Question 1

When a tax is levied on the sellers of a good, the

Accepted Answer

A)  supply curve shifts upward by the amount of the tax. 
B)  quantity demanded decreases for all conceivable prices of the good. 
C)  quantity supplied increases for all conceivable prices of the good. 
D)  None of the above is correct. 
A)  supply curve shifts upward by the amount of the tax. 
B)  quantity demanded decreases for all conceivable prices of the good. 
C)  quantity supplied increases for all conceivable prices of the good. 
D)  None of the above is correct.

Question 2

Suppose a tax is imposed on each new hearing aid that is sold. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. As a result of the tax, the equilibrium quantity of hearing aids decreases from 10,000 to 9,000, and the deadweight loss of the tax is $60,000. We can conclude that the tax on each hearing aid is

Accepted Answer

A)  $60. 
B)  $120. 
C)  $160. 
D)  $200. 
A)  $60. 
B)  $120. 
C)  $160. 
D)  $200.

Question 3

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. Without a tax, total surplus in this market is

Accepted Answer

A)  $3,000. 
B)  $4,800. 
C)  $6,000. 
D)  $7,200. 
A)  $3,000. 
B)  $4,800. 
C)  $6,000. 
D)  $7,200.

Question 4

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

Accepted Answer

A)  $35. 
B)  $45. 
C)  $70. 
D)  $80. 
A)  $35. 
B)  $45. 
C)  $70. 
D)  $80.

Question 5

Illustrate on three demand-and-supply graphs how the size of a tax small, medium and large) can alter total revenue and deadweight loss.

Accepted Answer

The answer of Illustrate on three demand-and-supply graphs how the...

Question 6

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 7

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

Accepted Answer

A)  $6. 
B)  $8. 
C)  $9. 
D)  $12. 
A)  $6. 
B)  $8. 
C)  $9. 
D)  $12.

Question 8

As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Accepted Answer

A) True 
 B)False

Question 9

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4. The amount of the tax on each unit of the good is

Accepted Answer

A)  $5. 
B)  $7. 
C)  $8. 
D)  $12. 
A)  $5. 
B)  $7. 
C)  $8. 
D)  $12.

Question 10

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. Without 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 11

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. The deadweight loss of the tax is

Accepted Answer

A)  [1/2 x P0-P5) x Q5] + [1/2 x P5-0) x Q5]. 
B)  [1/2 x P0-P2) x Q2] +[P2-P8) x Q2] + [1/2 x P8-0) x Q2]. 
C)  P2-P8) x Q2. 
D)  1/2 x P2-P8) x Q5-Q2). 
A)  [1/2 x P0-P5) x Q5] + [1/2 x P5-0) x Q5]. 
B)  [1/2 x P0-P2) x Q2] +[P2-P8) x Q2] + [1/2 x P8-0) x Q2]. 
C)  P2-P8) x Q2. 
D)  1/2 x P2-P8) x Q5-Q2).

Question 12

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 loss in total surplus?

Accepted Answer

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

Question 13

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 14

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. The tax causes producer surplus to decrease by the area

Accepted Answer

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

Question 15

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 16

Taxes cause deadweight losses because they

Accepted Answer

A)  lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. 
B)  distort incentives to both buyers and sellers. 
C)  prevent buyers and sellers from realizing some of the gains from trade. 
D)  All of the above are correct. 
A)  lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. 
B)  distort incentives to both buyers and sellers. 
C)  prevent buyers and sellers from realizing some of the gains from trade. 
D)  All of the above are correct.

Question 17

When a tax is imposed, the loss of consumer surplus and producer surplus as a result of the tax exceeds the tax revenue collected by the government.

Accepted Answer

A) True 
 B)False

Question 18

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. Total surplus with the tax in place is

Accepted Answer

A)  $1,500. 
B)  $3,600. 
C)  $4,500. 
D)  $6,000. 
A)  $1,500. 
B)  $3,600. 
C)  $4,500. 
D)  $6,000.

Question 19

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 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 is the burden of the tax on the buyers and on the sellers?

Accepted Answer

The burden of the ta

Exam 8: Application: the Costs of Taxation

When a tax is levied on the sellers of a good, the

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. Without a tax, total surplus in this market is

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

Illustrate on three demand-and-supply graphs how the size of a tax small, medium and large) can alter total revenue and deadweight loss.

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

As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The amount of the tax on each unit of the good is

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. Without the tax, the consumer surplus is

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. The deadweight loss of the tax is

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 loss in total surplus?

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?

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The tax causes producer surplus to decrease by the area

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

Taxes cause deadweight losses because they

When a tax is imposed, the loss of consumer surplus and producer surplus as a result of the tax exceeds the tax revenue collected by the government.

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. Total surplus with the tax in place is

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

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 is the burden of the tax on the buyers and on the sellers?

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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