Question 1

Which one of the following statements about subsidies is NOT correct?

Accepted Answer

A)  Subsidies cause deadweight losses. 
B)  Who actually receives the subsidy does not depend on who gets the check from the government. 
C)  Subsidies always increase the gains from trade for producers. 
D)  Who benefits from the subsidy depends on the relative elasticities of demand and supply. 
A)  Subsidies cause deadweight losses. 
B)  Who actually receives the subsidy does not depend on who gets the check from the government. 
C)  Subsidies always increase the gains from trade for producers. 
D)  Who benefits from the subsidy depends on the relative elasticities of demand and supply.

Question 2

Use the following to answer questions:
Figure: Tax on Sellers  
-(Figure: Tax on Sellers) In the diagram, buyers pay _____ without the tax and _____ with the tax.

Accepted Answer

A)  $6; $4 
B)  $4; $6 
C)  $4; $7 
D)  $6; $7 
A)  $6; $4 
B)  $4; $6 
C)  $4; $7 
D)  $6; $7

Question 3

______ determine(s) whether buyers or sellers ultimately bear the majority of the tax burden.

Accepted Answer

A)  The amount of the tax 
B)  Who the tax is originally imposed on 
C)  Whether the tax is a commodity tax 
D)  The relative elasticities of demand and supply 
A)  The amount of the tax 
B)  Who the tax is originally imposed on 
C)  Whether the tax is a commodity tax 
D)  The relative elasticities of demand and supply

Question 4

A labor market is described by two very simple equations Qd = 60 - 2W, and Qs = 3W. A subsidy of $10 is installed such that the new demand equation becomes Qd = 70 - 2W. What is the total number of new workers that are hired in this labor market?

Accepted Answer

60 – 2W = 3W
60 = 5W
W = $12
The labor m

Question 5

Use the following to answer questions:
Figure: Tax on Sellers  
-(Figure: Tax on Sellers) Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S0 to S1. Using the figure, calculate the amount of the tax.

Accepted Answer

A)  $1 
B)  $2 
C)  $3 
D)  $4 
A)  $1 
B)  $2 
C)  $3 
D)  $4

Question 6

A subsidy is similar to a reverse tax-instead of taking money away from buyers (or sellers), the government gives money back to buyers (or sellers).

Accepted Answer

A) True 
 B)False

Question 7

The government subsidizes driving by building roadways, but it also taxes driving through gasoline taxes. Which of the following is TRUE?

Accepted Answer

A)  Road-building expenditures must be less than gasoline tax revenues. 
B)  Deadweight losses from road subsidies exceed deadweight losses from gasoline taxes. 
C)  These policies at least partially offset each other because a subsidy is a negative tax. 
D)  These policies compound each other because a subsidy is the same thing as a tax. 
A)  Road-building expenditures must be less than gasoline tax revenues. 
B)  Deadweight losses from road subsidies exceed deadweight losses from gasoline taxes. 
C)  These policies at least partially offset each other because a subsidy is a negative tax. 
D)  These policies compound each other because a subsidy is the same thing as a tax.

Question 8

A given tax will impose a greater deadweight loss when:

Accepted Answer

A)  both supply and demand are inelastic. 
B)  supply is inelastic and demand is elastic. 
C)  supply is elastic and demand is inelastic. 
D)  both supply and demand are elastic. 
A)  both supply and demand are inelastic. 
B)  supply is inelastic and demand is elastic. 
C)  supply is elastic and demand is inelastic. 
D)  both supply and demand are elastic.

Question 9

If a tax is levied on the buyers of a product, the tax burden will fall entirely on the buyers.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is TRUE?

Accepted Answer

A)  When demand is elastic, buyers pay little of the tax because buyers can choose from many substitutes. 
B)  When demand is elastic, sellers pay little of the tax because buyers can choose from many substitutes. 
C)  A perfectly inelastic supply curve means that sellers will pay none of the tax. 
D)  A perfectly inelastic demand curve means that buyers will pay none of the tax. 
A)  When demand is elastic, buyers pay little of the tax because buyers can choose from many substitutes. 
B)  When demand is elastic, sellers pay little of the tax because buyers can choose from many substitutes. 
C)  A perfectly inelastic supply curve means that sellers will pay none of the tax. 
D)  A perfectly inelastic demand curve means that buyers will pay none of the tax.

Question 11

The farm lobby is one of the most influential lobby groups in the United States, with each crop bringing its own constituency. Explain why farmers are so willing to spend so much money (an estimated $10 million in campaign contributions in the last election) to protect their subsidies. Who stands to gain the most from farm subsidies-the farmers or the consumers of agriculture? Explain.

Accepted Answer

Farmers are willing to spend so much bec

Question 12

Which of the following statements is TRUE regarding cigarette taxes?

Accepted Answer

A)  Cigarette manufacturers bear almost all of the cigarette taxes. 
B)  Cigarette manufacturers tend to ship their product from low-tax states to high-tax states. 
C)  The elasticity of cigarette supply in all states is very small so cigarette manufacturers receive higher after-tax prices in higher-tax states. 
D)  After-tax prices received by cigarette manufacturers are about the same in all states. 
A)  Cigarette manufacturers bear almost all of the cigarette taxes. 
B)  Cigarette manufacturers tend to ship their product from low-tax states to high-tax states. 
C)  The elasticity of cigarette supply in all states is very small so cigarette manufacturers receive higher after-tax prices in higher-tax states. 
D)  After-tax prices received by cigarette manufacturers are about the same in all states.

Question 13

The economist Henry George argued that the best tax that a government can impose is a tax on land. What was the basis of his argument?

Accepted Answer

A)  The supply of land is highly elastic, so taxes on land will raise lots of revenue with little deadweight loss. 
B)  The demand for land is highly elastic, so taxes on land won't raise much revenue and will have lots of deadweight loss. 
C)  The supply of land is highly inelastic, so taxes on land will raise lots of revenue with little deadweight loss. 
D)  The demand for land is highly inelastic, to taxes on land will raise lots of revenue with little deadweight loss. 
A)  The supply of land is highly elastic, so taxes on land will raise lots of revenue with little deadweight loss. 
B)  The demand for land is highly elastic, so taxes on land won't raise much revenue and will have lots of deadweight loss. 
C)  The supply of land is highly inelastic, so taxes on land will raise lots of revenue with little deadweight loss. 
D)  The demand for land is highly inelastic, to taxes on land will raise lots of revenue with little deadweight loss.

Question 14

In the market for Good X-a necessity good without any good substitutes-the workers and capital in the industry can easily find work producing other goods. The burden of the tax is likely to fall:

Accepted Answer

A)  more heavily on buyers, given that demand is more inelastic than supply. 
B)  evenly between buyers and sellers. 
C)  more heavily on sellers, given that supply is more inelastic than demand. 
D)  more heavily on buyers, given that demand is more elastic than supply. 
A)  more heavily on buyers, given that demand is more inelastic than supply. 
B)  evenly between buyers and sellers. 
C)  more heavily on sellers, given that supply is more inelastic than demand. 
D)  more heavily on buyers, given that demand is more elastic than supply.

Question 15

When demand is more elastic than supply,

Accepted Answer

A)  producers bear the majority of the tax burden. 
B)  consumers bear the majority of the tax burden. 
C)  producers and consumers bear an equal amount of the tax burden. 
D)  consumers bear all of the tax burden. 
A)  producers bear the majority of the tax burden. 
B)  consumers bear the majority of the tax burden. 
C)  producers and consumers bear an equal amount of the tax burden. 
D)  consumers bear all of the tax burden.

Question 16

In Virginia, the state taxes automobiles. In Northern Virginia, there is ample public transportation, and many neighborhoods are very walkable. In the rest of the state, there is less public transportation, and neighborhoods are more spread out. Other things equal, which of the following is likely to be an effect of the car tax?

Accepted Answer

A)  The car tax will raise relatively more money in Northern Virginia. 
B)  The deadweight loss of the tax will be higher in Northern Virginia. 
C)  The deadweight loss of the tax will be higher in the rest of the state. 
D)  The deadweight loss will be the same throughout the state. 
A)  The car tax will raise relatively more money in Northern Virginia. 
B)  The deadweight loss of the tax will be higher in Northern Virginia. 
C)  The deadweight loss of the tax will be higher in the rest of the state. 
D)  The deadweight loss will be the same throughout the state.

Question 17

By law, workers pay half the Social Security tax and employers pay the other half. However, the price of labor (wages) does not adjust very quickly. If the government wanted to temporarily create a shortage of labor (or combat a surplus of labor), what should it do?

Accepted Answer

A)  Move the whole tax onto workers (suppliers of labor). 
B)  Move the whole tax onto employers (demanders of labor). 
C)  Neither, because this change would have a long-run effect on who pays the Social Security tax. 
D)  Increase the tax on both parties. 
A)  Move the whole tax onto workers (suppliers of labor). 
B)  Move the whole tax onto employers (demanders of labor). 
C)  Neither, because this change would have a long-run effect on who pays the Social Security tax. 
D)  Increase the tax on both parties.

Question 18

Which of the following is a correct statement about tax burdens?

Accepted Answer

A)  A tax burden is distributed independently of relative elasticities of supply and demand. 
B)  A tax burden falls most heavily on the side of the market that is closer to unit elastic. 
C)  A tax burden falls most heavily on the side of the market that is less elastic. 
D)  A tax burden falls most heavily on the side of the market that is more elastic. 
A)  A tax burden is distributed independently of relative elasticities of supply and demand. 
B)  A tax burden falls most heavily on the side of the market that is closer to unit elastic. 
C)  A tax burden falls most heavily on the side of the market that is less elastic. 
D)  A tax burden falls most heavily on the side of the market that is more elastic.

Question 19

With regard to tax burdens, what does the "elasticity = escape" idea tell you?

Accepted Answer

A)  that the curve (between demand and supply) that is relatively more elastic will bear less of the tax burden 
B)  that the curve (between demand and supply) that is relatively more inelastic will bear less of the tax burden 
C)  that the curve (between demand and supply) that is relatively more elastic will escape the tax burden entirely 
D)  that the ratio of the buyers' tax burden to the sellers' tax burden is always greater than 1 
A)  that the curve (between demand and supply) that is relatively more elastic will bear less of the tax burden 
B)  that the curve (between demand and supply) that is relatively more inelastic will bear less of the tax burden 
C)  that the curve (between demand and supply) that is relatively more elastic will escape the tax burden entirely 
D)  that the ratio of the buyers' tax burden to the sellers' tax burden is always greater than 1

Question 20

If the government wanted to reduce alcohol consumption in the United States, would a state tax or federal tax be most effective?

Accepted Answer

A)  A state tax on alcohol consumption would be more effective because state taxes affect more buyers. 
B)  A state tax on alcohol consumption would be more effective because the elasticity of demand is higher at the state level than at the federal level. 
C)  A federal tax on alcohol consumption would be more effective because the elasticity of demand is higher at the federal level than at the state level. 
D)  A federal tax on alcohol consumption would be more effective because suppliers cannot as easily avoid the tax simply by shipping alcohol to other states. 
A)  A state tax on alcohol consumption would be more effective because state taxes affect more buyers. 
B)  A state tax on alcohol consumption would be more effective because the elasticity of demand is higher at the state level than at the federal level. 
C)  A federal tax on alcohol consumption would be more effective because the elasticity of demand is higher at the federal level than at the state level. 
D)  A federal tax on alcohol consumption would be more effective because suppliers cannot as easily avoid the tax simply by shipping alcohol to other states.

Exam 6: Taxes and Subsidies

Which one of the following statements about subsidies is NOT correct?

Use the following to answer questions: Figure: Tax on Sellers -(Figure: Tax on Sellers) In the diagram, buyers pay _____ without the tax and _____ with the tax.

______ determine(s) whether buyers or sellers ultimately bear the majority of the tax burden.

A labor market is described by two very simple equations Qd = 60 - 2W, and Qs = 3W. A subsidy of $10 is installed such that the new demand equation becomes Qd = 70 - 2W. What is the total number of new workers that are hired in this labor market?

Use the following to answer questions: Figure: Tax on Sellers -(Figure: Tax on Sellers) Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S0 to S1. Using the figure, calculate the amount of the tax.

A subsidy is similar to a reverse tax-instead of taking money away from buyers (or sellers), the government gives money back to buyers (or sellers).

The government subsidizes driving by building roadways, but it also taxes driving through gasoline taxes. Which of the following is TRUE?

A given tax will impose a greater deadweight loss when:

If a tax is levied on the buyers of a product, the tax burden will fall entirely on the buyers.

Which of the following statements is TRUE?

Which of the following statements is TRUE regarding cigarette taxes?

The economist Henry George argued that the best tax that a government can impose is a tax on land. What was the basis of his argument?

In the market for Good X-a necessity good without any good substitutes-the workers and capital in the industry can easily find work producing other goods. The burden of the tax is likely to fall:

When demand is more elastic than supply,

By law, workers pay half the Social Security tax and employers pay the other half. However, the price of labor (wages) does not adjust very quickly. If the government wanted to temporarily create a shortage of labor (or combat a surplus of labor), what should it do?

Which of the following is a correct statement about tax burdens?

With regard to tax burdens, what does the "elasticity = escape" idea tell you?

If the government wanted to reduce alcohol consumption in the United States, would a state tax or federal tax be most effective?

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: Tax on Sellers -(Figure: Tax on Sellers) In the diagram, buyers pay _ without the tax and _ with the tax.

A labor market is described by two very simple equations Q_d = 60 - 2W, and Q_s = 3W. A subsidy of $10 is installed such that the new demand equation becomes Q_d = 70 - 2W. What is the total number of new workers that are hired in this labor market?

Use the following to answer questions: Figure: Tax on Sellers -(Figure: Tax on Sellers) Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S₀ to S₁. Using the figure, calculate the amount of the tax.