Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Figure 8-26  
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

Accepted Answer

60 units will be bou

Question 3

For a good that is taxed, the area on the relevant supply­and­demand graph that represents government's tax revenue is a

Accepted Answer

A)  triangle. 
B)  rectangle. 
C)  trapezoid. 
D)  None of the above is correct; government's tax revenue is the area between the supply and demand curves, above the horizontal axis, and below the effective price to buyers 
A)  triangle. 
B)  rectangle. 
C)  trapezoid. 
D)  None of the above is correct; government's tax revenue is the area between the supply and demand curves, above the horizontal axis, and below the effective price to buyers

Question 4

Scenario 8-2
Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28.
-Refer to Scenario 8-2. If Karla hires Roland to mow her lawn, Karla's consumer surplus is

Accepted Answer

A)  $3. 
B)  $5. 
C)  $8. 
D)  $25. 
A)  $3. 
B)  $5. 
C)  $8. 
D)  $25.

Question 5

The Laffer curve relates

Accepted Answer

A)  the tax rate to tax revenue raised by the tax. 
B)  the tax rate to the deadweight loss of the tax. 
C)  the price elasticity of supply to the deadweight loss of the tax. 
D)  government welfare payments to the birth rate. 
A)  the tax rate to tax revenue raised by the tax. 
B)  the tax rate to the deadweight loss of the tax. 
C)  the price elasticity of supply to the deadweight loss of the tax. 
D)  government welfare payments to the birth rate.

Question 6

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4. The per-unit burden of the tax on buyers is

Accepted Answer

A)  $3. 
B)  $4. 
C)  $5. 
D)  $8. 
A)  $3. 
B)  $4. 
C)  $5. 
D)  $8.

Question 7

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

Accepted Answer

A)  The response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of bananas is weak. 
B)  The response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak. 
C)  The response of buyers and sellers to a change in the price of bananas is strong. 
D)  The response of buyers and sellers to a change in the price of bananas is weak. 
A)  The response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of bananas is weak. 
B)  The response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak. 
C)  The response of buyers and sellers to a change in the price of bananas is strong. 
D)  The response of buyers and sellers to a change in the price of bananas is weak.

Question 8

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. What happens to consumer surplus when the tax is imposed in this market?

Accepted Answer

A)  Consumer surplus falls by $3,600. 
B)  Consumer surplus falls by $2,700. 
C)  Consumer surplus falls by $1,800. 
D)  Consumer surplus falls by $900. 
A)  Consumer surplus falls by $3,600. 
B)  Consumer surplus falls by $2,700. 
C)  Consumer surplus falls by $1,800. 
D)  Consumer surplus falls by $900.

Question 9

Suppose a tax of $5 per unit is imposed on a good. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. The tax decreases consumer surplus by $10,000 and decreases producer surplus by $15,000. The deadweight loss of the tax is $2,500. The tax decreased the equilibrium quantity of the good from

Accepted Answer

A)  6,500 to 5,500. 
B)  5,500 to 4,500. 
C)  5,000 to 3,000. 
D)  6,000 to 4,000. 
A)  6,500 to 5,500. 
B)  5,500 to 4,500. 
C)  5,000 to 3,000. 
D)  6,000 to 4,000.

Question 10

If a tax shifts the supply curve downward or to the right), we can infer that the tax was levied on

Accepted Answer

A)  buyers of the good. 
B)  sellers of the good. 
C)  both buyers and sellers of the good. 
D)  We cannot infer anything because the shift described is not consistent with a tax. 
A)  buyers of the good. 
B)  sellers of the good. 
C)  both buyers and sellers of the good. 
D)  We cannot infer anything because the shift described is not consistent with a tax.

Question 11

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The tax is levied on

Accepted Answer

A)  buyers only. 
B)  sellers only. 
C)  both buyers and sellers. 
D)  This is impossible to determine from the figure. 
A)  buyers only. 
B)  sellers only. 
C)  both buyers and sellers. 
D)  This is impossible to determine from the figure.

Question 12

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The loss of consumer surplus associated with some buyers dropping out of the market as a result of the tax is

Accepted Answer

A)  $0. 
B)  $1.50. 
C)  $3. 
D)  $4.50. 
A)  $0. 
B)  $1.50. 
C)  $3. 
D)  $4.50.

Question 13

The deadweight loss from a tax of $x per unit will be smallest in a market

Accepted Answer

A)  in which demand is elastic and supply is inelastic. 
B)  in which demand is inelastic and supply is elastic. 
C)  in which demand is inelastic and supply is inelastic. 
D)  None of the above are correct; we need to know the value of x in order to determine the answer. 
A)  in which demand is elastic and supply is inelastic. 
B)  in which demand is inelastic and supply is elastic. 
C)  in which demand is inelastic and supply is inelastic. 
D)  None of the above are correct; we need to know the value of x in order to determine the answer.

Question 14

Figure 8-12  
-Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The loss of consumer surplus resulting from this tax is

Accepted Answer

A)  $35. 
B)  $45. 
C)  $70. 
D)  $80. 
A)  $35. 
B)  $45. 
C)  $70. 
D)  $80.

Question 15

According to Arthur Laffer, the graph that represents the amount of tax revenue measured on the vertical axis) as a function of the size of the tax measured on the horizontal axis) looks like

Accepted Answer

A)  a U. 
B)  an upside-down U. 
C)  a horizontal straight line. 
D)  an upward-sloping line or curve. 
A)  a U. 
B)  an upside-down U. 
C)  a horizontal straight line. 
D)  an upward-sloping line or curve.

Question 16

Figure 8-13  
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss of producer surplus resulting from this tax is

Accepted Answer

A)  $60. 
B)  $45. 
C)  $30. 
D)  $15. 
A)  $60. 
B)  $45. 
C)  $30. 
D)  $15.

Question 17

With linear demand and supply curves in a market, suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40. If the tax is increased to $0.50 per unit, the deadweight loss from the new tax will be

Accepted Answer

A)  $200. 
B)  $250. 
C)  $475. 
D)  $625. 
A)  $200. 
B)  $250. 
C)  $475. 
D)  $625.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be

Accepted Answer

A)  $200. 
B)  $250. 
C)  $500. 
D)  $2,500. 
A)  $200. 
B)  $250. 
C)  $500. 
D)  $2,500.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

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

Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

For a good that is taxed, the area on the relevant supply­and­demand graph that represents government's tax revenue is a

Scenario 8-2 Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. -Refer to Scenario 8-2. If Karla hires Roland to mow her lawn, Karla's consumer surplus is

The Laffer curve relates

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The per-unit burden of the tax on buyers is

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. What happens to consumer surplus when the tax is imposed in this market?

If a tax shifts the supply curve downward or to the right), we can infer that the tax was levied on

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax is levied on

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of consumer surplus associated with some buyers dropping out of the market as a result of the tax is

The deadweight loss from a tax of $x per unit will be smallest in a market

Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The loss of consumer surplus resulting from this tax is

According to Arthur Laffer, the graph that represents the amount of tax revenue measured on the vertical axis) as a function of the size of the tax measured on the horizontal axis) looks like

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss of producer surplus resulting from this tax is

With linear demand and supply curves in a market, suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40. If the tax is increased to $0.50 per unit, the deadweight loss from the new tax will be

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

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: International Trade

Externalities

Public Goods and Common Resources

The Costs of Production

Firms in Competitive Markets

Monopoly

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

Filters

For a good that is taxed, the area on the relevant supplyanddemand graph that represents government's tax revenue is a