Question 1

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. Producer 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.

Question 2

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 producer surplus is

Accepted Answer

A)  P5-0) x Q5. 
B)  1/2 x P5-0) x Q5. 
C)  P8-0) x Q2. 
D)  1/2 x P8-0) x Q2. 
A)  P5-0) x Q5. 
B)  1/2 x P5-0) x Q5. 
C)  P8-0) x Q2. 
D)  1/2 x P8-0) x Q2.

Question 3

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 4

Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that

Accepted Answer

A)  tax revenue increases, and the deadweight loss increases. 
B)  tax revenue increases, and the deadweight loss decreases. 
C)  tax revenue decreases, and the deadweight loss increases. 
D)  tax revenue decreases, and the deadweight loss decreases. 
A)  tax revenue increases, and the deadweight loss increases. 
B)  tax revenue increases, and the deadweight loss decreases. 
C)  tax revenue decreases, and the deadweight loss increases. 
D)  tax revenue decreases, and the deadweight loss decreases.

Question 5

When a tax is imposed on the buyers of a good, the demand curve shifts

Accepted Answer

A)  downward by the amount of the tax. 
B)  upward by the amount of the tax. 
C)  downward by less than the amount of the tax. 
D)  upward by more than the amount of the tax. 
A)  downward by the amount of the tax. 
B)  upward by the amount of the tax. 
C)  downward by less than the amount of the tax. 
D)  upward by more than the amount of the tax.

Question 6

The demand for bread is less elastic than the demand for donuts; hence, a tax on bread will create a larger deadweight loss than will the same tax on donuts, other things equal.

Accepted Answer

A) True 
 B)False

Question 7

Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct?

Accepted Answer

A)  The demand for cigars is less elastic than the supply of cigars. 
B)  The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50. 
C)  The deadweight loss of the tax is $12.50. 
D)  All of the above are correct. 
A)  The demand for cigars is less elastic than the supply of cigars. 
B)  The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50. 
C)  The deadweight loss of the tax is $12.50. 
D)  All of the above are correct.

Question 8

If the tax on a good is increased from $0.30 per unit to $0.90 per unit, the deadweight loss from the tax

Accepted Answer

A)  remains constant. 
B)  increases by a factor of 4. 
C)  increases by a factor of 9. 
D)  increases by a factor of 16. 
A)  remains constant. 
B)  increases by a factor of 4. 
C)  increases by a factor of 9. 
D)  increases by a factor of 16.

Question 9

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. The loss in consumer surplus caused by the tax is measured by the area

Accepted Answer

A)  P1P3AC. 
B)  P3ABP2. 
C)  P1P3ABC. 
D)  ABC. 
A)  P1P3AC. 
B)  P3ABP2. 
C)  P1P3ABC. 
D)  ABC.

Question 10

Who once said that taxes are the price we pay for a civilized society?

Accepted Answer

A)  Aristotle 
B)  George Washington 
C)  Oliver Wendell Holmes, Jr. 
D)  Ronald Reagan 
A)  Aristotle 
B)  George Washington 
C)  Oliver Wendell Holmes, Jr. 
D)  Ronald Reagan

Question 11

When a tax is levied on a good,

Accepted Answer

A)  neither buyers nor sellers are made worse off. 
B)  only sellers are made worse off. 
C)  only buyers are made worse off. 
D)  both buyers and sellers are made worse off. 
A)  neither buyers nor sellers are made worse off. 
B)  only sellers are made worse off. 
C)  only buyers are made worse off. 
D)  both buyers and sellers are made worse off.

Question 12

Ronald Reagan believed that reducing income tax rates would

Accepted Answer

A)  do little, if anything, to encourage hard work. 
B)  result in large increases in deadweight losses. 
C)  raise economic well-being and perhaps even tax revenue. 
D)  lower economic well-being, even though tax revenue could possibly increase. 
A)  do little, if anything, to encourage hard work. 
B)  result in large increases in deadweight losses. 
C)  raise economic well-being and perhaps even tax revenue. 
D)  lower economic well-being, even though tax revenue could possibly increase.

Question 13

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 price received by sellers to decrease by

Accepted Answer

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

Question 14

A tax affects

Accepted Answer

A)  buyers only. 
B)  sellers only. 
C)  buyers and sellers only. 
D)  buyers, sellers, and the government. 
A)  buyers only. 
B)  sellers only. 
C)  buyers and sellers only. 
D)  buyers, sellers, and the government.

Question 15

The supply curve for whiskey is the typical upward-sloping straight line, and the demand curve for whiskey is the typical downward-sloping straight line. When whiskey is taxed, the area on the relevant supply-and-demand graph that represents

Accepted Answer

A)  government's tax revenue is a rectangle. 
B)  the deadweight loss of the tax is a triangle. 
C)  the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle. 
D)  All of the above are correct. 
A)  government's tax revenue is a rectangle. 
B)  the deadweight loss of the tax is a triangle. 
C)  the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle. 
D)  All of the above are correct.

Question 16

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 17

Figure 8-12  
-Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of tax revenue collected by the government is

Accepted Answer

A)  $7.50. 
B)  $15.00. 
C)  $22.50. 
D)  $45.00. 
A)  $7.50. 
B)  $15.00. 
C)  $22.50. 
D)  $45.00.

Question 18

Figure 8-26  
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is consumer surplus after the tax is imposed?

Accepted Answer

Consumer surplus is

Question 19

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

Accepted Answer

A)  The demand for gasoline becomes more inelastic. 
B)  The slope of the supply curve for gasoline becomes steeper. 
C)  The amount of the tax per gallon of gasoline increases. 
D)  All of the above are correct. 
A)  The demand for gasoline becomes more inelastic. 
B)  The slope of the supply curve for gasoline becomes steeper. 
C)  The amount of the tax per gallon of gasoline increases. 
D)  All of the above are correct.

Question 20

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)  consumer surplus decreases by $11. 
B)  producer surplus decreases by $11. 
C)  the deadweight loss amounts to $6. 
D)  All of the above are correct. 
A)  consumer surplus decreases by $11. 
B)  producer surplus decreases by $11. 
C)  the deadweight loss amounts to $6. 
D)  All of the above are correct.

Exam 8: Application: the Costs of Taxation

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

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 producer surplus is

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

Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that

When a tax is imposed on the buyers of a good, the demand curve shifts

The demand for bread is less elastic than the demand for donuts; hence, a tax on bread will create a larger deadweight loss than will the same tax on donuts, other things equal.

If the tax on a good is increased from $0.30 per unit to $0.90 per unit, the deadweight loss from the tax

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The loss in consumer surplus caused by the tax is measured by the area

Who once said that taxes are the price we pay for a civilized society?

When a tax is levied on a good,

Ronald Reagan believed that reducing income tax rates would

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 price received by sellers to decrease by

A tax affects

The supply curve for whiskey is the typical upward-sloping straight line, and the demand curve for whiskey is the typical downward-sloping straight line. When whiskey is taxed, the area on the relevant supply-and-demand graph that represents

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

Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of tax revenue collected by the government is

Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is consumer surplus after the tax is imposed?

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

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,

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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