Question 1

Figure 8-13  
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss of producer surplus resulting from this tax is

Accepted Answer

A)  $60. 
B)  $45. 
C)  $30. 
D)  $15. 
A)  $60. 
B)  $45. 
C)  $30. 
D)  $15.

Question 2

The deadweight loss from a tax of $x per unit will be smallest in a market

Accepted Answer

A)  in which demand is elastic and supply is inelastic. 
B)  in which demand is inelastic and supply is elastic. 
C)  in which demand is inelastic and supply is inelastic. 
D)  None of the above are correct; we need to know the value of x in order to determine the answer. 
A)  in which demand is elastic and supply is inelastic. 
B)  in which demand is inelastic and supply is elastic. 
C)  in which demand is inelastic and supply is inelastic. 
D)  None of the above are correct; we need to know the value of x in order to determine the answer.

Question 3

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

Accepted Answer

A)  The price elasticity of demand is small, and the price elasticity of supply is large. 
B)  The price elasticity of demand is large, and the price elasticity of supply is small. 
C)  The price elasticity of demand and the price elasticity of supply are both small. 
D)  The price elasticity of demand and the price elasticity of supply are both large. 
A)  The price elasticity of demand is small, and the price elasticity of supply is large. 
B)  The price elasticity of demand is large, and the price elasticity of supply is small. 
C)  The price elasticity of demand and the price elasticity of supply are both small. 
D)  The price elasticity of demand and the price elasticity of supply are both large.

Question 4

The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.

Accepted Answer

A) True 
 B)False

Question 5

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:   What quantity will be bought and sold after the tax is imposed?

Accepted Answer

The quanti

Question 6

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. Before the tax is imposed, the equilibrium price is

Accepted Answer

A)  $32, and the equilibrium quantity is 15. 
B)  $24, and the equilibrium quantity is 15. 
C)  $24, and the equilibrium quantity is 25. 
D)  $16, and the equilibrium quantity is 15. 
A)  $32, and the equilibrium quantity is 15. 
B)  $24, and the equilibrium quantity is 15. 
C)  $24, and the equilibrium quantity is 25. 
D)  $16, and the equilibrium quantity is 15.

Question 7

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

Accepted Answer

A)  supply curve shifts upward by the amount of the tax. 
B)  quantity supplied increases for all conceivable prices of the good. 
C)  buyers of the good will send tax payments to the government. 
D)  demand curve shifts to the right by the horizontal distance of the tax. 
A)  supply curve shifts upward by the amount of the tax. 
B)  quantity supplied increases for all conceivable prices of the good. 
C)  buyers of the good will send tax payments to the government. 
D)  demand curve shifts to the right by the horizontal distance of the tax.

Question 8

The Social Security tax is a tax on

Accepted Answer

A)  capital. 
B)  labor. 
C)  land. 
D)  savings. 
A)  capital. 
B)  labor. 
C)  land. 
D)  savings.

Question 9

To fully understand how taxes affect economic well-being, we must compare the

Accepted Answer

A)  benefit to buyers with the loss to sellers. 
B)  price paid by buyers to the price received by sellers. 
C)  profits earned by firms to the losses incurred by consumers. 
D)  decrease in total surplus to the increase in revenue raised by the government. 
A)  benefit to buyers with the loss to sellers. 
B)  price paid by buyers to the price received by sellers. 
C)  profits earned by firms to the losses incurred by consumers. 
D)  decrease in total surplus to the increase in revenue raised by the government.

Question 10

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 11

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. When the tax is imposed in this market, producer surplus is

Accepted Answer

A)  $450. 
B)  $600. 
C)  $900. 
D)  $1,500. 
A)  $450. 
B)  $600. 
C)  $900. 
D)  $1,500.

Question 12

Figure 8-24. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.  
-Refer to Figure 8-24. Tax revenue would

Accepted Answer

A)  decrease if the economy began at point B and then the tax rate was decreased. 
B)  increase if the economy began at point F and then the tax rate was decreased. 
C)  decrease if the economy began at point C and then the tax rate was increased. 
D)  All of the above are correct. 
A)  decrease if the economy began at point B and then the tax rate was decreased. 
B)  increase if the economy began at point F and then the tax rate was decreased. 
C)  decrease if the economy began at point C and then the tax rate was increased. 
D)  All of the above are correct.

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 amount of the tax on each unit of the good is

Accepted Answer

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

Question 14

Scenario 8-1
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week.
-Refer to Scenario 8-1. Assume Erin is required to pay a tax of $5 when she hires someone to clean her house. Which of the following is true?

Accepted Answer

A)  Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline. 
B)  Ernesto will continue to clean Erin's house, and his producer surplus will increase. 
C)  Total economic welfare consumer surplus plus producer surplus plus tax revenue) will decrease. 
D)  All of the above are correct. 
A)  Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline. 
B)  Ernesto will continue to clean Erin's house, and his producer surplus will increase. 
C)  Total economic welfare consumer surplus plus producer surplus plus tax revenue) will decrease. 
D)  All of the above are correct.

Question 15

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 16

If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.

Accepted Answer

A) True 
 B)False

Question 17

Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will

Accepted Answer

A)  fall entirely on the buyers of fast-food French fries. 
B)  fall entirely on the sellers of fast-food French fries. 
C)  be shared equally by the buyers and sellers of fast-food French fries. 
D)  be shared by the buyers and sellers of fast-food French fries but not necessarily equally. 
A)  fall entirely on the buyers of fast-food French fries. 
B)  fall entirely on the sellers of fast-food French fries. 
C)  be shared equally by the buyers and sellers of fast-food French fries. 
D)  be shared by the buyers and sellers of fast-food French fries but not necessarily equally.

Question 18

The benefit that government receives from a tax is measured by

Accepted Answer

A)  deadweight loss. 
B)  consumer surplus. 
C)  tax incidence. 
D)  tax revenue. 
A)  deadweight loss. 
B)  consumer surplus. 
C)  tax incidence. 
D)  tax revenue.

Question 19

Figure 8-22  
-Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

Accepted Answer

A)  Compared to the original tax, the larger tax will decrease 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 decrease 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 20

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $150. Rebecca and Susan agree on a price of $175. Suppose the government imposes a tax of $10 on dog sitting. The tax has made Rebecca and Susan worse off by a total of

Accepted Answer

A)  $50. 
B)  $40. 
C)  $20. 
D)  $10. 
A)  $50. 
B)  $40. 
C)  $20. 
D)  $10.

Exam 8: Application: the Costs of Taxation

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss of producer surplus resulting from this tax is

The deadweight loss from a tax of $x per unit will be smallest in a market

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.

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: What quantity will be bought and sold after the tax is imposed?

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Before the tax is imposed, the equilibrium price is

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

The Social Security tax is a tax on

To fully understand how taxes affect economic well-being, we must compare the

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

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. When the tax is imposed in this market, producer surplus is

Figure 8-24. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-24. Tax revenue would

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

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

If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.

Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will

The benefit that government receives from a tax is measured by

Figure 8-22 -Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

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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