Question 1

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. Consumer 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 8-9
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-9. The consumer surplus without the tax is

Accepted Answer

A)  $2,000. 
B)  $5,000. 
C)  $8,000. 
D)  $16,000. 
A)  $2,000. 
B)  $5,000. 
C)  $8,000. 
D)  $16,000.

Question 3

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 4

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 5

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 $180. 
B)  After the tax is imposed, consumer surplus is 25 percent of its pre-tax value. 
C)  After the tax is imposed, producer surplus is 36 percent of its pre-tax value. 
D)  All of the above are correct. 
A)  Total surplus before the tax is imposed is $180. 
B)  After the tax is imposed, consumer surplus is 25 percent of its pre-tax value. 
C)  After the tax is imposed, producer surplus is 36 percent of its pre-tax value. 
D)  All of the above are correct.

Question 6

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area

Accepted Answer

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

Question 7

Figure 8-19
The vertical distance between points A and B represents the original tax.  
-Refer to Figure 8-19. The original tax can be represented by the vertical distance AB. Suppose the government is deciding whether to lower the tax to CD or raise it to FG. Which of the following statements is not correct?

Accepted Answer

A)  Compared to the original tax, the larger tax will increase 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 increase 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 8

The size of the deadweight loss generated from a tax is affected by the

Accepted Answer

A)  elasticities of both supply and demand. 
B)  elasticity of demand only. 
C)  elasticity of supply only. 
D)  total revenue collected by the government. 
A)  elasticities of both supply and demand. 
B)  elasticity of demand only. 
C)  elasticity of supply only. 
D)  total revenue collected by the government.

Question 9

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 price that buyers pay is

Accepted Answer

A)  P0. 
B)  P2. 
C)  P5. 
D)  P8. 
A)  P0. 
B)  P2. 
C)  P5. 
D)  P8.

Question 10

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 11

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, producer surplus is the area

Accepted Answer

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

Question 12

Suppose the price of milk is $2.39 per gallon, and the equilibrium quantity of milk is 100 thousand gallons per day with no tax on milk. Starting from this initial situation, which of the following scenarios would result in the smallest deadweight loss?

Accepted Answer

A)  The price elasticity of demand for milk is 0.3, the price elasticity of supply for milk is 0.7, and the milk tax amounts to $0.40 per gallon. 
B)  The price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is 0.5, and the milk tax amounts to $0.30 per gallon. 
C)  The price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is 0.7, and the milk tax amounts to $0.30 per gallon. 
D)  The price elasticity of demand for milk is 0.1, the price elasticity of supply for milk is 0.5, and the milk tax amounts to $0.20 per gallon. 
A)  The price elasticity of demand for milk is 0.3, the price elasticity of supply for milk is 0.7, and the milk tax amounts to $0.40 per gallon. 
B)  The price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is 0.5, and the milk tax amounts to $0.30 per gallon. 
C)  The price elasticity of demand for milk is 0.2, the price elasticity of supply for milk is 0.7, and the milk tax amounts to $0.30 per gallon. 
D)  The price elasticity of demand for milk is 0.1, the price elasticity of supply for milk is 0.5, and the milk tax amounts to $0.20 per gallon.

Question 13

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

Accepted Answer

A)  California economics. 
B)  welfare economics. 
C)  supply-side economics. 
D)  elasticity economics. 
A)  California economics. 
B)  welfare economics. 
C)  supply-side economics. 
D)  elasticity economics.

Question 14

The deadweight loss from a tax

Accepted Answer

A)  does not vary in amount when the price elasticity of demand changes. 
B)  does not vary in amount when the amount of the tax per unit changes. 
C)  is larger, the larger is the amount of the tax per unit. 
D)  is smaller, the larger is the amount of the tax per unit. 
A)  does not vary in amount when the price elasticity of demand changes. 
B)  does not vary in amount when the amount of the tax per unit changes. 
C)  is larger, the larger is the amount of the tax per unit. 
D)  is smaller, the larger is the amount of the tax per unit.

Question 15

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The tax is levied on

Accepted Answer

A)  buyers only. 
B)  sellers only. 
C)  both buyers and sellers. 
D)  This is impossible to determine from the figure. 
A)  buyers only. 
B)  sellers only. 
C)  both buyers and sellers. 
D)  This is impossible to determine from the figure.

Question 16

Which of the following quantities decrease in response to a tax on a good?

Accepted Answer

A)  the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus 
B)  the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good 
C)  the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus 
D)  None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers. 
A)  the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus 
B)  the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good 
C)  the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus 
D)  None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.

Question 17

John has been in the habit of mowing Willa's lawn each week for $20. John's opportunity cost is $15, and Willa would be willing to pay $25 to have her lawn mowed. What is the maximum tax the government can impose on lawn mowing without discouraging John and Willa from continuing their mutually beneficial arrangement?

Accepted Answer

If the tax is less than $10, there will

Question 18

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, buyers effectively pay

Accepted Answer

A)  $32 for each unit of the good, and sellers effectively receive $24 for each unit of the good. 
B)  $32 for each unit of the good, and sellers effectively receive $16 for each unit of the good. 
C)  $24 for each unit of the good, and sellers effectively receive $16 for each unit of the good. 
D)  $28 for each unit of the good, and sellers effectively receive $20 for each unit of the good. 
A)  $32 for each unit of the good, and sellers effectively receive $24 for each unit of the good. 
B)  $32 for each unit of the good, and sellers effectively receive $16 for each unit of the good. 
C)  $24 for each unit of the good, and sellers effectively receive $16 for each unit of the good. 
D)  $28 for each unit of the good, and sellers effectively receive $20 for each unit of the good.

Question 19

Suppose the demand curve and the supply curve in a market are both linear, and suppose the price elasticity of supply is 0.5. Will the deadweight loss from a $3 tax per unit be larger if the price elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?

Accepted Answer

The deadweight loss

Question 20

If a tax shifts the demand curve downward (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.

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. Consumer surplus before the tax was levied is represented by area

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

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

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?

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 decrease in consumer and producer surpluses that is not offset by tax revenue is the area

The size of the deadweight loss generated from a tax is affected by the

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 price that buyers pay 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?

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, producer surplus is the area

Suppose the price of milk is $2.39 per gallon, and the equilibrium quantity of milk is 100 thousand gallons per day with no tax on milk. Starting from this initial situation, which of the following scenarios would result in the smallest deadweight loss?

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

The deadweight loss from a tax

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax is levied on

Which of the following quantities decrease in response to a tax on a good?

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, buyers effectively pay

Suppose the demand curve and the supply curve in a market are both linear, and suppose the price elasticity of supply is 0.5. Will the deadweight loss from a $3 tax per unit be larger if the price elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?

If a tax shifts the demand curve downward (or to the left), we can infer that the tax was levied on

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

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

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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