Question 1

Figure 8-9
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-9. The producer surplus without the tax is

Accepted Answer

A)  $3,000. 
B)  $8,000. 
C)  $12,000. 
D)  $24,000. 
A)  $3,000. 
B)  $8,000. 
C)  $12,000. 
D)  $24,000.

Question 2

Taxes are costly to market participants because they

Accepted Answer

A)  transfer resources from market participants to the government. 
B)  alter incentives. 
C)  distort market outcomes. 
D)  All of the above are correct. 
A)  transfer resources from market participants to the government. 
B)  alter incentives. 
C)  distort market outcomes. 
D)  All of the above are correct.

Question 3

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

Accepted Answer

A)  $3. 
B)  $4. 
C)  $5. 
D)  $8. 
A)  $3. 
B)  $4. 
C)  $5. 
D)  $8.

Question 4

When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

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

Question 6

Which of the following ideas is the most plausible?

Accepted Answer

A)  Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. 
B)  Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. 
C)  Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. 
D)  Reducing a tax rate can never increase tax revenue. 
A)  Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. 
B)  Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. 
C)  Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. 
D)  Reducing a tax rate can never increase tax revenue.

Question 7

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, what price will buyers pay and what price will sellers receive?

Accepted Answer

Buyers will pay $80

Question 8

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. After the tax goes into effect, consumer surplus is the area

Accepted Answer

A)  A. 
B)  B+C. 
C)  A+B+C. 
D)  A+B+D+J+K. 
A)  A. 
B)  B+C. 
C)  A+B+C. 
D)  A+B+D+J+K.

Question 9

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax provides to the government?

Accepted Answer

A)  Tax revenue = P2 - P1)xQ1 
B)  Tax revenue = P3 - P1)xQ1 
C)  Tax revenue = P3 - P2)xQ1 
D)  Tax revenue = P3 - P1)xQ2 - Q1) 
A)  Tax revenue = P2 - P1)xQ1 
B)  Tax revenue = P3 - P1)xQ1 
C)  Tax revenue = P3 - P2)xQ1 
D)  Tax revenue = P3 - P1)xQ2 - Q1)

Question 10

The elasticities of the supply and demand curves in the market for cigarettes affect how much a tax distorts that market.

Accepted Answer

A) True 
 B)False

Question 11

The benefit that government receives from a tax is measured by

Accepted Answer

A)  the change in the equilibrium quantity of the good. 
B)  the change in the equilibrium price of the good. 
C)  tax revenue. 
D)  total surplus. 
A)  the change in the equilibrium quantity of the good. 
B)  the change in the equilibrium price of the good. 
C)  tax revenue. 
D)  total surplus.

Question 12

Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?

Accepted Answer

A)  $25 
B)  $20 
C)  $5 
D)  $0 
A)  $25 
B)  $20 
C)  $5 
D)  $0

Question 13

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4. The equilibrium price before the tax is imposed is

Accepted Answer

A)  $12, and the equilibrium quantity is 35. 
B)  $8, and the equilibrium quantity is 50. 
C)  $5, and the equilibrium quantity is 35. 
D)  $5, and the equilibrium quantity is 50. 
A)  $12, and the equilibrium quantity is 35. 
B)  $8, and the equilibrium quantity is 50. 
C)  $5, and the equilibrium quantity is 35. 
D)  $5, and the equilibrium quantity is 50.

Question 14

Figure 8-25  
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

Accepted Answer

60 units will be bou

Question 15

The deadweight loss from a $3 tax will be largest in a market with

Accepted Answer

A)  inelastic supply and elastic demand. 
B)  inelastic supply and inelastic demand. 
C)  elastic supply and elastic demand. 
D)  elastic supply and inelastic demand. 
A)  inelastic supply and elastic demand. 
B)  inelastic supply and inelastic demand. 
C)  elastic supply and elastic demand. 
D)  elastic supply and inelastic demand.

Question 16

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4. The price that sellers effectively receive after the tax is imposed is

Accepted Answer

A)  $12. 
B)  between $8 and $12. 
C)  between $5 and $8. 
D)  $5. 
A)  $12. 
B)  between $8 and $12. 
C)  between $5 and $8. 
D)  $5.

Question 17

Suppose that instead of a supply-demand diagram, you are given the following information:
Qs = 100 + 3P Qd = 400 - 2P
From this information compute equilibrium price and quantity. Now suppose that a tax is placed on buyers so that
Qd = 400 - 2P + T).
If T = 15, solve for the new equilibrium price and quantity. Note: P is the price received by sellers and P + T is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers. What does this show you?

Accepted Answer

Prior to the tax, the equilibrium price

Question 18

Figure 8-14  
-Refer to Figure 8-14. Which of the following statements is not correct?

Accepted Answer

A)  Supply 2 is more elastic than supply 1. 
B)  Demand 2 is more elastic than demand 1. 
C)  Supply 1 is more inelastic than supply 2. 
D)  Demand 2 is more inelastic than supply 2. 
A)  Supply 2 is more elastic than supply 1. 
B)  Demand 2 is more elastic than demand 1. 
C)  Supply 1 is more inelastic than supply 2. 
D)  Demand 2 is more inelastic than supply 2.

Question 19

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. As a result of the tax, consumer surplus decreases by

Accepted Answer

A)  $130, producer surplus decreases by $170, tax revenue is $240, and deadweight loss is $60. 
B)  $150, producer surplus decreases by $150, tax revenue is $240, and deadweight loss is $60. 
C)  $160, producer surplus decreases by $160, tax revenue is $240, and deadweight loss is $80. 
D)  $240, producer surplus decreases by $240, tax revenue is $400, and deadweight loss is $80. 
A)  $130, producer surplus decreases by $170, tax revenue is $240, and deadweight loss is $60. 
B)  $150, producer surplus decreases by $150, tax revenue is $240, and deadweight loss is $60. 
C)  $160, producer surplus decreases by $160, tax revenue is $240, and deadweight loss is $80. 
D)  $240, producer surplus decreases by $240, tax revenue is $400, and deadweight loss is $80.

Question 20

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

Accepted Answer

A)  buyers of the good will bear most of the burden of the tax. 
B)  sellers of the good will bear most of the burden of the tax. 
C)  buyers and sellers will each bear 50 percent of the burden of the tax. 
D)  the effective price paid by buyers will decrease as a result of the tax. 
A)  buyers of the good will bear most of the burden of the tax. 
B)  sellers of the good will bear most of the burden of the tax. 
C)  buyers and sellers will each bear 50 percent of the burden of the tax. 
D)  the effective price paid by buyers will decrease as a result of the tax.

Exam 8: Application: the Costs of Taxation

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The producer surplus without the tax is

Taxes are costly to market participants because they

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

When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.

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

Which of the following ideas is the most plausible?

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, what price will buyers pay and what price will sellers receive?

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. After the tax goes into effect, consumer surplus is the area

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax provides to the government?

The elasticities of the supply and demand curves in the market for cigarettes affect how much a tax distorts that market.

The benefit that government receives from a tax is measured by

Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The equilibrium price before the tax is imposed is

Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

The deadweight loss from a $3 tax will be largest in a market with

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The price that sellers effectively receive after the tax is imposed is

Figure 8-14 -Refer to Figure 8-14. Which of the following statements is not correct?

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. As a result of the tax, consumer surplus decreases by

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

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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