Exam 8: Application the Cost of Taxation: Part B

Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.

Economists disagree on whether labor taxes have a small or large deadweight loss.

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

When demand is relatively elastic,the deadweight loss of a tax is larger than when demand is relatively inelastic.

A tax places a wedge between the price buyers pay and the price sellers receive.

The most important tax in the U.S.economy is the tax on corporations' profits.

When a good is taxed,the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

If the government imposes a $3 tax in a market,the buyers and sellers will share an equal burden of the tax.

As the price elasticities of supply and demand increase,the deadweight loss from a tax increases.

If a tax did not induce buyers or sellers to change their behavior,it would not cause a deadweight loss.

The Social Security tax is a labor tax.

The deadweight loss of a tax rises even more rapidly than the size of the tax.

When the government imposes taxes on buyers and sellers of a good,society loses some of the benefits of market efficiency.

The elasticities of the supply and demand curves in the market for cigarettes affect how much a tax distorts that market.

Because taxes distort incentives,they cause markets to allocate resources inefficiently.

Taxes drive a wedge into the market by raising the price that sellers receive and lowering the price that buyers pay.

Tax revenue equals the size of the tax multiplied by the quantity sold in the market after the tax is levied.

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

Suppose that a university charges students a $100 "tax" to register for business classes.The next year the university raises the "tax" to $150.The deadweight loss from the "tax" triples.