Question 1

The size of a tax and the deadweight loss that results from the tax are

Accepted Answer

A)  positively related. 
B)  negatively related. 
C)  independent of each other. 
D)  equal to each other. 
A)  positively related. 
B)  negatively related. 
C)  independent of each other. 
D)  equal to each other.

Question 2

Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and decreases producer surplus by $4,400. The deadweight loss of the tax is

Accepted Answer

A)  $200. 
B)  $400. 
C)  $600. 
D)  $1,200. 
A)  $200. 
B)  $400. 
C)  $600. 
D)  $1,200.

Question 3

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. After the tax is levied, producer 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 4

Taxes on labor have the effect of encouraging

Accepted Answer

A)  workers to work more hours. 
B)  the elderly to postpone retirement. 
C)  second earners within a family to take a job. 
D)  unscrupulous people to take part in the underground economy. 
A)  workers to work more hours. 
B)  the elderly to postpone retirement. 
C)  second earners within a family to take a job. 
D)  unscrupulous people to take part in the underground economy.

Question 5

The marginal tax rate on labor income for many workers in the United States is almost

Accepted Answer

A)  30 percent. 
B)  40 percent. 
C)  50 percent. 
D)  65 percent. 
A)  30 percent. 
B)  40 percent. 
C)  50 percent. 
D)  65 percent.

Question 6

To fully understand how taxes affect economic well-being, we must compare the

Accepted Answer

A)  consumer surplus to the producer surplus. 
B)  price paid by buyers to the price received by sellers. 
C)  reduced welfare of buyers and sellers to the revenue raised by the government. 
D)  consumer surplus to the deadweight loss. 
A)  consumer surplus to the producer surplus. 
B)  price paid by buyers to the price received by sellers. 
C)  reduced welfare of buyers and sellers to the revenue raised by the government. 
D)  consumer surplus to the deadweight loss.

Question 7

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. With 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 8

Figure 8-21  
-Refer to Figure 8-21. Suppose the government places a $3 per-unit tax on this good. The largest deadweight loss from the tax would occur in a market where demand is represented by

Accepted Answer

A)  Demand 1, and supply is represented by Supply 1. 
B)  Demand 1, and supply is represented by Supply 2. 
C)  Demand 2, and supply is represented by Supply 1. 
D)  Demand 2, and supply is represented by Supply 2. 
A)  Demand 1, and supply is represented by Supply 1. 
B)  Demand 1, and supply is represented by Supply 2. 
C)  Demand 2, and supply is represented by Supply 1. 
D)  Demand 2, and supply is represented by Supply 2.

Question 9

Scenario 8-1
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week.
-Refer to Scenario 8-1. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is

Accepted Answer

A)  $80. 
B)  $30. 
C)  $20. 
D)  $10. 
A)  $80. 
B)  $30. 
C)  $20. 
D)  $10.

Question 10

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The total surplus with the tax is represented by area

Accepted Answer

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

Question 11

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

Accepted Answer

A)  smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax. 
B)  bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers. 
C)  a right triangle. 
D)  a triangle, but not necessarily a right triangle. 
A)  smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax. 
B)  bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers. 
C)  a right triangle. 
D)  a triangle, but not necessarily a right triangle.

Question 12

The benefit to buyers of participating in a market is measured by

Accepted Answer

A)  the price elasticity of demand. 
B)  consumer surplus. 
C)  the maximum amount that buyers are willing to pay for the good. 
D)  the equilibrium price. 
A)  the price elasticity of demand. 
B)  consumer surplus. 
C)  the maximum amount that buyers are willing to pay for the good. 
D)  the equilibrium price.

Question 13

Figure 8-13  
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The amount of tax revenue collected by the government is

Accepted Answer

A)  $120. 
B)  $80. 
C)  $50. 
D)  $30. 
A)  $120. 
B)  $80. 
C)  $50. 
D)  $30.

Question 14

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area

Accepted Answer

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

Question 15

Which of the following statements is correct regarding the imposition of a tax on gasoline?

Accepted Answer

A)  The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. 
B)  The incidence of the tax depends upon the price elasticities of demand and supply. 
C)  The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. 
D)  The amount of tax revenue raised by the tax does not depend upon the amount of the tax per unit. 
A)  The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. 
B)  The incidence of the tax depends upon the price elasticities of demand and supply. 
C)  The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government. 
D)  The amount of tax revenue raised by the tax does not depend upon the amount of the tax per unit.

Question 16

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. Which of the following statements is correct?

Accepted Answer

A)  Total surplus before the tax is imposed is $500. 
B)  After the tax is imposed, consumer surplus is 45 percent of its pre-tax value. 
C)  After the tax is imposed, producer surplus is 45 percent of its pre-tax value. 
D)  All of the above are correct. 
A)  Total surplus before the tax is imposed is $500. 
B)  After the tax is imposed, consumer surplus is 45 percent of its pre-tax value. 
C)  After the tax is imposed, producer surplus is 45 percent of its pre-tax value. 
D)  All of the above are correct.

Question 17

When a tax is levied on a good,

Accepted Answer

A)  neither buyers nor sellers are made worse off. 
B)  only sellers are made worse off. 
C)  only buyers are made worse off. 
D)  both buyers and sellers are made worse off. 
A)  neither buyers nor sellers are made worse off. 
B)  only sellers are made worse off. 
C)  only buyers are made worse off. 
D)  both buyers and sellers are made worse off.

Question 18

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. The deadweight loss of the tax is the area

Accepted Answer

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

Question 19

The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.

Accepted Answer

A) True 
 B)False

Question 20

Ronald Reagan believed that reducing income tax rates would

Accepted Answer

A)  do little, if anything, to encourage hard work. 
B)  result in large increases in deadweight losses. 
C)  raise economic well-being and perhaps even tax revenue. 
D)  lower economic well-being, even though tax revenue could possibly increase. 
A)  do little, if anything, to encourage hard work. 
B)  result in large increases in deadweight losses. 
C)  raise economic well-being and perhaps even tax revenue. 
D)  lower economic well-being, even though tax revenue could possibly increase.

Exam 8: Application: The Costs of Taxation

The size of a tax and the deadweight loss that results from the tax are

Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and decreases producer surplus by $4,400. The deadweight loss of the tax is

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

Taxes on labor have the effect of encouraging

The marginal tax rate on labor income for many workers in the United States is almost

To fully understand how taxes affect economic well-being, we must compare the

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. With the tax, the consumer surplus is

Figure 8-21 -Refer to Figure 8-21. Suppose the government places a $3 per-unit tax on this good. The largest deadweight loss from the tax would occur in a market where demand is represented by

Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. -Refer to Scenario 8-1. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The total surplus with the tax is represented by area

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

The benefit to buyers of participating in a market is measured by

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The amount of tax revenue collected by the government is

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area

Which of the following statements is correct regarding the imposition of a tax on gasoline?

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Which of the following statements is correct?

When a tax is levied on a good,

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The deadweight loss of the tax is the area

The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.

Ronald Reagan believed that reducing income tax rates would

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