Question 1

Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that

Accepted Answer

A)   tax revenue increases, and the deadweight loss increases.
B)   tax revenue increases, and the deadweight loss decreases.
C)   tax revenue decreases, and the deadweight loss increases.
D)   tax revenue decreases, and the deadweight loss decreases.

Question 2

A tax affects

Accepted Answer

A)   buyers only.
B)   sellers only.
C)   buyers and sellers only.
D)   buyers, sellers, and the government.

Question 3

When a tax is levied on a good,

Accepted Answer

A)   neither buyers nor sellers are made worse off.
B)   only sellers are made worse off.
C)   only buyers are made worse off.
D)   both buyers and sellers are made worse off.

Question 4

When a tax is imposed on the buyers of a good, the demand curve shifts

Accepted Answer

A)   downward by the amount of the tax.
B)   upward by the amount of the tax.
C)   downward by less than the amount of the tax.
D)   upward by more than the amount of the tax.

Question 5

Figure 8-11 
-Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

Accepted Answer

A)   consumer surplus decreases by $11.
B)   producer surplus decreases by $11.
C)   the deadweight loss amounts to $6.
D)   All of the above are correct.

Question 6

Ronald Reagan believed that reducing income tax rates would

Accepted Answer

A)   do little, if anything, to encourage hard work.
B)   result in large increases in deadweight losses.
C)   raise economic well-being and perhaps even tax revenue.
D)   lower economic well-being, even though tax revenue could possibly increase.

Question 7

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

Question 8

The supply curve for whiskey is the typical upward-sloping straight line, and the demand curve for whiskey is the typical downward-sloping straight line. When whiskey is taxed, the area on the relevant supply-and-demand graph that represents

Accepted Answer

A)   government's tax revenue is a rectangle.
B)   the deadweight loss of the tax is a triangle.
C)   the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle.
D)   All of the above are correct.

Question 9

If the tax on a good is increased from $0.30 per unit to $0.90 per unit, the deadweight loss from the tax

Accepted Answer

A)   remains constant.
B)   increases by a factor of 4.
C)   increases by a factor of 9.
D)   increases by a factor of 16.

Question 10

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 producer surplus is

Accepted Answer

A)   P5-0)  x Q5.
B)   1/2 x P5-0)  x Q5.
C)   P8-0)  x Q2.
D)   1/2 x P8-0)  x Q2.

Question 11

Figure 8-12 
-Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of tax revenue collected by the government is

Accepted Answer

A)   $7.50.
B)   $15.00.
C)   $22.50.
D)   $45.00.

Question 12

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3. The loss in consumer surplus caused by the tax is measured by the area

Accepted Answer

A)   P1P3AC.
B)   P3ABP2.
C)   P1P3ABC.
D)   ABC.

Question 13

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 14

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. Producer surplus before the tax was levied is represented by area

Accepted Answer

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

Question 15

When a tax is imposed on a good for which both demand and supply are very elastic,

Accepted Answer

A)   sellers effectively pay the majority of the tax.
B)   buyers effectively pay the majority of the tax.
C)   the tax burden is equally divided between buyers and sellers.
D)   None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.

Question 16

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The imposition of the tax causes the price received by sellers to decrease by

Accepted Answer

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

Question 17

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

Accepted Answer

A)   The demand for gasoline becomes more inelastic.
B)   The slope of the supply curve for gasoline becomes steeper.
C)   The amount of the tax per gallon of gasoline increases.
D)   All of the above are correct.

Question 18

Economists generally agree that the most important tax in the U.S. economy is the

Accepted Answer

A)   income tax.
B)   tax on labor.
C)   inheritance or death tax.
D)   tax on corporate profits.

Question 19

Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct?

Accepted Answer

A)   The demand for cigars is less elastic than the supply of cigars.
B)   The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50.
C)   The deadweight loss of the tax is $12.50.
D)   All of the above are correct.

Question 20

The demand for bread is less elastic than the demand for donuts; hence, a tax on bread will create a larger deadweight loss than will the same tax on donuts, other things equal.

Accepted Answer

A) True 
 B)False

Exam 8: Application: the Costs of Taxation

If the tax on a good is increased from $0.30 per unit to $0.90 per unit, the deadweight loss from the tax

Correct Answer
verified

Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that

Correct Answer
verified

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. Producer surplus before the tax was levied is represented by area

Correct Answer
verified

Correct Answer
verified

When a tax is imposed on the buyers of a good, the demand curve shifts

Correct Answer
verified

Figure 8-11 -Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

Correct Answer
verified

Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of tax revenue collected by the government is

Correct Answer
verified

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 producer surplus is

Correct Answer
verified

A tax affects

Correct Answer
verified

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

Correct Answer
verified

When a tax is levied on a good,

Correct Answer
verified

When a tax is imposed on a good for which both demand and supply are very elastic,

Correct Answer
verified

The supply curve for whiskey is the typical upward-sloping straight line, and the demand curve for whiskey is the typical downward-sloping straight line. When whiskey is taxed, the area on the relevant supply-and-demand graph that represents

Correct Answer
verified

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

Correct Answer
verified

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The imposition of the tax causes the price received by sellers to decrease by

Correct Answer
verified

The demand for bread is less elastic than the demand for donuts; hence, a tax on bread will create a larger deadweight loss than will the same tax on donuts, other things equal.

Correct Answer
verified

Ronald Reagan believed that reducing income tax rates would

Correct Answer
verified

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The loss in consumer surplus caused by the tax is measured by the area

Correct Answer
verified

Economists generally agree that the most important tax in the U.S. economy is the

Correct Answer
verified

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?

Correct Answer
verified
Consumer surplus is ...
View Answer

Exam 8: Application: the Costs of Taxation

If the tax on a good is increased from $0.30 per unit to $0.90 per unit, the deadweight loss from the tax

Correct AnswerverifiedShow Answer

Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax. As a result, it is likely that

Correct AnswerverifiedShow Answer

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. Producer surplus before the tax was levied is represented by area

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a tax is imposed on the buyers of a good, the demand curve shifts

Correct AnswerverifiedShow Answer

Figure 8-11 -Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

Correct AnswerverifiedShow Answer

Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of tax revenue collected by the government is

Correct AnswerverifiedShow Answer

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 producer surplus is

Correct AnswerverifiedShow Answer

A tax affects

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a tax is levied on a good,

Correct AnswerverifiedShow Answer

When a tax is imposed on a good for which both demand and supply are very elastic,

Correct AnswerverifiedShow Answer

The supply curve for whiskey is the typical upward-sloping straight line, and the demand curve for whiskey is the typical downward-sloping straight line. When whiskey is taxed, the area on the relevant supply-and-demand graph that represents

Correct AnswerverifiedShow Answer

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

Correct AnswerverifiedShow Answer

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The imposition of the tax causes the price received by sellers to decrease by

Correct AnswerverifiedShow Answer

The demand for bread is less elastic than the demand for donuts; hence, a tax on bread will create a larger deadweight loss than will the same tax on donuts, other things equal.

Correct AnswerverifiedShow Answer

Ronald Reagan believed that reducing income tax rates would

Correct AnswerverifiedShow Answer

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The loss in consumer surplus caused by the tax is measured by the area

Correct AnswerverifiedShow Answer

Economists generally agree that the most important tax in the U.S. economy is the

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedConsumer surplus is ...View AnswerShow Answer

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Consumer surplus is ...
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