Question 1

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 2

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 3

Which of the following scenarios is consistent with the Laffer curve?

Accepted Answer

A)  The tax rate is 1 percent, and tax revenue is very low. 
B)  The tax rate is 1 percent, and tax revenue is very high. 
C)  The tax rate is 99 percent, and tax revenue is very high. 
D)  The tax rate is moderate between very high and very low), and tax revenue is very low. 
A)  The tax rate is 1 percent, and tax revenue is very low. 
B)  The tax rate is 1 percent, and tax revenue is very high. 
C)  The tax rate is 99 percent, and tax revenue is very high. 
D)  The tax rate is moderate between very high and very low), and tax revenue is very low.

Question 4

In 1776, the American Revolution was sparked by anger over

Accepted Answer

A)  the extravagant lifestyle of British royalty. 
B)  the crimes of British soldiers stationed in the American colonies. 
C)  British taxes imposed on the American colonies. 
D)  the failure of the British to protect American colonists from attack by hostile Native Americans. 
A)  the extravagant lifestyle of British royalty. 
B)  the crimes of British soldiers stationed in the American colonies. 
C)  British taxes imposed on the American colonies. 
D)  the failure of the British to protect American colonists from attack by hostile Native Americans.

Question 5

Deadweight loss measures the loss

Accepted Answer

A)  in a market to buyers and sellers that is not offset by an increase in government revenue. 
B)  in revenue to the government when buyers choose to buy less of the product because of the tax. 
C)  of equality in a market due to government intervention. 
D)  of total revenue to business firms due to the price wedge caused by the tax. 
A)  in a market to buyers and sellers that is not offset by an increase in government revenue. 
B)  in revenue to the government when buyers choose to buy less of the product because of the tax. 
C)  of equality in a market due to government intervention. 
D)  of total revenue to business firms due to the price wedge caused by the tax.

Question 6

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the total surplus?

Accepted Answer

A)  $50 
B)  $30 
C)  $25 
D)  $0 
A)  $50 
B)  $30 
C)  $25 
D)  $0

Question 7

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 doubled, the

Accepted Answer

A)  base of the triangle that represents the deadweight loss doubles. 
B)  height of the triangle that represents the deadweight loss doubles. 
C)  deadweight loss of the tax quadruples. 
D)  All of the above are correct. 
A)  base of the triangle that represents the deadweight loss doubles. 
B)  height of the triangle that represents the deadweight loss doubles. 
C)  deadweight loss of the tax quadruples. 
D)  All of the above are correct.

Question 8

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 9

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

Accepted Answer

A)  $1. 
B)  $4. 
C)  $5. 
D)  $9. 
A)  $1. 
B)  $4. 
C)  $5. 
D)  $9.

Question 10

Suppose the demand curve and the supply curve in a market are both linear, and suppose the price elasticity of supply is 0.5. Will the deadweight loss from a $3 tax per unit be larger if the price elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?

Accepted Answer

The deadweight loss

Question 11

Assume the price of gasoline is $2.40 per gallon, and the equilibrium quantity of gasoline is 12 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

Accepted Answer

A)  A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent; and the tax on gasoline amounts to $0.40 per gallon. 
B)  A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent; and the tax on gasoline amounts to $0.40 per gallon. 
C)  A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent; and the tax on gasoline amounts to $0.35 per gallon. 
D)  There is insufficient information to make this determination. 
A)  A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent; and the tax on gasoline amounts to $0.40 per gallon. 
B)  A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent; and the tax on gasoline amounts to $0.40 per gallon. 
C)  A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent; and the tax on gasoline amounts to $0.35 per gallon. 
D)  There is insufficient information to make this determination.

Question 12

If the labor supply curve is very elastic, a tax on labor

Accepted Answer

A)  has a large deadweight loss. 
B)  raises enough tax revenue to offset the loss in welfare. 
C)  has a relatively small impact on the number of hours that workers choose to work. 
D)  results in a large tax burden on the firms that hire labor. 
A)  has a large deadweight loss. 
B)  raises enough tax revenue to offset the loss in welfare. 
C)  has a relatively small impact on the number of hours that workers choose to work. 
D)  results in a large tax burden on the firms that hire labor.

Question 13

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, Karla's consumer surplus is

Accepted Answer

A)  $3. 
B)  $5. 
C)  $8. 
D)  $25. 
A)  $3. 
B)  $5. 
C)  $8. 
D)  $25.

Question 14

Figure 8-9
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-9. The per-unit burden of the tax on sellers is

Accepted Answer

A)  $20. 
B)  $200. 
C)  $300. 
D)  $500. 
A)  $20. 
B)  $200. 
C)  $300. 
D)  $500.

Question 15

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

Accepted Answer

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

Question 16

Tax revenue equals the size of the tax multiplied by the quantity sold in the market after the tax is levied.

Accepted Answer

A) True 
 B)False

Question 17

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 18

Figure 8-29  
-Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to tax revenues?

Accepted Answer

When the tax is $3, tax revenue is $3 x

Question 19

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 20

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.

Exam 8: Application: the Costs of Taxation

When a tax is levied on a good,

Which of the following scenarios is consistent with the Laffer curve?

In 1776, the American Revolution was sparked by anger over

Deadweight loss measures the loss

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the total surplus?

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 doubled, the

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 amount of the tax on each unit of the good is

Suppose the demand curve and the supply curve in a market are both linear, and suppose the price elasticity of supply is 0.5. Will the deadweight loss from a $3 tax per unit be larger if the price elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?

Assume the price of gasoline is $2.40 per gallon, and the equilibrium quantity of gasoline is 12 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

If the labor supply curve is very elastic, a tax on labor

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, Karla's consumer surplus is

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The per-unit burden of the tax on sellers is

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

Tax revenue equals the size of the tax multiplied by the quantity sold in the market after the tax is levied.

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 8-29 -Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to tax revenues?

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

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

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

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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