Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

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

Accepted Answer

A) True 
 B)False  False

Question 3

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 D

Question 4

If supply is more elastic than demand is, the

Accepted Answer

A) less the impact it will have on the consumers before tax income 
B) more likely it is to lead to tax avoidance 
C) less likely it will have any impact on market transactions 
D) more the tax will fall on consumers 
E) more the tax will fall on producers 
A) less the impact it will have on the consumers before tax income 
B) more likely it is to lead to tax avoidance 
C) less likely it will have any impact on market transactions 
D) more the tax will fall on consumers 
E) more the tax will fall on producers

Question 5

Exhibit 5-32   Refer to Exhibit 5-32.The revenue generated by the $12.50 tax is:

Accepted Answer

A) $12.50 
B) $25.00 
C) $37.50 
D) $62.60 
E) $87.50 
A) $12.50 
B) $25.00 
C) $37.50 
D) $62.60 
E) $87.50

Question 6

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 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

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 10

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

Accepted Answer

A) $5.50 
B) $9.50 
C) $14.50 
D) $19.50 
E) $20.50 
A) $5.50 
B) $9.50 
C) $14.50 
D) $19.50 
E) $20.50

Question 11

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 12

Exhibit 5-31   Refer to Exhibit 5-31.The tax burden borne by sellers 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

Question 13

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 14

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

Accepted Answer

A) True 
 B)False

Question 15

If demand is elastic, a tax increase will shift the demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

Historically salt has been one of the most commonly taxed items.Which of the following do you think best explains this fact?

Accepted Answer

A) Since salt is a necessity, levying a tax on it imposed a hardship on no one 
B) The burden of the tax will be shared by everyone since everyone uses salt 
C) Because salt is used more by those with higher incomes, a tax will decrease their consumption 
D) The demand for salt is inelastic 
E) The demand for salt is elastic 
A) Since salt is a necessity, levying a tax on it imposed a hardship on no one 
B) The burden of the tax will be shared by everyone since everyone uses salt 
C) Because salt is used more by those with higher incomes, a tax will decrease their consumption 
D) The demand for salt is inelastic 
E) The demand for salt is elastic

Question 18

If demand is more inelastic than supply is, the

Accepted Answer

A) larger 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) smaller the portion of the tax that will be paid by consumers 
E) smaller the impact that an income tax will have on consumer preferences 
A) larger 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) smaller the portion of the tax that will be paid by consumers 
E) smaller the impact that an income tax will have on consumer preferences

Question 19

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 20

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

Exam 5: Appendix--Price Elasticity and Tax Incidence

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

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

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

If supply is more elastic than demand is, the

Exhibit 5-32 Refer to Exhibit 5-32.The revenue generated by the $12.50 tax is:

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

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

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

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

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

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

If demand is more elastic than supply is, the

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

If demand is elastic, a tax increase will shift the demand curve to the right.

If supply is more inelastic than demand is, the

Historically salt has been one of the most commonly taxed items.Which of the following do you think best explains this fact?

If demand is more inelastic than supply is, the

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

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

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

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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