Question 1

The more price elastic is demand, the larger the portion of a tax that is paid by sellers

Accepted Answer

A) True 
 B)False  True

Question 2

Exhibit 5-31  
-Refer to Exhibit 5-31. The tax burden borne by consumers is:

Accepted Answer

A)  P3DCP1 
B)  P2BDP3 
C)  Q2CAQ1 
D)  b and c 
E)  P2BCP1 
A)  P3DCP1 
B)  P2BDP3 
C)  Q2CAQ1 
D)  b and c 
E)  P2BCP1 E

Question 3

Exhibit 5-31  
-Refer to Exhibit 5-31. The revenue generated by the tax is:

Accepted Answer

A)  P3DCP1 
B)  P2BDP3 
C)  Q2CAQ1 
D)  b and c 
E)  P2BCP1 
A)  P3DCP1 
B)  P2BDP3 
C)  Q2CAQ1 
D)  b and c 
E)  P2BCP1 B

Question 4

If the government is interested in generating a large revenue from placing a tax on the consumption of a particular good, it should choose a good for which

Accepted Answer

A)  the demand is price elastic 
B)  the demand is unit elastic with respect to price 
C)  the supply is perfectly elastic 
D)  the demand is price inelastic 
E)  there are many good substitutes 
A)  the demand is price elastic 
B)  the demand is unit elastic with respect to price 
C)  the supply is perfectly elastic 
D)  the demand is price inelastic 
E)  there are many good substitutes

Question 5

The more price inelastic is demand, the more likely it is that a tax will fall on sellers.

Accepted Answer

A) True 
 B)False

Question 6

If there is a $1 per box tax imposed on the sale of tea and the price paid by consumers increases by $0.50, what may we conclude about the price elasticities of demand and supply?

Accepted Answer

A)  The elasticity of supply must be less than the price elasticity of demand 
B)  The amount exchanged in the market will remain the same 
C)  The elasticity of supply must be greater than the price elasticity of demand 
D)  The elasticity of supply must be equal to the elasticity of demand 
E)  We need more information to answer the question 
A)  The elasticity of supply must be less than the price elasticity of demand 
B)  The amount exchanged in the market will remain the same 
C)  The elasticity of supply must be greater than the price elasticity of demand 
D)  The elasticity of supply must be equal to the elasticity of demand 
E)  We need more information to answer the question

Question 7

If the demand for a good is very price elastic, the imposition of a tax on that good

Accepted Answer

A)  places the largest portion of the burden on the sellers of that product 
B)  places the burden of the tax equally on buyers and sellers 
C)  places the largest portion of the tax on consumers 
D)  will make demand more elastic than it was before the tax 
E)  will make demand more inelastic than it was before the tax 
A)  places the largest portion of the burden on the sellers of that product 
B)  places the burden of the tax equally on buyers and sellers 
C)  places the largest portion of the tax on consumers 
D)  will make demand more elastic than it was before the tax 
E)  will make demand more inelastic than it was before the tax

Question 8

On which of the following goods would you expect the revenue generated from the imposition of a tax to be the greatest?

Accepted Answer

A)  milk 
B)  gasoline 
C)  bread 
D)  a specific brand of beer 
E)  all beer 
A)  milk 
B)  gasoline 
C)  bread 
D)  a specific brand of beer 
E)  all beer

Question 9

Exhibit 5-30  
-Refer to Exhibit 5-30. Consumers will pay a greater share of a new tax under supply curve S' than under supply curve S.

Accepted Answer

A) True 
 B)False

Question 10

If the demand for a good is very price inelastic, the imposition of a tax on that good

Accepted Answer

A)  places the burden of the tax equally on buyers and sellers 
B)  permits sellers to pass most of the cost increase resulting from the tax on to the consumers of the product 
C)  reduces the profits earned by sellers since they must write the check to pay the tax 
D)  makes the demand more inelastic 
E)  makes the demand more elastic 
A)  places the burden of the tax equally on buyers and sellers 
B)  permits sellers to pass most of the cost increase resulting from the tax on to the consumers of the product 
C)  reduces the profits earned by sellers since they must write the check to pay the tax 
D)  makes the demand more inelastic 
E)  makes the demand more elastic

Question 11

Levying a tax on a good when demand is very elastic will generate a large amount of tax revenue for the government.

Accepted Answer

A) True 
 B)False

Question 12

Exhibit 5-32  
-Refer to Exhibit 5-32. The tax burden borne by consumers is:

Accepted Answer

A)  $50 
B)  $60 
C)  $70 
D)  $75 
E)  $80 
A)  $50 
B)  $60 
C)  $70 
D)  $75 
E)  $80

Question 13

The more elastic is the supply, the less of a tax is paid by producers

Accepted Answer

A) True 
 B)False

Question 14

If supply is elastic, the imposition of a tax

Accepted Answer

A)  falls more heavily on consumers 
B)  falls more heavily on producers 
C)  falls more heavily on monopoly sellers than competitive sellers 
D)  will alter both buyer and seller plans equally 
E)  change seller expectations about consumer tastes 
A)  falls more heavily on consumers 
B)  falls more heavily on producers 
C)  falls more heavily on monopoly sellers than competitive sellers 
D)  will alter both buyer and seller plans equally 
E)  change seller expectations about consumer tastes

Question 15

If demand is price inelastic, a tax will largely be paid by consumers.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 5-29  
-Refer to Exhibit 5-29. The supply curve decreases from S to S(t) because a tax is imposed. Under demand curve D' as opposed to demand curve D, consumers will pay more of the tax.

Accepted Answer

A) True 
 B)False

Question 17

On which of the following goods would you expect the revenue generated from the imposition of a tax to be the greatest?

Accepted Answer

A)  A prescription drug ordered by your doctor 
B)  Bayer aspirin 
C)  An over-the-counter cough medicine 
D)  A specific brand of vitamin pills 
E)  Rubbing alcohol 
A)  A prescription drug ordered by your doctor 
B)  Bayer aspirin 
C)  An over-the-counter cough medicine 
D)  A specific brand of vitamin pills 
E)  Rubbing alcohol

Question 18

An excise tax will generate more revenue to the government, the more price elastic the demand for the product is.

Accepted Answer

A) True 
 B)False

Question 19

If demand is more elastic than supply is, the

Accepted Answer

A)  smaller the portion of the tax that will be paid by producers 
B)  larger the portion of the tax that will be paid by consumers 
C)  more likely it is that the tax will be spread equally between producers and consumers 
D)  more likely it will be subject to tax evasion by those in the underground economy 
E)  larger the portion of the tax that will be paid by producers 
A)  smaller the portion of the tax that will be paid by producers 
B)  larger the portion of the tax that will be paid by consumers 
C)  more likely it is that the tax will be spread equally between producers and consumers 
D)  more likely it will be subject to tax evasion by those in the underground economy 
E)  larger the portion of the tax that will be paid by producers

Question 20

If supply is more inelastic than demand is, the

Accepted Answer

A)  more the tax will fall on producers 
B)  more the tax will fall on consumers 
C)  less likely that a tax will have an impact on market transactions 
D)  less likely it a tax will lead to tax avoidance 
E)  greater the impact that a tax has on consumer expectations 
A)  more the tax will fall on producers 
B)  more the tax will fall on consumers 
C)  less likely that a tax will have an impact on market transactions 
D)  less likely it a tax will lead to tax avoidance 
E)  greater the impact that a tax has on consumer expectations

Exam 5: Appendix: price Elasticity and Tax Incidence

The more price elastic is demand, the larger the portion of a tax that is paid by sellers

Exhibit 5-31 -Refer to Exhibit 5-31. The tax burden borne by consumers is:

Exhibit 5-31 -Refer to Exhibit 5-31. The revenue generated by the tax is:

If the government is interested in generating a large revenue from placing a tax on the consumption of a particular good, it should choose a good for which

The more price inelastic is demand, the more likely it is that a tax will fall on sellers.

If there is a $1 per box tax imposed on the sale of tea and the price paid by consumers increases by $0.50, what may we conclude about the price elasticities of demand and supply?

If the demand for a good is very price elastic, the imposition of a tax on that good

On which of the following goods would you expect the revenue generated from the imposition of a tax to be the greatest?

Exhibit 5-30 -Refer to Exhibit 5-30. Consumers will pay a greater share of a new tax under supply curve S' than under supply curve S.

If the demand for a good is very price inelastic, the imposition of a tax on that good

Levying a tax on a good when demand is very elastic will generate a large amount of tax revenue for the government.

Exhibit 5-32 -Refer to Exhibit 5-32. The tax burden borne by consumers is:

The more elastic is the supply, the less of a tax is paid by producers

If supply is elastic, the imposition of a tax

If demand is price inelastic, a tax will largely be paid by consumers.

Exhibit 5-29 -Refer to Exhibit 5-29. The supply curve decreases from S to S(t) because a tax is imposed. Under demand curve D' as opposed to demand curve D, consumers will pay more of the tax.

On which of the following goods would you expect the revenue generated from the imposition of a tax to be the greatest?

An excise tax will generate more revenue to the government, the more price elastic the demand for the product is.

If demand is more elastic than supply is, the

If supply is more inelastic than demand is, the

The Art and Science of Economic Analysis

Appendix: Understanding Graphs

Economic Tools and Economics Systems

Economic Decision Makers

Demand, Supply, and Markets

Elasticity of Demand and Supply

Consumer Choice and Demand

Appendix: Indifference Curves and Utility Maximization

Production and Cost in the Firm

Appendix: a Closer Look at Production and Cost

A: perfect Competition

B: perfect Competition

A: monopoly

B: Monopoly

Monopolistic Competition and Oligopoly

Resource Markets

Labor Markets and Labor Unions

Capital, Interest, and Corporate Finance

Transaction Costs, Imperfect Information, and Behavioral Economics

Economic Regulation and Antitrust Policy

Public Goods and Public Choice

Externalities and the Environment

Income Distribution and Poverty

International Trade

International Finance

Economic Development

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