Question 1

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 buyers is

Accepted Answer

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

Question 2

Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

Accepted Answer

A) True 
 B)False

Question 3

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. What happens to total surplus in this market when the tax is imposed?

Accepted Answer

A)  Total surplus increases by $1,500.
B)  Total surplus increases by $3,000.
C)  Total surplus decreases by $1,500.
D)  Total surplus decreases by $,3000.

Question 4

Figure 8-9
The vertical distance between points A and C represent 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.

Question 5

The amount of deadweight loss from a tax depends upon the

Accepted Answer

A)  price elasticity of demand.
B)  price elasticity of supply.
C)  amount of the tax per unit.
D)  All of the above are correct.

Question 6

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be

Accepted Answer

A)  $200.
B)  $250.
C)  $500.
D)  $2,500.

Question 7

Figure 8-9
The vertical distance between points A and C represent a tax in the market. 
-Refer to Figure 8-9. The total surplus with the tax is

Accepted Answer

A)  $2,000.
B)  $3,000.
C)  $15,000.
D)  $20,000.

Question 8

When the price of a good is measured in dollars, then the size of the deadweight loss that results from taxing that good is measured in

Accepted Answer

A)  units of the good that is being taxed.
B)  units of a related good that is not being taxed.
C)  dollars.
D)  percentage change.

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.

Question 10

Figure 8-9
The vertical distance between points A and C represent 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 11

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is

Accepted Answer

A)  $0.
B)  $1.50.
C)  $3.
D)  $4.50.

Question 12

Tax revenues increase in direct proportion to increases in the size of the tax.

Accepted Answer

A) True 
 B)False

Question 13

One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the

Accepted Answer

A)  size of the market is unchanged.
B)  price the seller effectively receives is higher.
C)  supply curve for the good shifts upward by the amount of the tax.
D)  tax reduces the welfare of both buyers and sellers.

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Figure 8-9
The vertical distance between points A and C represent a tax in the market. 
-Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to

Accepted Answer

A)  increase from $600 to $800.
B)  increase from $300 to $800.
C)  decrease from $600 to $300.
D)  remain unchanged at $600.

Question 16

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,

Accepted Answer

A)  consumer surplus decreases from $150 to $60.
B)  producer surplus decreases from $125 to $45.
C)  the market experiences a deadweight loss of $45.
D)  All of the above are correct.

Question 17

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is

Accepted Answer

A)  smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax.
B)  bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers.
C)  a right triangle.
D)  a triangle, but not necessarily a right triangle.

Question 18

An increase 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 19

A tax places a wedge between the price buyers pay and the price sellers receive.

Accepted Answer

A) True 
 B)False

Question 20

A tax on a good causes the size of the market to shrink.

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

A tax places a wedge between the price buyers pay and the price sellers receive.

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Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to

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Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. What happens to total surplus in this market when the tax is imposed?

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Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be

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A tax on a good causes the size of the market to shrink.

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Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The total surplus with the tax is

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Tax revenues increase in direct proportion to increases in the size of the tax.

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

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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

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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,

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For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is

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Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

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

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Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is

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When the price of a good is measured in dollars, then the size of the deadweight loss that results from taxing that good is measured in

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The amount of deadweight loss from a tax depends upon the

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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 buyers is

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

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One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the

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

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