Question 1

The Social Security tax is a tax on

Accepted Answer

A) capital. 
B) labor. 
C) land. 
D) savings. 
A) capital. 
B) labor. 
C) land. 
D) savings.

Question 2

​Figure 8-12
 
-Refer to Figure 8-12. Suppose that Market A is characterized by Demand 1 and Supply 1, and Market B is characterized by Demand 1 and Supply 2. If an identical tax is imposed on each market, the tax will create a larger deadweight loss in which market? Explain.

Accepted Answer

The deadweight loss will be larger in Ma

Question 3

Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

Accepted Answer

A) True 
 B)False

Question 4

Figure 8-10
​
   ​
-Refer to Figure 8-10. Suppose the government places a $3 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

Accepted Answer

60 units will be bou

Question 5

The more inelastic are demand and supply, the greater is the deadweight loss of a tax.

Accepted Answer

A) True 
 B)False

Question 6

Suppose that instead of a supply-demand diagram, you are given the following information:
Qs = 100 + 3P
Qd = 400 - 2P
From this information compute equilibrium price and quantity. Now suppose that a tax is placed on buyers so that
Qd = 400 - 2(P + T).
If T = 15, solve for the new equilibrium price and quantity. (Note: P is the price received by sellers and P + T is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers. What does this show you?

Accepted Answer

Prior to the tax, the equilibrium price

Question 7

Figure 8-9
​
   ​
-Refer to Figure 8-9. How much is consumer surplus at the market equilibrium?

Accepted Answer

Consumer s

Question 8

The result of the large tax cuts in the first Reagan Administration demonstrated very convincingly that Arthur Laffer was correct when he asserted that cuts in tax rates would increase tax revenue.

Accepted Answer

A) True 
 B)False

Question 9

Figure 8-1  
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I + Y represents the

Accepted Answer

A) deadweight loss due to the tax. 
B) loss in consumer surplus due to the tax. 
C) loss in producer surplus due to the tax. 
D) total surplus before the tax. 
A) deadweight loss due to the tax. 
B) loss in consumer surplus due to the tax. 
C) loss in producer surplus due to the tax. 
D) total surplus before the tax.

Question 10

Figure 8-9
​
   ​
-Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. How much is producer surplus after the tax is imposed?

Accepted Answer

Producer s

Question 11

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

Accepted Answer

A) True 
 B)False

Question 12

Figure 8-2
The vertical distance between points C and D represents a tax in the market.
​   ​
​
​
​
-Refer to Figure 8-2. The imposition of the tax causes the quantity sold to

Accepted Answer

A) increase by 2 units. 
B) decrease by 2 units. 
C) increase by 4 units. 
D) decrease by 4 units. 
A) increase by 2 units. 
B) decrease by 2 units. 
C) increase by 4 units. 
D) decrease by 4 units.

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Figure 8-10
​
   ​
-Refer to Figure 8-10. Suppose the government places a $3 tax per unit on this good. How much is the deadweight loss from this tax?

Accepted Answer

The deadweight loss from this tax is 0.5

Question 15

The deadweight loss from a tax per unit of good will be smallest 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. 
A) inelastic supply and elastic demand. 
B) inelastic supply and inelastic demand. 
C) elastic supply and elastic demand. 
D) elastic supply and inelastic demand.

Question 16

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. 
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.

Question 17

Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.

Accepted Answer

A) True 
 B)False

Question 18

In terms of gains from trade, why is it true that taxes cause deadweight losses?

Accepted Answer

Taxes cause deadweight losses

Question 19

Economists use the government's tax revenue to measure the public benefit from a tax.

Accepted Answer

A) True 
 B)False

Question 20

Figure 8-9
​
   ​
-Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. How much is consumer surplus after the tax is imposed?

Accepted Answer

Consumer s

Exam 8: Applications: The Costs of Taxation

The Social Security tax is a tax on

​Figure 8-12 -Refer to Figure 8-12. Suppose that Market A is characterized by Demand 1 and Supply 1, and Market B is characterized by Demand 1 and Supply 2. If an identical tax is imposed on each market, the tax will create a larger deadweight loss in which market? Explain.

Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

Figure 8-10 ​ ​ -Refer to Figure 8-10. Suppose the government places a $3 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

The more inelastic are demand and supply, the greater is the deadweight loss of a tax.

Figure 8-9 ​ ​ -Refer to Figure 8-9. How much is consumer surplus at the market equilibrium?

The result of the large tax cuts in the first Reagan Administration demonstrated very convincingly that Arthur Laffer was correct when he asserted that cuts in tax rates would increase tax revenue.

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I + Y represents the

Figure 8-9 ​ ​ -Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. How much is producer surplus after the tax is imposed?

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

Figure 8-2 The vertical distance between points C and D represents a tax in the market. ​ ​ ​ ​ ​ -Refer to Figure 8-2. The imposition of the tax causes the quantity sold to

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

Figure 8-10 ​ ​ -Refer to Figure 8-10. Suppose the government places a $3 tax per unit on this good. How much is the deadweight loss from this tax?

The deadweight loss from a tax per unit of good will be smallest in a market with

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?

Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.

In terms of gains from trade, why is it true that taxes cause deadweight losses?

Economists use the government's tax revenue to measure the public benefit from a tax.

Figure 8-9 ​ ​ -Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. How much is consumer surplus after the tax is imposed?

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 Nations 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 8-12 -Refer to Figure 8-12. Suppose that Market A is characterized by Demand 1 and Supply 1, and Market B is characterized by Demand 1 and Supply 2. If an identical tax is imposed on each market, the tax will create a larger deadweight loss in which market? Explain.

Figure 8-10 -Refer to Figure 8-10. Suppose the government places a $3 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

Figure 8-9 -Refer to Figure 8-9. How much is consumer surplus at the market equilibrium?

Figure 8-9 -Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. How much is producer surplus after the tax is imposed?

Figure 8-2 The vertical distance between points C and D represents a tax in the market. -Refer to Figure 8-2. The imposition of the tax causes the quantity sold to

Figure 8-10 -Refer to Figure 8-10. Suppose the government places a $3 tax per unit on this good. How much is the deadweight loss from this tax?

Figure 8-9 -Refer to Figure 8-9. Suppose the government places a $4 tax per unit on this good. How much is consumer surplus after the tax is imposed?