Question 1

If a tax shifts the demand curve downward or to the left), 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 2

Figure 8-26  
-Refer to Figure 8-26. What are the equilibrium price and equilibrium quantity in this market?

Accepted Answer

The equilibrium pric

Question 3

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.

Accepted Answer

A) True 
 B)False

Question 4

Figure 8-14  
-Refer to Figure 8-14. Which of the following combinations will minimize the deadweight loss from a tax?

Accepted Answer

A)  supply 1 and demand 1 
B)  supply 2 and demand 2 
C)  supply 1 and demand 2 
D)  supply 2 and demand 1 
A)  supply 1 and demand 1 
B)  supply 2 and demand 2 
C)  supply 1 and demand 2 
D)  supply 2 and demand 1

Question 5

When a tax is levied on buyers of a good,

Accepted Answer

A)  government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax. 
B)  there is an increase in the quantity of the good supplied. 
C)  a wedge is placed between the price buyers pay and the price sellers effectively receive. 
D)  the effective price to buyers decreases because the demand curve shifts leftward. 
A)  government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax. 
B)  there is an increase in the quantity of the good supplied. 
C)  a wedge is placed between the price buyers pay and the price sellers effectively receive. 
D)  the effective price to buyers decreases because the demand curve shifts leftward.

Question 6

Figure 8-25  
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is consumer surplus after the tax is imposed?

Accepted Answer

Consumer s

Question 7

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 producer surplus associated with some sellers dropping out of the market as a result of the tax is

Accepted Answer

A)  $0. 
B)  $1. 
C)  $2. 
D)  $3. 
A)  $0. 
B)  $1. 
C)  $2. 
D)  $3.

Question 8

For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is

Accepted Answer

A)  $1,750. 
B)  $2,250. 
C)  $3,000. 
D)  $4,500. 
A)  $1,750. 
B)  $2,250. 
C)  $3,000. 
D)  $4,500.

Question 9

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. As a result of the tax, buyers effectively pay

Accepted Answer

A)  $32 for each unit of the good, and sellers effectively receive $24 for each unit of the good. 
B)  $32 for each unit of the good, and sellers effectively receive $16 for each unit of the good. 
C)  $24 for each unit of the good, and sellers effectively receive $16 for each unit of the good. 
D)  $28 for each unit of the good, and sellers effectively receive $20 for each unit of the good. 
A)  $32 for each unit of the good, and sellers effectively receive $24 for each unit of the good. 
B)  $32 for each unit of the good, and sellers effectively receive $16 for each unit of the good. 
C)  $24 for each unit of the good, and sellers effectively receive $16 for each unit of the good. 
D)  $28 for each unit of the good, and sellers effectively receive $20 for each unit of the good.

Question 10

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 11

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is

Accepted Answer

A)  $35.00. 
B)  $45.25. 
C)  $52.50. 
D)  $105.00. 
A)  $35.00. 
B)  $45.25. 
C)  $52.50. 
D)  $105.00.

Question 12

When a tax is levied on a good,

Accepted Answer

A)  government collects revenues which might justify the loss in total welfare. 
B)  there is a decrease in the quantity of the good bought and sold in the market. 
C)  a wedge is placed between the price buyers pay and the price sellers effectively receive. 
D)  All of the above are correct. 
A)  government collects revenues which might justify the loss in total welfare. 
B)  there is a decrease in the quantity of the good bought and sold in the market. 
C)  a wedge is placed between the price buyers pay and the price sellers effectively receive. 
D)  All of the above are correct.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

When a tax is placed on a product, the price paid by buyers

Accepted Answer

A)  rises, and the price received by sellers rises. 
B)  rises, and the price received by sellers falls. 
C)  falls, and the price received by sellers rises. 
D)  falls, and the price received by sellers falls. 
A)  rises, and the price received by sellers rises. 
B)  rises, and the price received by sellers falls. 
C)  falls, and the price received by sellers rises. 
D)  falls, and the price received by sellers falls.

Question 17

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The per-unit burden of the tax on sellers is

Accepted Answer

A)  $2. 
B)  $3. 
C)  $4. 
D)  $5. 
A)  $2. 
B)  $3. 
C)  $4. 
D)  $5.

Question 18

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 as a result of the tax is

Accepted Answer

A)  $1.50. 
B)  $3. 
C)  $4.50. 
D)  $6. 
A)  $1.50. 
B)  $3. 
C)  $4.50. 
D)  $6.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

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 correct?

Accepted Answer

A)  Compared to the original tax, the smaller tax will decrease both tax revenue and deadweight loss. 
B)  Compared to the original tax, the larger tax will increase both tax revenue and deadweight loss. 
C)  Compared to the original tax, the larger tax will decrease tax revenue and increase deadweight loss. 
D)  Both a and b are correct. 
A)  Compared to the original tax, the smaller tax will decrease both tax revenue and deadweight loss. 
B)  Compared to the original tax, the larger tax will increase both tax revenue and deadweight loss. 
C)  Compared to the original tax, the larger tax will decrease tax revenue and increase deadweight loss. 
D)  Both a and b are correct.

Exam 8: Application: The Costs of Taxation

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

Figure 8-26 -Refer to Figure 8-26. What are the equilibrium price and equilibrium quantity in this market?

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.

Figure 8-14 -Refer to Figure 8-14. Which of the following combinations will minimize the deadweight loss from a tax?

When a tax is levied on buyers of a good,

Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is consumer surplus after the tax is imposed?

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 producer surplus associated with some sellers dropping out of the market as a result of the tax is

For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. As a result of the tax, buyers effectively pay

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 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is

When a tax is levied on a good,

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

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.

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

When a tax is placed on a product, the price paid by buyers

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The per-unit burden of the tax on sellers is

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 as a result of the tax is

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

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 correct?

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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