Exam 8: Application the Cost of Taxation: Part B

Economists dismiss the idea that lower tax rates can lead to higher tax revenue,because there is a consensus that the relevant elasticities of demand and supply are very low.

A tax on a good causes the size of the market to shrink.

The larger the deadweight loss from taxation,the larger the cost of government programs.

The more inelastic are demand and supply,the greater is the deadweight loss of a tax.

If the size of a tax triples,the deadweight loss increases by a factor of six.

A tax on insulin is likely to cause a very large deadweight loss to society.

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

The demand for beer is more elastic than the demand for milk,so a tax on beer would have a smaller deadweight loss than an equivalent tax on milk,all else equal.

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

Economists use the government's tax revenue to measure the public benefit from a tax.

The Social Security tax,and to a large extent,the federal income tax,are labor taxes.

A tax raises the price received by sellers and lowers the price paid by buyers.

As the size of a tax increases,the government's tax revenue rises,then falls.

If the size of a tax doubles,the deadweight loss doubles.

The more elastic the supply,the larger the deadweight loss from a tax,all else equal.

Taxes on labor tend to increase the number of hours that people choose to work.

A tax on a good causes the size of the market to increase.

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

The demand for bread is less elastic than the demand for donuts;hence,a tax on bread will create a larger deadweight loss than will the same tax on donuts,other things equal.

Taxes on labor tend to encourage the elderly to retire early.