Question 1

When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

Accepted Answer

A) True 
 B)False

Question 2

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. 
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.

Question 3

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.  
-Refer to Figure 8-23. If the economy is at point A on the curve, then a small increase in the tax rate will

Accepted Answer

A) increase the deadweight loss of the tax and increase tax revenue. 
B) increase the deadweight loss of the tax and decrease tax revenue. 
C) decrease the deadweight loss of the tax and increase tax revenue. 
D) decrease the deadweight loss of the tax and decrease tax revenue. 
A) increase the deadweight loss of the tax and increase tax revenue. 
B) increase the deadweight loss of the tax and decrease tax revenue. 
C) decrease the deadweight loss of the tax and increase tax revenue. 
D) decrease the deadweight loss of the tax and decrease tax revenue.

Question 4

Figure 8-13  
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on buyers is

Accepted Answer

A) $1. 
B) $2. 
C) $3. 
D) $5. 
A) $1. 
B) $2. 
C) $3. 
D) $5.

Question 5

Figure 8-13  
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price received by sellers to

Accepted Answer

A) decrease by $5. 
B) decrease by $3. 
C) decrease by $2. 
D) increase by $5. 
A) decrease by $5. 
B) decrease by $3. 
C) decrease by $2. 
D) increase by $5.

Question 6

Taxes are costly to market participants because they

Accepted Answer

A) transfer resources from market participants to the government. 
B) alter incentives. 
C) distort market outcomes. 
D) All of the above are correct. 
A) transfer resources from market participants to the government. 
B) alter incentives. 
C) distort market outcomes. 
D) All of the above are correct.

Question 7

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. Which of the following statements is correct?

Accepted Answer

A) The loss of producer surplus that is associated with some sellers dropping out of the market as a result of the tax is $60. 
B) The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $120. 
C) The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax. 
D) This tax produces $320 in tax revenue for the government. 
A) The loss of producer surplus that is associated with some sellers dropping out of the market as a result of the tax is $60. 
B) The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $120. 
C) The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax. 
D) This tax produces $320 in tax revenue for the government.

Question 8

Figure 8-19
The vertical distance between points A and B represents the original tax.  
-Refer to Figure 8-19. The original tax can be represented by the vertical distance AB. Suppose the government is deciding whether to lower the tax to CD or raise it to FG. Which of the following statements is correct?

Accepted Answer

A) Compared to the original tax, the larger tax will decrease both tax revenue and deadweight loss. 
B) Compared to the original tax, the smaller tax will increase both tax revenue and deadweight loss. 
C) Compared to the original tax, the larger tax will decrease tax revenue and increase deadweight loss. 
D) Both a and b are correct. 
A) Compared to the original tax, the larger tax will decrease both tax revenue and deadweight loss. 
B) Compared to the original tax, the smaller tax will increase both tax revenue and deadweight loss. 
C) Compared to the original tax, the larger tax will decrease tax revenue and increase deadweight loss. 
D) Both a and b are correct.

Question 9

Figure 8-13  
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss of consumer surplus resulting from this tax is

Accepted Answer

A) $80. 
B) $40. 
C) $30. 
D) $10. 
A) $80. 
B) $40. 
C) $30. 
D) $10.

Question 10

As the size of a tax increases, the government's tax revenue rises, then falls.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

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

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 amount of tax revenue received by the government is equal to the area

Accepted Answer

A) P3ACP1. 
B) ABC. 
C) P2DAP3. 
D) P1CDP2. 
A) P3ACP1. 
B) ABC. 
C) P2DAP3. 
D) P1CDP2.

Question 13

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. The amount of the tax on each unit of the good is

Accepted Answer

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

Question 14

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. When the tax is imposed in this market, sellers effectively pay what amount of the $10 tax?

Accepted Answer

A) $0 
B) $4 
C) $6 
D) $10 
A) $0 
B) $4 
C) $6 
D) $10

Question 15

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 quantity sold to

Accepted Answer

A) increase by 20 units. 
B) increase by 500 units. 
C) decrease by 20 units. 
D) decrease by 500 units. 
A) increase by 20 units. 
B) increase by 500 units. 
C) decrease by 20 units. 
D) decrease by 500 units.

Question 16

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. 
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 17

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 250 per month when there is no tax. Then a tax of $6 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the after-tax quantity of widgets is

Accepted Answer

A) 75 per month. 
B) 100 per month. 
C) 125 per month. 
D) 150 per month. 
A) 75 per month. 
B) 100 per month. 
C) 125 per month. 
D) 150 per month.

Question 18

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. 
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 19

Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100. If the tax is increased to $0.25 per unit, the deadweight loss from the new tax would be

Accepted Answer

A) $200. 
B) $250. 
C) $475. 
D) $625. 
A) $200. 
B) $250. 
C) $475. 
D) $625.

Question 20

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

Accepted Answer

A) $6. 
B) $8. 
C) $9. 
D) $12. 
A) $6. 
B) $8. 
C) $9. 
D) $12.

Exam 8: Applications: the Costs of Taxation

When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

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

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-23. If the economy is at point A on the curve, then a small increase in the tax rate will

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on buyers is

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price received by sellers to

Taxes are costly to market participants because they

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Which of the following statements is correct?

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss of consumer surplus resulting from this tax is

As the size of a tax increases, the government's tax revenue rises, then falls.

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

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The amount of the tax on each unit of the good is

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. When the tax is imposed in this market, sellers effectively pay what amount of the $10 tax?

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 quantity sold to

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

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

Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100. If the tax is increased to $0.25 per unit, the deadweight loss from the new tax would be

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

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

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