Question 1

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 producer surplus when the tax is imposed in this market?

Accepted Answer

A)   Producer surplus falls by $600.
B)   Producer surplus falls by $900.
C)   Producer surplus falls by $1,800.
D)   Producer surplus falls by $2,100.E) A) and C)
F) None of the above

Question 2

If the size of a tax triples,the deadweight loss increases by a factor of six.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

According to Arthur Laffer,the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

Accepted Answer

A)   a U.
B)   an upside-down U.
C)   a horizontal straight line.
D)   an upward-sloping line or curve.E) All of the above
F) B) and D)

Question 5

Assume the price of gasoline is $2.00 per gallon,and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline.Starting from this initial situation,which of the following scenarios would result in the largest deadweight loss?

Accepted Answer

A)   The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.20 per gallon.
B)   The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.4; and the gasoline tax amounts to $0.20 per gallon.
C)   The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon.
D)   There is insufficient information to make this determination.E) B) and C)
F) A) and B)

Question 6

The deadweight loss from a $3 tax will be largest in a market with

Accepted Answer

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

Question 7

Figure 8-4
The vertical distance between points A and B represents a tax in the market.
 
-Refer to Figure 8-4.The price that buyers effectively pay after the tax is imposed is

Accepted Answer

A)   $12.
B)   between $8 and $12.
C)   between $5 and $8.
D)   $5.E) B) and C)
F) A) and D)

Question 8

Figure 8-4
The vertical distance between points A and B represents a tax in the market.
 
-Refer to Figure 8-4.The amount of the tax on each unit of the good is

Accepted Answer

A)   $5.
B)   $7.
C)   $8.
D)   $12.E) A) and B)
F) A) and C)

Question 9

When a tax is imposed on sellers,consumer surplus and producer surplus both decrease.

Accepted Answer

A) True 
 B)False

Question 10

The Social Security tax is a labor tax.

Accepted Answer

A) True 
 B)False

Question 11

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.With the tax,the total surplus is

Accepted Answer

A)   [  x (P0-P5)  x Q5] + [  x (P5-0)  x Q5].
B)   [  x (P0-P2)  x Q2] +[(P2-P8)  x Q2] + [  x (P8-0)  x Q2].
C)   (P2-P8)  x Q2.
D)    x (P2-P8)  x (Q5-Q2) .E) None of the above
F) A) and B)

Question 12

When a tax is imposed on a good for which the supply is relatively elastic and the demand 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)   both equilibrium price and quantity will increase.E) All of the above
F) B) and D)

Question 13

If the labor supply curve is very elastic,a tax on labor

Accepted Answer

A)   has a large deadweight loss.
B)   raises enough tax revenue to offset the loss in welfare.
C)   has a relatively small impact on the number of hours that workers choose to work.
D)   results in a large tax burden on the firms that hire labor.E) C) and D)
F) B) and C)

Question 14

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.E) C) and D)
F) A) and B)

Question 15

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.E) All of the above
F) A) and C)

Question 16

Figure 8-2
The vertical distance between points A and B represents a tax in the market.
 
-Refer to Figure 8-2.The imposition of the tax causes the price received by sellers to

Accepted Answer

A)   decrease by $2.
B)   increase by $3.
C)   decrease by $4.
D)   increase by $5.E) C) and D)
F) None of the above

Question 17

When a country is on the downward-sloping side of the Laffer curves,a cut in the tax rate will

Accepted Answer

A)   decrease tax revenue and decrease the deadweight loss.
B)   decrease tax revenue and increase the deadweight loss.
C)   increase tax revenue and decrease the deadweight loss.
D)   increase tax revenue and increase the deadweight loss.E) None of the above
F) A) and B)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Scenario 8-1
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week.
-Refer to Scenario 8-1.Assume Erin is required to pay a tax of $15 when she hires someone to clean her house.Which of the following is true?

Accepted Answer

A)   Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.
B)   Ernesto will continue to clean Erin's house, and his producer surplus will increase.
C)   Total economic welfare (consumer surplus plus producer surplus plus tax revenue)  will decrease.
D)   All of the above are correct.E) A) and C)
F) None of the above

Question 20

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.
 
-Refer to Figure 8-5.The benefit to the government is measured by

Accepted Answer

A)   tax revenue and is represented by area A+B.
B)   tax revenue and is represented by area B+D.
C)   the net gain in total surplus and is represented by area B+D.
D)   the net gain in total surplus and is represented by area C+H.E) None of the above
F) A) and B)

Exam 8: Application: The Costs of Taxation.

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

Correct Answer
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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 imposition of the tax causes the price received by sellers to

Correct Answer
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When a country is on the downward-sloping side of the Laffer curves,a cut in the tax rate will

Correct Answer
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Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4.The price that buyers effectively pay after the tax is imposed is

Correct Answer
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When a tax is imposed on sellers,consumer surplus and producer surplus both decrease.

Correct Answer
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The deadweight loss from a $3 tax will be largest in a market with

Correct Answer
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If the size of a tax triples,the deadweight loss increases by a factor of six.

Correct Answer
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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 producer surplus when the tax is imposed in this market?

Correct Answer
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If the labor supply curve is very elastic,a tax on labor

Correct Answer
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Assume the price of gasoline is $2.00 per gallon,and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline.Starting from this initial situation,which of the following scenarios would result in the largest deadweight loss?

Correct Answer
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The Social Security tax is a labor tax.

Correct Answer
verified

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

Correct Answer
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A tax on a good causes the size of the market to increase.

Correct Answer
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Correct Answer
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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

Correct Answer
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According to Arthur Laffer,the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

Correct Answer
verified

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5.The benefit to the government is measured by

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

Correct Answer
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Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4.The amount of the tax on each unit of the good is

Correct Answer
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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.With the tax,the total surplus is

Correct Answer
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Exam 8: Application: The Costs of Taxation.

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

Correct AnswerverifiedShow Answer

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2.The imposition of the tax causes the price received by sellers to

Correct AnswerverifiedShow Answer

When a country is on the downward-sloping side of the Laffer curves,a cut in the tax rate will

Correct AnswerverifiedShow Answer

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4.The price that buyers effectively pay after the tax is imposed is

Correct AnswerverifiedShow Answer

When a tax is imposed on sellers,consumer surplus and producer surplus both decrease.

Correct AnswerverifiedShow Answer

The deadweight loss from a $3 tax will be largest in a market with

Correct AnswerverifiedShow Answer

If the size of a tax triples,the deadweight loss increases by a factor of six.

Correct AnswerverifiedShow Answer

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 producer surplus when the tax is imposed in this market?

Correct AnswerverifiedShow Answer

If the labor supply curve is very elastic,a tax on labor

Correct AnswerverifiedShow Answer

Assume the price of gasoline is $2.00 per gallon,and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline.Starting from this initial situation,which of the following scenarios would result in the largest deadweight loss?

Correct AnswerverifiedShow Answer

The Social Security tax is a labor tax.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to Arthur Laffer,the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

Correct AnswerverifiedShow Answer

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5.The benefit to the government is measured by

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

Correct AnswerverifiedShow Answer

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4.The amount of the tax on each unit of the good is

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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.With the tax,the total surplus is

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