Question 1

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

Accepted Answer

A) True 
 B)False

Question 2

If a tax shifts the supply curve upward 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 3

Consider a good to which a per-unit tax applies. The greater the price elasticities of demand and supply for the good, the

Accepted Answer

A)  smaller the deadweight loss from the tax. 
B)  greater the deadweight loss from the tax. 
C)  more efficient is the tax. 
D)  more equitable is the distribution of the tax burden between buyers and sellers. 
A)  smaller the deadweight loss from the tax. 
B)  greater the deadweight loss from the tax. 
C)  more efficient is the tax. 
D)  more equitable is the distribution of the tax burden between buyers and sellers.

Question 4

If the size of a tax triples, the deadweight loss increases by a factor of six.

Accepted Answer

A) True 
 B)False

Question 5

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

Accepted Answer

A) True 
 B)False

Question 6

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The price that sellers effectively receive 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 7

A tax on insulin is likely to cause a very large deadweight loss to society.

Accepted Answer

A) True 
 B)False

Question 8

Concerning the labor market and taxes on labor, economists disagree about

Accepted Answer

A)  the size of the tax on labor. 
B)  the size of the deadweight loss of the tax on labor. 
C)  whether or not a tax on labor places a wedge between the wage that firms pay and the wage that workers receive. 
D)  All of the above are correct. 
A)  the size of the tax on labor. 
B)  the size of the deadweight loss of the tax on labor. 
C)  whether or not a tax on labor places a wedge between the wage that firms pay and the wage that workers receive. 
D)  All of the above are correct.

Question 9

Suppose the demand curve and the supply curve in a market are both linear. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $3 tax per unit?

Accepted Answer

The deadwe

Question 10

John has been in the habit of mowing Willa's lawn each week for $20. John's opportunity cost is $15, and Willa would be willing to pay $25 to have her lawn mowed. What is the maximum tax the government can impose on lawn mowing without discouraging John and Willa from continuing their mutually beneficial arrangement?

Accepted Answer

If the tax is less than $10, there will

Question 11

Taxes on labor tend to increase the number of hours that people choose to work.

Accepted Answer

A) True 
 B)False

Question 12

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. The government collects tax revenue that is the area

Accepted Answer

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

Question 13

The demand for energy drinks is more elastic than the demand for milk. Would a tax on energy drinks or a tax on milk have a larger deadweight loss? Explain.

Accepted Answer

A tax on energy drinks would have a larg

Question 14

A tax placed on buyers of tuxedoes shifts the

Accepted Answer

A)  demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to increase. 
B)  demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to decrease. 
C)  supply curve for tuxedoes upward, decreasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to increase. 
D)  supply curve for tuxedoes upward, increasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to decrease. 
A)  demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to increase. 
B)  demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to decrease. 
C)  supply curve for tuxedoes upward, decreasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to increase. 
D)  supply curve for tuxedoes upward, increasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to decrease.

Question 15

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)  The loss of producer surplus that is associated with some sellers dropping out of the market as a result of the tax is $60. 
B)  The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $120. 
C)  The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax. 
D)  This tax produces $320 in tax revenue for the government. 
A)  The loss of producer surplus that is associated with some sellers dropping out of the market as a result of the tax is $60. 
B)  The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $120. 
C)  The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax. 
D)  This tax produces $320 in tax revenue for the government.

Question 16

The graph that represents the amount of deadweight loss measured on the vertical axis) as a function of the size of the tax measured on the horizontal axis) looks like

Accepted Answer

A)  a U. 
B)  an upside-down U. 
C)  a horizontal straight line. 
D)  an upward-sloping curve. 
A)  a U. 
B)  an upside-down U. 
C)  a horizontal straight line. 
D)  an upward-sloping curve.

Question 17

When a tax is imposed on a good for which both demand and supply are very elastic,

Accepted Answer

A)  sellers effectively pay the majority of the tax. 
B)  buyers effectively pay the majority of the tax. 
C)  the tax burden is equally divided between buyers and sellers. 
D)  None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers. 
A)  sellers effectively pay the majority of the tax. 
B)  buyers effectively pay the majority of the tax. 
C)  the tax burden is equally divided between buyers and sellers. 
D)  None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.

Question 18

Suppose that the market for large, 64-ounce soft drinks in the town of Pudgyville is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. The market is initially in equilibrium with 1,000 soft drinks sold per day. The newly-elected Mayor of Pudgyville wants to tax 64-ounce soft drinks. She is considering either a $0.10 tax or a $0.30 tax. Her chief economic advisor estimates that the number of soft drinks sold after a $0.10 tax will be 900 and after a $0.30 tax will be 500. Which tax is better?

Accepted Answer

A)  The $0.10 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.30 tax. 
B)  The $0.30 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.10 tax. 
C)  It is not clear which tax is better because although the $0.30 tax raises more tax revenues, it creates a larger deadweight loss than the $0.10 tax. 
D)  It is not clear which tax is better because although the $0.10 tax raises more tax revenues, it creates a larger deadweight loss than the $0.30 tax. 
A)  The $0.10 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.30 tax. 
B)  The $0.30 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.10 tax. 
C)  It is not clear which tax is better because although the $0.30 tax raises more tax revenues, it creates a larger deadweight loss than the $0.10 tax. 
D)  It is not clear which tax is better because although the $0.10 tax raises more tax revenues, it creates a larger deadweight loss than the $0.30 tax.

Question 19

A tax on a good

Accepted Answer

A)  gives buyers an incentive to buy less of the good than they otherwise would buy. 
B)  gives sellers an incentive to produce more of the good than they otherwise would produce. 
C)  creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers. 
D)  All of the above are correct. 
A)  gives buyers an incentive to buy less of the good than they otherwise would buy. 
B)  gives sellers an incentive to produce more of the good than they otherwise would produce. 
C)  creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers. 
D)  All of the above are correct.

Question 20

Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the

Accepted Answer

A)  larger is the price elasticity of demand. 
B)  smaller is the price elasticity of supply. 
C)  larger is the amount of the tax. 
D)  All of the above are correct. 
A)  larger is the price elasticity of demand. 
B)  smaller is the price elasticity of supply. 
C)  larger is the amount of the tax. 
D)  All of the above are correct.

Exam 8: Application: The Costs of Taxation

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

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

Consider a good to which a per-unit tax applies. The greater the price elasticities of demand and supply for the good, the

If the size of a tax triples, the deadweight loss increases by a factor of six.

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

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

A tax on insulin is likely to cause a very large deadweight loss to society.

Concerning the labor market and taxes on labor, economists disagree about

Suppose the demand curve and the supply curve in a market are both linear. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $3 tax per unit?

Taxes on labor tend to increase the number of hours that people choose to work.

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The government collects tax revenue that is the area

The demand for energy drinks is more elastic than the demand for milk. Would a tax on energy drinks or a tax on milk have a larger deadweight loss? Explain.

A tax placed on buyers of tuxedoes shifts the

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?

The graph that represents the amount of deadweight loss measured on the vertical axis) as a function of the size of the tax measured on the horizontal axis) looks like

When a tax is imposed on a good for which both demand and supply are very elastic,

A tax on a good

Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the

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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