve but the supply side is more elastic than the demand side.

Exam 6: Taxes and Subsidies

With a tax on consumers, demand:

If the elasticity of demand is 1 in absolute value, and the elasticity of supply is 1 in absolute value, how much of a tax burden will the buyer bear relative to the seller?

When a payroll tax is enacted or a mandate requires firms to provide health insurance the wage paid to workers ______ and the wage paid by firms ______.

Which of the following statements is TRUE? The buyer will pay more of the tax burden if: I. the good is a luxury good. II. the good is a necessity. III. the good has no substitutes.

Why do cotton growers spend billions of dollars to dam rivers and transport water hundreds of miles to grow cotton in California deserts?

Use the following to answer questions: Figure: Supply and Demand with Subsidy -(Figure: Supply and Demand with Subsidy) Refer to the figure. The deadweight loss from a $2 subsidy is:

Figure: Soda Market If Congress imposed a subsidy of the same value instead of the 70-cent tax, how much would consumers pay for one can of soda?

Taxes lead to a loss of beneficial trades.

With a tax on consumers, supply:

Let the price elasticity of supply for a good be 1.8, and the absolute value of the price elasticity of demand be 1.8. Which of the following is TRUE in this case?

The difference between what buyers pay for a unit of a good and what sellers receive is known as the:

A tax imposed on sellers will:

Taxes reduce the gains from trade, despite increasing consumer and producer surplus.

In a market with a downward-sloping demand curve and an upward sloping supply curve, a tax placed on sellers will cause sellers to receive a lower price and buyers to pay a higher price.

Use the following to answer questions: Figure: Imposition of a Tax -(Figure: Imposition of a Tax) Refer to the figure. With a $4 tax, the deadweight loss is:

Use the following to answer questions: Figure: Tax on Buyers 2 -(Figure: Tax on Buyers 2) In the diagram, the sellers receive _____ without the tax and receive _____ with the tax.

Use the following to answer questions: Figure: Deadweight Loss -(Figure: Deadweight Loss) Which of the areas represent the area of government revenue resulting from a $2 tax?

If consumers pay 100 percent of a commodity tax, what could one conclude?

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

When a payroll tax is enacted or a mandate requires firms to provide health insurance the wage paid to workers and the wage paid by firms .

Use the following to answer questions: Figure: Tax on Buyers 2 -(Figure: Tax on Buyers 2) In the diagram, the sellers receive _ without the tax and receive _ with the tax.