Exam 8: Application the Cost of Taxation: Part B

When a tax is imposed on a good,the resulting decrease in consumer surplus is always larger than the resulting decrease in producer surplus.

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

When a tax is imposed on sellers,producer surplus decreases but consumer surplus increases.

The more elastic are supply and demand in a market,the greater are the distortions caused by a tax on that market,and the more likely it is that a tax cut in that market will raise tax revenue.

When a tax is imposed on sellers,consumer surplus and producer surplus both decrease.

Taxes affect market participants by increasing the price paid by the buyer and decreasing the price received by the seller.

The idea that tax cuts would increase the quantity of labor supplied,thus increasing tax revenue,became known as supply-side economics.

If the government imposes a $3 tax in a market,the equilibrium price will rise by $3.

Taxes create deadweight losses.

Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

Total surplus is always equal to the sum of consumer surplus and producer surplus.

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases,deadweight loss continues to increase.

When a good is taxed,the deadweight loss is larger the more elastic are demand and supply.

The result of the large tax cuts in the first Reagan Administration demonstrated very convincingly that Arthur Laffer was correct when he asserted that cuts in tax rates would increase tax revenue.

Tax revenues increase in direct proportion to increases in the size of the tax.

Taxes on labor tend to encourage second earners to stay at home rather than work in the labor force.

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

When a tax is imposed,the loss of consumer surplus and producer surplus as a result of the tax exceeds the tax revenue collected by the government.

When a tax is imposed on a good,consumer surplus decreases and producer surplus remains unchanged.

Normally,both buyers and sellers of a good become worse off when the good is taxed.