Question 1

When a tax is imposed on buyers, consumer surplus decreases but producer surplus increases.

Accepted Answer

A) True 
 B)False

Question 2

Figure 8-11 
-Refer to Figure 8-11. The tax revenue that the government collects equals

Accepted Answer

A)   . 
B)   . 
C)   . 
D)   .

Question 3

Suppose a tax is imposed on baseball bats. In which of the following cases will the tax cause the equilibrium quantity of baseball bats to shrink by the smallest amount?

Accepted Answer

A)  The response of buyers to a change in the price of baseball bats is strong, and the response of sellers to a change in the price of baseball bats is weak. 
B)  The response of sellers to a change in the price of baseball bats is strong, and the response of buyers to a change in the price of baseball bats is weak. 
C)  The response of buyers and sellers to a change in the price of baseball bats is strong. 
D)  The response of buyers and sellers to a change in the price of baseball bats is weak.

Question 4

Figure 8-13 
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price paid by buyers to

Accepted Answer

A)  decrease by $5. 
B)  increase by $5. 
C)  increase by $3. 
D)  increase by $2.

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 price will sellers receive and what price will buyers pay after the tax is imposed?

Accepted Answer

The answer of Scenario 8-3
Suppose the market demand and market...

Question 6

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.

Question 7

The demand for chicken wings is more elastic than the demand for razor blades. Suppose the government levies an equivalent tax on chicken wings and razor blades. The deadweight loss would be larger in the market for

Accepted Answer

A)  chicken wings than in the market for razor blades because the quantity of chicken wings would fall by more than the quantity of razor blades. 
B)  chicken wings than in the market for razor blades because the quantity of razor blades would fall by more than the quantity of chicken wings. 
C)  razor blades than in the market for chicken wings because the quantity of chicken wings would fall by more than the quantity of razor blades. 
D)  razor blades than in the market for chicken wings because the quantity of razor blades would fall by more than the quantity of chicken wings.

Question 8

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.

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. Without the tax, the consumer surplus is

Accepted Answer

A)  (P0-P2) x Q2. 
B)  1/2 x (P0-P2) x Q2. 
C)  (P0-P5) x Q5. 
D)  1/2 x (P0-P5) x Q5.

Question 10

When a tax is placed on a product, the price paid by buyers

Accepted Answer

A)  rises, and the price received by sellers rises. 
B)  rises, and the price received by sellers falls. 
C)  falls, and the price received by sellers rises. 
D)  falls, and the price received by sellers falls.

Question 11

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.

Question 12

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 doubled, the

Accepted Answer

A)  base of the triangle that represents the deadweight loss quadruples. 
B)  height of the triangle that represents the deadweight loss doubles. 
C)  deadweight loss of the tax doubles. 
D)  All of the above are correct.

Question 13

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.

Question 14

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents

Accepted Answer

A)  tax revenue. 
B)  consumer surplus before the tax. 
C)  producer surplus after the tax. 
D)  total surplus before the tax.

Question 15

When a tax is imposed on sellers, producer surplus decreases but consumer surplus increases.

Accepted Answer

A) True 
 B)False

Question 16

A decrease in the size of a tax is most likely to increase tax revenue in a market with

Accepted Answer

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

Question 17

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

Accepted Answer

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

Question 18

The Social Security tax is a labor tax.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed. 
B)  compare the taxes raised in the United States with those raised in other countries, especially France. 
C)  compare the reduced welfare of buyers and sellers to the amount of revenue the government raises. 
D)  take into account the fact that almost all taxes reduce the welfare of buyers, increase the welfare of sellers, and raise revenue for the government.

Question 20

If the size of a tax doubles, the deadweight loss doubles.

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

When a tax is imposed on buyers, consumer surplus decreases but producer surplus increases.

Figure 8-11 -Refer to Figure 8-11. The tax revenue that the government collects equals

Suppose a tax is imposed on baseball bats. In which of the following cases will the tax cause the equilibrium quantity of baseball bats to shrink by the smallest amount?

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price paid by buyers to

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 price will sellers receive and what price will buyers pay after the tax is imposed?

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

The demand for chicken wings is more elastic than the demand for razor blades. Suppose the government levies an equivalent tax on chicken wings and razor blades. The deadweight loss would be larger in the market for

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 8-10 -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 consumer surplus is

When a tax is placed on a product, the price paid by buyers

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

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 doubled, the

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

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents

When a tax is imposed on sellers, producer surplus decreases but consumer surplus increases.

A decrease in the size of a tax is most likely to increase tax revenue in a market with

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

The Social Security tax is a labor tax.

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

If the size of a tax doubles, the deadweight loss doubles.