Exam 8: Application: the Costs of Taxation

Suppose that policymakers are considering placing a tax on either of two markets.In Market A,the tax will have a significant effect on the price consumers pay,but it will not affect equilibrium quantity very much.In Market B,the same tax will have only a small effect on the price consumers pay,but it will have a large effect on the equilibrium quantity.In which market will the tax have a larger deadweight loss

Figure 8-6 -Refer to Figure 8-6.What would consumer surplus be after the tax is levied on the seller

John has been in the habit of mowing Willa's lawn each week for $20.John's opportunity cost is $15,and Willa would be willing to pay $25 to have her lawn mowed.What is the maximum tax the government can impose on lawn mowing without discouraging John and Willa from continuing their mutually beneficial arrangement

Figure 8-3 -Refer to Figure 8-3.What is the amount of deadweight loss as a result of the tax

What did Ronald Reagan obviously believe about the labour supply curve

Figure 8-5 -Refer to Figure 8-5.What would happen to total surplus in this market if the tax were imposed on the seller

What happens when a tax is levied on the labour force and the labour supply curve is relatively elastic

The more elastic the supply and demand curves in a market,the more taxes in that market distort behaviour,and the more likely it is that a tax cut will raise tax revenue.

Often,the tax revenue collected by the government equals the reduced welfare of buyers and sellers caused by the tax.

Figure 8-4 -Refer to Figure 8-4.Which area represents the total surplus (consumer,producer,and government) with the tax

Figure 8-6 -Refer to Figure 8-6.What would the total surplus with the tax be

What does a tax placed on a good do

Assume that the demand for fries is relatively inelastic and that the demand for poutine is relatively elastic.If the same percentage tax were placed on both goods,the tax on which product would create a larger deadweight loss

Consider the following two statements: 1) “A tax that has no deadweight loss cannot raise any revenue for the government.” 2) “A tax that raises no revenue for the government cannot have any deadweight loss.” Which one, if any, is correct? Explain.

If the supply curve is more elastic,all else equal,the deadweight loss from a given tax will be larger.

Figure 8-5 -Refer to Figure 8-5.If the tax is imposed on the buyer,what would the producer surplus be

Figure 8-2 -Refer to Figure 8-2.What is the equilibrium price and quantity before the tax

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

Figure 8-6 -Refer to Figure 8-6.What would the total surplus with the tax levied on the buyer be

Figure 8-4 -Refer to Figure 8-4.Which area represents the loss in total welfare resulting from the levying of the tax on the seller