Question 1

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

Accepted Answer

A)  The price elasticity of demand is small, and the price elasticity of supply is large. 
B)  The price elasticity of demand is large, and the price elasticity of supply is small. 
C)  The price elasticity of demand and the price elasticity of supply are both small. 
D)  The price elasticity of demand and the price elasticity of supply are both large. 
A)  The price elasticity of demand is small, and the price elasticity of supply is large. 
B)  The price elasticity of demand is large, and the price elasticity of supply is small. 
C)  The price elasticity of demand and the price elasticity of supply are both small. 
D)  The price elasticity of demand and the price elasticity of supply are both large.

Question 2

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

Accepted Answer

A)  buyers of the good will bear most of the burden of the tax. 
B)  sellers of the good will bear most of the burden of the tax. 
C)  buyers and sellers will each bear 50 percent of the burden of the tax. 
D)  the effective price paid by buyers will decrease as a result of the tax. 
A)  buyers of the good will bear most of the burden of the tax. 
B)  sellers of the good will bear most of the burden of the tax. 
C)  buyers and sellers will each bear 50 percent of the burden of the tax. 
D)  the effective price paid by buyers will decrease as a result of the tax.

Question 3

Figure 8-19
The vertical distance between points A and B represents the original tax.  
-Refer to Figure 8-19. If the government changed the per-unit tax from $5.00 to $2.50, then the price paid by buyers would be $7.50, the price received by sellers would be $5, and the quantity sold in the market would be 1.5 units. Compared to the original tax rate, this lower tax rate would

Accepted Answer

A)  increase government revenue and increase the deadweight loss from the tax. 
B)  increase government revenue and decrease the deadweight loss from the tax. 
C)  decrease government revenue and increase the deadweight loss from the tax. 
D)  decrease government revenue and decrease the deadweight loss from the tax. 
A)  increase government revenue and increase the deadweight loss from the tax. 
B)  increase government revenue and decrease the deadweight loss from the tax. 
C)  decrease government revenue and increase the deadweight loss from the tax. 
D)  decrease government revenue and decrease the deadweight loss from the tax.

Question 4

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is

Accepted Answer

A)  $600. 
B)  $900. 
C)  $1,500. 
D)  $3,000. 
A)  $600. 
B)  $900. 
C)  $1,500. 
D)  $3,000.

Question 5

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

Accepted Answer

A)  As the size of the tax increases, tax revenue continually rises and deadweight loss continually falls. 
B)  As the size of the tax increases, tax revenue and deadweight loss rise initially, but both eventually begin to fall. 
C)  As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises. 
D)  As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss falls initially, but eventually it begins to rise. 
A)  As the size of the tax increases, tax revenue continually rises and deadweight loss continually falls. 
B)  As the size of the tax increases, tax revenue and deadweight loss rise initially, but both eventually begin to fall. 
C)  As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises. 
D)  As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss falls initially, but eventually it begins to rise.

Question 6

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The imposition of the tax causes the price paid by buyers to

Accepted Answer

A)  decrease by $2. 
B)  increase by $3. 
C)  decrease by $4. 
D)  increase by $5. 
A)  decrease by $2. 
B)  increase by $3. 
C)  decrease by $4. 
D)  increase by $5.

Question 7

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are

Accepted Answer

A)  $16 and 300. 
B)  $10 and 600. 
C)  $10 and 300. 
D)  $6 and 300. 
A)  $16 and 300. 
B)  $10 and 600. 
C)  $10 and 300. 
D)  $6 and 300.

Question 8

Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

Accepted Answer

A)  a head tax that is, a tax everyone must pay regardless of what one does or buys) 
B)  an income tax 
C)  a tax on compact discs 
D)  a tax on caviar 
A)  a head tax that is, a tax everyone must pay regardless of what one does or buys) 
B)  an income tax 
C)  a tax on compact discs 
D)  a tax on caviar

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

A tax on a good

Accepted Answer

A)  raises the price that buyers effectively pay and raises the price that sellers effectively receive. 
B)  raises the price that buyers effectively pay and lowers the price that sellers effectively receive. 
C)  lowers the price that buyers effectively pay and raises the price that sellers effectively receive. 
D)  lowers the price that buyers effectively pay and lowers the price that sellers effectively receive. 
A)  raises the price that buyers effectively pay and raises the price that sellers effectively receive. 
B)  raises the price that buyers effectively pay and lowers the price that sellers effectively receive. 
C)  lowers the price that buyers effectively pay and raises the price that sellers effectively receive. 
D)  lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.

Question 11

If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as

Accepted Answer

A)  T/Q. 
B)  T+Q. 
C)  TxQ. 
D)  TxQ)/Q. 
A)  T/Q. 
B)  T+Q. 
C)  TxQ. 
D)  TxQ)/Q.

Question 12

Figure 8-12  
-Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to

Accepted Answer

A)  decrease by $3. 
B)  increase by $2. 
C)  decrease by $1. 
D)  increase by $6. 
A)  decrease by $3. 
B)  increase by $2. 
C)  decrease by $1. 
D)  increase by $6.

Question 13

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 sellers is

Accepted Answer

A)  $7. 
B)  $5. 
C)  $4. 
D)  $3. 
A)  $7. 
B)  $5. 
C)  $4. 
D)  $3.

Question 14

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

Accepted Answer

A)  first year after it is imposed than in the eighth year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. 
B)  first year after it is imposed than in the eighth year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year. 
C)  eighth year after it is imposed than in the first year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. 
D)  eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year. 
A)  first year after it is imposed than in the eighth year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. 
B)  first year after it is imposed than in the eighth year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year. 
C)  eighth year after it is imposed than in the first year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. 
D)  eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.

Question 15

Figure 8-22  
-Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

Accepted Answer

A)  Compared to the original tax, the larger tax will decrease tax revenue. 
B)  Compared to the original tax, the smaller tax will decrease deadweight loss. 
C)  Compared to the original tax, the smaller tax will decrease tax revenue. 
D)  Compared to the original tax, the larger tax will increase deadweight loss. 
A)  Compared to the original tax, the larger tax will decrease tax revenue. 
B)  Compared to the original tax, the smaller tax will decrease deadweight loss. 
C)  Compared to the original tax, the smaller tax will decrease tax revenue. 
D)  Compared to the original tax, the larger tax will increase deadweight loss.

Question 16

Figure 8-10  
-Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the consumer surplus is

Accepted Answer

A)  P0-P2) x Q2. 
B)  1/2 x P0-P2) x Q2. 
C)  P0-P5) x Q5. 
D)  1/2 x P0-P5) x Q5. 
A)  P0-P2) x Q2. 
B)  1/2 x P0-P2) x Q2. 
C)  P0-P5) x Q5. 
D)  1/2 x P0-P5) x Q5.

Question 17

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area

Accepted Answer

A)  A. 
B)  A+B+C. 
C)  D+H+F. 
D)  F. 
A)  A. 
B)  A+B+C. 
C)  D+H+F. 
D)  F.

Question 18

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. The amount of the tax on each unit of the good is

Accepted Answer

A)  $6. 
B)  $8. 
C)  $10. 
D)  $12. 
A)  $6. 
B)  $8. 
C)  $10. 
D)  $12.

Question 19

Scenario 8-3
Suppose the market demand and market supply curves are given by the equations:  
-Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:   If T = 40, how much is the burden of the tax on the buyers and on the sellers?

Accepted Answer

The burden of the ta

Question 20

Figure 8-1  
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents

Accepted Answer

A)  consumer surplus after the tax. 
B)  consumer surplus before the tax. 
C)  producer surplus after the tax. 
D)  producer surplus before the tax. 
A)  consumer surplus after the tax. 
B)  consumer surplus before the tax. 
C)  producer surplus after the tax. 
D)  producer surplus before the tax.

Exam 8: Application: The Costs of Taxation

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The imposition of the tax causes the price paid by buyers to

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are

Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

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

A tax on a good

If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as

Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to

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 sellers is

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

Figure 8-22 -Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. Without the tax, the consumer surplus is

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. The amount of the tax on each unit of the good is

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: If T = 40, how much is the burden of the tax on the buyers and on the sellers?

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents

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

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