Question 1

Economists generally agree that the most important tax in the U.S. economy is the

Accepted Answer

A)  income tax. 
B)  tax on labor. 
C)  inheritance or death tax. 
D)  tax on corporate profits. 
A)  income tax. 
B)  tax on labor. 
C)  inheritance or death tax. 
D)  tax on corporate profits.

Question 2

Figure 8-9
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-9. The producer surplus with the tax is

Accepted Answer

A)  $3,000. 
B)  $6,000. 
C)  $9,000. 
D)  $12,000. 
A)  $3,000. 
B)  $6,000. 
C)  $9,000. 
D)  $12,000.

Question 3

Figure 8-14  
-Refer to Figure 8-14. Which of the following combinations will maximize 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 4

Figure 8-19
The vertical distance between points A and B represents the original tax.  
-Refer to Figure 8-19. The original tax can be represented by the vertical distance AB. Suppose the government is deciding whether to lower the tax to CD or raise it to FG. Which of the following statements is not correct?

Accepted Answer

A)  Compared to the original tax, the larger tax will increase 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 increase 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 5

As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the

Accepted Answer

A)  tax revenue increases at first, but it eventually peaks and then decreases. 
B)  deadweight loss increases at first, but it eventually peaks and then decreases. 
C)  tax revenue always increases, and the deadweight loss always increases. 
D)  tax revenue always decreases, and the deadweight loss always increases. 
A)  tax revenue increases at first, but it eventually peaks and then decreases. 
B)  deadweight loss increases at first, but it eventually peaks and then decreases. 
C)  tax revenue always increases, and the deadweight loss always increases. 
D)  tax revenue always decreases, and the deadweight loss always increases.

Question 6

In 2012, in The Wall Street Journal, economists Edward Prescott and Lee Ohanian asserted that

Accepted Answer

A)  in the United States, when the average worker earns $100 from additional work, he or she will be able to consume an additional $85 worth of goods and services. 
B)  the typical American has always worked more hours per year than the typical Frenchman and the typical German, despite vastly different tax rates in those countries. 
C)  raising tax rates from their 2012 levels would significantly reduce U.S. economic activity. 
D)  raising tax rates from their 2012 levels would significantly increase the federal government's tax revenue. 
A)  in the United States, when the average worker earns $100 from additional work, he or she will be able to consume an additional $85 worth of goods and services. 
B)  the typical American has always worked more hours per year than the typical Frenchman and the typical German, despite vastly different tax rates in those countries. 
C)  raising tax rates from their 2012 levels would significantly reduce U.S. economic activity. 
D)  raising tax rates from their 2012 levels would significantly increase the federal government's tax revenue.

Question 7

Figure 8-20
On the vertical axis of each graph, DWL is deadweight loss.
 
-Refer to Figure 8-20. Which graph correctly illustrates the relationship between the size of a tax and the size of the deadweight loss associated with the tax?

Accepted Answer

A)  Panel a) 
B)  Panel b) 
C)  Panel c) 
D)  Panel d) 
A)  Panel a) 
B)  Panel b) 
C)  Panel c) 
D)  Panel d)

Question 8

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented by area

Accepted Answer

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

Question 9

Figure 8-15
  
-Refer to Figure 8-15. Panel a) and Panel b) each illustrate a $4 tax placed on a market. In comparison to Panel a), Panel b) illustrates which of the following statements?

Accepted Answer

A)  When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic. 
B)  When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic. 
C)  When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic. 
D)  When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic. 
A)  When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic. 
B)  When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic. 
C)  When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic. 
D)  When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic.

Question 10

Figure 8-14  
-Refer to Figure 8-14. Which of the following statements is not correct?

Accepted Answer

A)  Supply 2 is more elastic than supply 1. 
B)  Demand 2 is more elastic than demand 1. 
C)  Supply 1 is more inelastic than supply 2. 
D)  Demand 2 is more inelastic than supply 2. 
A)  Supply 2 is more elastic than supply 1. 
B)  Demand 2 is more elastic than demand 1. 
C)  Supply 1 is more inelastic than supply 2. 
D)  Demand 2 is more inelastic than supply 2.

Question 11

A tax levied on the sellers of a good shifts the

Accepted Answer

A)  supply curve upward or to the left). 
B)  supply curve downward or to the right). 
C)  demand curve upward or to the right). 
D)  demand curve downward or to the left). 
A)  supply curve upward or to the left). 
B)  supply curve downward or to the right). 
C)  demand curve upward or to the right). 
D)  demand curve downward or to the left).

Question 12

When a good is taxed,

Accepted Answer

A)  both buyers and sellers of the good are made worse off. 
B)  only buyers are made worse off, because they ultimately bear the burden of the tax. 
C)  only sellers are made worse off, because they ultimately bear the burden of the tax. 
D)  neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy. 
A)  both buyers and sellers of the good are made worse off. 
B)  only buyers are made worse off, because they ultimately bear the burden of the tax. 
C)  only sellers are made worse off, because they ultimately bear the burden of the tax. 
D)  neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy.

Question 13

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, consumer surplus decreases by

Accepted Answer

A)  $130, producer surplus decreases by $170, tax revenue is $240, and deadweight loss is $60. 
B)  $150, producer surplus decreases by $150, tax revenue is $240, and deadweight loss is $60. 
C)  $160, producer surplus decreases by $160, tax revenue is $240, and deadweight loss is $80. 
D)  $240, producer surplus decreases by $240, tax revenue is $400, and deadweight loss is $80. 
A)  $130, producer surplus decreases by $170, tax revenue is $240, and deadweight loss is $60. 
B)  $150, producer surplus decreases by $150, tax revenue is $240, and deadweight loss is $60. 
C)  $160, producer surplus decreases by $160, tax revenue is $240, and deadweight loss is $80. 
D)  $240, producer surplus decreases by $240, tax revenue is $400, and deadweight loss is $80.

Question 14

Taxes on labor tend to encourage second earners to stay at home rather than work in the labor force.

Accepted Answer

A) True 
 B)False

Question 15

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is tripled, the

Accepted Answer

A)  base of the triangle that represents the deadweight loss triples. 
B)  height of the triangle that represents the deadweight loss triples. 
C)  deadweight loss of the tax increases by a factor of nine. 
D)  All of the above are correct. 
A)  base of the triangle that represents the deadweight loss triples. 
B)  height of the triangle that represents the deadweight loss triples. 
C)  deadweight loss of the tax increases by a factor of nine. 
D)  All of the above are correct.

Question 16

Taxes are of interest to

Accepted Answer

A)  microeconomists because they consider how to balance equality and efficiency. 
B)  microeconomists because they consider how best to design a tax system. 
C)  macroeconomists because they consider how policymakers can use the tax system to stabilize economic activity. 
D)  All of the above are correct. 
A)  microeconomists because they consider how to balance equality and efficiency. 
B)  microeconomists because they consider how best to design a tax system. 
C)  macroeconomists because they consider how policymakers can use the tax system to stabilize economic activity. 
D)  All of the above are correct.

Question 17

Figure 8-11  
-Refer to Figure 8-11. The length of the line segment connecting points A and B represents

Accepted Answer

A)  the difference between the price paid by buyers after the tax is imposed and the price received by sellers after the tax is imposed. 
B)  the size of the tax. 
C)  the "tax wedge." 
D)  All of the above are correct. 
A)  the difference between the price paid by buyers after the tax is imposed and the price received by sellers after the tax is imposed. 
B)  the size of the tax. 
C)  the "tax wedge." 
D)  All of the above are correct.

Question 18

Total surplus with a tax is equal to

Accepted Answer

A)  consumer surplus plus producer surplus. 
B)  consumer surplus minus producer surplus. 
C)  consumer surplus plus producer surplus minus tax revenue. 
D)  consumer surplus plus producer surplus plus tax revenue. 
A)  consumer surplus plus producer surplus. 
B)  consumer surplus minus producer surplus. 
C)  consumer surplus plus producer surplus minus tax revenue. 
D)  consumer surplus plus producer surplus plus tax revenue.

Question 19

Figure 8-11  
-Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

Accepted Answer

A)  the government collects $28 in tax revenue. 
B)  producer surplus decreases by $13. 
C)  consumer surplus decreases by $11. 
D)  the deadweight loss amounts to $9. 
A)  the government collects $28 in tax revenue. 
B)  producer surplus decreases by $13. 
C)  consumer surplus decreases by $11. 
D)  the deadweight loss amounts to $9.

Question 20

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 will be the deadweight loss from this tax?

Accepted Answer

The deadwe

Exam 8: Application: The Costs of Taxation

Economists generally agree that the most important tax in the U.S. economy is the

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The producer surplus with the tax is

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

As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the

In 2012, in The Wall Street Journal, economists Edward Prescott and Lee Ohanian asserted that

Figure 8-20 On the vertical axis of each graph, DWL is deadweight loss. -Refer to Figure 8-20. Which graph correctly illustrates the relationship between the size of a tax and the size of the deadweight loss associated with the tax?

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented by area

Figure 8-15 -Refer to Figure 8-15. Panel a) and Panel b) each illustrate a $4 tax placed on a market. In comparison to Panel a), Panel b) illustrates which of the following statements?

Figure 8-14 -Refer to Figure 8-14. Which of the following statements is not correct?

A tax levied on the sellers of a good shifts the

When a good is taxed,

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, consumer surplus decreases by

Taxes on labor tend to encourage second earners to stay at home rather than work in the labor force.

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is tripled, the

Taxes are of interest to

Figure 8-11 -Refer to Figure 8-11. The length of the line segment connecting points A and B represents

Total surplus with a tax is equal to

Figure 8-11 -Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

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 will be the deadweight loss from this tax?

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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