Question 1

If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax.

Accepted Answer

A) True 
 B)False

Question 2

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 tripled, the

Accepted Answer

A)  base of the triangle that represents the deadweight loss triples. 
B)  height of the triangle that represents the deadweight loss triples. 
C)  deadweight loss of the tax increases by a factor of nine. 
D)  All of the above are correct. 
A)  base of the triangle that represents the deadweight loss triples. 
B)  height of the triangle that represents the deadweight loss triples. 
C)  deadweight loss of the tax increases by a factor of nine. 
D)  All of the above are correct.

Question 3

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

Accepted Answer

A) True 
 B)False

Question 4

Figure 8-14  
-Refer to Figure 8-14. Which of the following statements is correct?

Accepted Answer

A)  Supply 1 is more elastic than supply 2. 
B)  Demand 2 is more elastic than demand 1. 
C)  Demand 1 is more elastic than supply 1. 
D)  All of the above are correct. 
A)  Supply 1 is more elastic than supply 2. 
B)  Demand 2 is more elastic than demand 1. 
C)  Demand 1 is more elastic than supply 1. 
D)  All of the above are correct.

Question 5

Taxes cause deadweight losses because taxes

Accepted Answer

A)  reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. 
B)  prevent buyers and sellers from realizing some of the gains from trade. 
C)  cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. 
D)  All of the above are correct. 
A)  reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. 
B)  prevent buyers and sellers from realizing some of the gains from trade. 
C)  cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. 
D)  All of the above are correct.

Question 6

In a 2012 Wall Street Journal column, economists Edward Prescott and Lee Ohanian claimed that, in order to promote faster economic growth, the government should

Accepted Answer

A)  increase tax rates on individuals with high incomes, and leave tax rates on other individuals unchanged. 
B)  equalize tax rates on all individuals, regardless of how much they earn. 
C)  decrease tax rates on income and increase tax rates on consumption. 
D)  increase the after-tax benefits to successful entrepreneurship and risk-taking. 
A)  increase tax rates on individuals with high incomes, and leave tax rates on other individuals unchanged. 
B)  equalize tax rates on all individuals, regardless of how much they earn. 
C)  decrease tax rates on income and increase tax rates on consumption. 
D)  increase the after-tax benefits to successful entrepreneurship and risk-taking.

Question 7

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

Accepted Answer

A) True 
 B)False

Question 8

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.  
-Refer to Figure 8-23. If the economy is at point B on the curve, then a small decrease in the tax rate will

Accepted Answer

A)  increase the deadweight loss of the tax and increase tax revenue. 
B)  increase the deadweight loss of the tax and decrease tax revenue. 
C)  decrease the deadweight loss of the tax and increase tax revenue. 
D)  decrease the deadweight loss of the tax and decrease tax revenue. 
A)  increase the deadweight loss of the tax and increase tax revenue. 
B)  increase the deadweight loss of the tax and decrease tax revenue. 
C)  decrease the deadweight loss of the tax and increase tax revenue. 
D)  decrease the deadweight loss of the tax and decrease tax revenue.

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 per-unit burden of the tax on sellers is

Accepted Answer

A)  P3 - P1. 
B)  P3 - P2. 
C)  P2 - P1. 
D)  P4 - P3. 
A)  P3 - P1. 
B)  P3 - P2. 
C)  P2 - P1. 
D)  P4 - P3.

Question 10

Which of the following statements correctly describes the relationship between the size of the deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax?

Accepted Answer

A)  Both the size of the deadweight loss and tax revenue increase. 
B)  The size of the deadweight loss increases, but the tax revenue decreases. 
C)  The size of the deadweight loss increases, but the tax revenue first increases, then decreases. 
D)  Both the size of the deadweight loss and tax revenue decrease. 
A)  Both the size of the deadweight loss and tax revenue increase. 
B)  The size of the deadweight loss increases, but the tax revenue decreases. 
C)  The size of the deadweight loss increases, but the tax revenue first increases, then decreases. 
D)  Both the size of the deadweight loss and tax revenue decrease.

Question 11

When a tax is levied on buyers of a good,

Accepted Answer

A)  government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax. 
B)  there is an increase in the quantity of the good supplied. 
C)  a wedge is placed between the price buyers pay and the price sellers effectively receive. 
D)  the effective price to buyers decreases because the demand curve shifts leftward. 
A)  government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax. 
B)  there is an increase in the quantity of the good supplied. 
C)  a wedge is placed between the price buyers pay and the price sellers effectively receive. 
D)  the effective price to buyers decreases because the demand curve shifts leftward.

Question 12

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. Total surplus without the tax is

Accepted Answer

A)  $10, and total surplus with the tax is $2.50. 
B)  $10, and total surplus with the tax is $7.50. 
C)  $20, and total surplus with the tax is $2.50. 
D)  $20, and total surplus with the tax is $7.50. 
A)  $10, and total surplus with the tax is $2.50. 
B)  $10, and total surplus with the tax is $7.50. 
C)  $20, and total surplus with the tax is $2.50. 
D)  $20, and total surplus with the tax is $7.50.

Question 13

Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

Accepted Answer

A)  a head tax that is, a tax everyone must pay regardless of what one does or buys) 
B)  an income tax 
C)  a tax on compact discs 
D)  a tax on caviar 
A)  a head tax that is, a tax everyone must pay regardless of what one does or buys) 
B)  an income tax 
C)  a tax on compact discs 
D)  a tax on caviar

Question 14

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. The deadweight loss of the tax is the area

Accepted Answer

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

Question 15

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Accepted Answer

A) True 
 B)False

Question 16

Taxes affect market participants by increasing the price paid by the buyer and decreasing the price received by the seller.

Accepted Answer

A) True 
 B)False

Question 17

Suppose the government places a per-unit tax on a good. The smaller 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)  less 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)  less efficient is the tax. 
D)  more equitable is the distribution of the tax burden between buyers and sellers.

Question 18

To measure the gains and losses from a tax on a good, economists use the tools of

Accepted Answer

A)  macroeconomics. 
B)  welfare economics. 
C)  international-trade theory. 
D)  circular-flow analysis. 
A)  macroeconomics. 
B)  welfare economics. 
C)  international-trade theory. 
D)  circular-flow analysis.

Question 19

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.  
-Refer to Figure 8-23. If the economy is at point A on the curve, then a small increase in the tax rate will

Accepted Answer

A)  increase the deadweight loss of the tax and increase tax revenue. 
B)  increase the deadweight loss of the tax and decrease tax revenue. 
C)  decrease the deadweight loss of the tax and increase tax revenue. 
D)  decrease the deadweight loss of the tax and decrease tax revenue. 
A)  increase the deadweight loss of the tax and increase tax revenue. 
B)  increase the deadweight loss of the tax and decrease tax revenue. 
C)  decrease the deadweight loss of the tax and increase tax revenue. 
D)  decrease the deadweight loss of the tax and decrease tax revenue.

Question 20

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

Exam 8: Application: the Costs of Taxation

If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax.

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 tripled, the

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

Figure 8-14 -Refer to Figure 8-14. Which of the following statements is correct?

Taxes cause deadweight losses because taxes

In a 2012 Wall Street Journal column, economists Edward Prescott and Lee Ohanian claimed that, in order to promote faster economic growth, the government should

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-23. If the economy is at point B on the curve, then a small decrease in the tax rate will

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The per-unit burden of the tax on sellers is

Which of the following statements correctly describes the relationship between the size of the deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax?

When a tax is levied on buyers of a good,

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. Total surplus without the tax is

Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The deadweight loss of the tax is the area

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Taxes affect market participants by increasing the price paid by the buyer and decreasing the price received by the seller.

Suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for the good, the

To measure the gains and losses from a tax on a good, economists use the tools of

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-23. If the economy is at point A on the curve, then a small increase in the tax rate will

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

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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