Question 1

When the government places a tax on a product, the cost of the tax to buyers and sellers

Accepted Answer

A)  is less than the revenue raised from the tax by the government. 
B)  is equal to the revenue raised from the tax by the government. 
C)  exceeds the revenue raised from the tax by the government. 
D)  Without additional information, such as the elasticity of demand for this product, it is impossible to compare the cost of a tax to buyers and sellers with tax revenue. 
A)  is less than the revenue raised from the tax by the government. 
B)  is equal to the revenue raised from the tax by the government. 
C)  exceeds the revenue raised from the tax by the government. 
D)  Without additional information, such as the elasticity of demand for this product, it is impossible to compare the cost of a tax to buyers and sellers with tax revenue.

Question 2

Figure 8-25  
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Accepted Answer

The deadwe

Question 3

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

Accepted Answer

A)  $80, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
B)  $80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. 
C)  $60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
D)  $60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. 
A)  $80, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
B)  $80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers. 
C)  $60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses. 
D)  $60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.

Question 4

Which of the following ideas is the most plausible?

Accepted Answer

A)  Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. 
B)  Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. 
C)  Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. 
D)  Reducing a tax rate can never increase tax revenue. 
A)  Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. 
B)  Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. 
C)  Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. 
D)  Reducing a tax rate can never increase tax revenue.

Question 5

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will

Accepted Answer

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

Question 6

Figure 8-1  
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus before the tax is measured by the area

Accepted Answer

A)  I+Y. 
B)  J+K+L+M. 
C)  L+M+Y. 
D)  I+J+K+L+M+Y. 
A)  I+Y. 
B)  J+K+L+M. 
C)  L+M+Y. 
D)  I+J+K+L+M+Y.

Question 7

Figure 8-9
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-9. The imposition of the tax causes the quantity sold to

Accepted Answer

A)  increase by 20 units. 
B)  increase by 500 units. 
C)  decrease by 20 units. 
D)  decrease by 500 units. 
A)  increase by 20 units. 
B)  increase by 500 units. 
C)  decrease by 20 units. 
D)  decrease by 500 units.

Question 8

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

Accepted Answer

A)  $5.50. 
B)  $17.50. 
C)  $22.50. 
D)  $45.00 
A)  $5.50. 
B)  $17.50. 
C)  $22.50. 
D)  $45.00

Question 9

An increase in the size of a tax is most likely to increase tax revenue in a market with

Accepted Answer

A)  elastic demand and elastic supply. 
B)  elastic demand and inelastic supply. 
C)  inelastic demand and elastic supply. 
D)  inelastic demand and inelastic supply. 
A)  elastic demand and elastic supply. 
B)  elastic demand and inelastic supply. 
C)  inelastic demand and elastic supply. 
D)  inelastic demand and inelastic supply.

Question 10

The benefit that government receives from a tax is measured by

Accepted Answer

A)  deadweight loss. 
B)  consumer surplus. 
C)  tax incidence. 
D)  tax revenue. 
A)  deadweight loss. 
B)  consumer surplus. 
C)  tax incidence. 
D)  tax revenue.

Question 11

The idea that tax cuts would increase the quantity of labor supplied, thus increasing tax revenue, became known as supply-side economics.

Accepted Answer

A) True 
 B)False

Question 12

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, Roland's producer surplus is

Accepted Answer

A)  $2. 
B)  $3. 
C)  $5. 
D)  $25. 
A)  $2. 
B)  $3. 
C)  $5. 
D)  $25.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $150. Rebecca and Susan agree on a price of $175. Suppose the government imposes a tax of $10 on dog sitting. The tax has made Rebecca and Susan worse off by a total of

Accepted Answer

A)  $50. 
B)  $40. 
C)  $20. 
D)  $10. 
A)  $50. 
B)  $40. 
C)  $20. 
D)  $10.

Question 15

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The price that buyers effectively pay after the tax is imposed is

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  P4. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  P4.

Question 16

Figure 8-21  
-Refer to Figure 8-21. Suppose the market is represented by Demand 1 and Supply 1. At first the government places a $3 per-unit tax on this good. Then the government decides to raise the tax to $6 per unit. How would you characterize the decision to raise the tax rate from $3 to $6 per unit? The decision is

Accepted Answer

A)  a good one because it increases tax revenue while decreasing the deadweight loss from the tax. 
B)  a bad one because it does not increase tax revenue yet increases the deadweight loss from the tax. 
C)  a bad one because it decreases tax revenue while increasing the deadweight loss from the tax. 
D)  unclear because it increases tax revenue yet also increases the deadweight loss from the tax. 
A)  a good one because it increases tax revenue while decreasing the deadweight loss from the tax. 
B)  a bad one because it does not increase tax revenue yet increases the deadweight loss from the tax. 
C)  a bad one because it decreases tax revenue while increasing the deadweight loss from the tax. 
D)  unclear because it increases tax revenue yet also increases the deadweight loss from the tax.

Question 17

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. The tax has made Rebecca and Susan worse off by a total of

Accepted Answer

A)  $30. 
B)  $25. 
C)  $10. 
D)  $5. 
A)  $30. 
B)  $25. 
C)  $10. 
D)  $5.

Question 18

The deadweight loss from a tax of $2 per unit will be smallest in a market with

Accepted Answer

A)  inelastic supply and elastic demand. 
B)  inelastic supply and inelastic demand. 
C)  elastic supply and elastic demand. 
D)  elastic supply and inelastic demand. 
A)  inelastic supply and elastic demand. 
B)  inelastic supply and inelastic demand. 
C)  elastic supply and elastic demand. 
D)  elastic supply and inelastic demand.

Question 19

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

Accepted Answer

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

Question 20

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. Consumer surplus before the tax was levied 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.

Exam 8: Application: The Costs of Taxation

When the government places a tax on a product, the cost of the tax to buyers and sellers

Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

Which of the following ideas is the most plausible?

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus before the tax is measured by the area

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The imposition of the tax causes the quantity sold to

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

An increase in the size of a tax is most likely to increase tax revenue in a market with

The benefit that government receives from a tax is measured by

The idea that tax cuts would increase the quantity of labor supplied, thus increasing tax revenue, became known as supply-side economics.

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, Roland's producer surplus is

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

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The price that buyers effectively pay after the tax is imposed is

The deadweight loss from a tax of $2 per unit will be smallest in a market with

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

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. Consumer surplus before the tax was levied is represented by area

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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