Question 1

An increase in the size of a tax is most likely to increase tax revenue in a market with

Accepted Answer

A) elastic demand and elastic supply. 
B) elastic demand and inelastic supply. 
C) inelastic demand and elastic supply. 
D) inelastic demand and inelastic supply. 
A) elastic demand and elastic supply. 
B) elastic demand and inelastic supply. 
C) inelastic demand and elastic supply. 
D) inelastic demand and inelastic supply. D

Question 2

Figure 8-22  
-Refer to Figure 8-22.Suppose the government changed the per-unit tax on this good from $3.00 to $1.50.Compared to the original tax rate,this lower tax rate would

Accepted Answer

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

Question 3

Suppose the government increases the size of a tax by 20 percent.The deadweight loss from that tax

Accepted Answer

A) increases by 20 percent. 
B) increases by more than 20 percent. 
C) increases but by less than 20 percent. 
D) decreases by 20 percent. 
A) increases by 20 percent. 
B) increases by more than 20 percent. 
C) increases but by less than 20 percent. 
D) decreases by 20 percent. B

Question 4

In the early 1980s,which of the following countries had a marginal tax rate of about 80 percent?

Accepted Answer

A) United States 
B) Canada 
C) Japan 
D) Sweden 
A) United States 
B) Canada 
C) Japan 
D) Sweden

Question 5

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is tripled,the

Accepted Answer

A) base of the triangle that represents the deadweight loss triples. 
B) height of the triangle that represents the deadweight loss triples. 
C) deadweight loss of the tax increases by a factor of nine. 
D) All of the above are correct. 
A) base of the triangle that represents the deadweight loss triples. 
B) height of the triangle that represents the deadweight loss triples. 
C) deadweight loss of the tax increases by a factor of nine. 
D) All of the above are correct.

Question 6

If the tax on a good is increased from $1 per unit to $4 per unit,the deadweight loss from the tax increases by a factor of

Accepted Answer

A) 5. 
B) 9. 
C) 16. 
D) 24. 
A) 5. 
B) 9. 
C) 16. 
D) 24.

Question 7

Figure 8-22  
-Refer to Figure 8-22.Suppose the government initially imposes a $3 per-unit tax on this good.Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50.Which of the following statements is not correct?

Accepted Answer

A) Compared to the original tax,the larger tax will decrease tax revenue. 
B) Compared to the original tax,the smaller tax will decrease deadweight loss. 
C) Compared to the original tax,the smaller tax will decrease tax revenue. 
D) Compared to the original tax,the larger tax will increase deadweight loss. 
A) Compared to the original tax,the larger tax will decrease tax revenue. 
B) Compared to the original tax,the smaller tax will decrease deadweight loss. 
C) Compared to the original tax,the smaller tax will decrease tax revenue. 
D) Compared to the original tax,the larger tax will increase deadweight loss.

Question 8

Figure 8-22  
-Refer to Figure 8-22.Suppose the government initially imposes a $3 per-unit tax on this good.Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50.Which of the following statements is not correct?

Accepted Answer

A) Compared to the original tax,the larger tax will decrease tax revenue. 
B) Compared to the original tax,the smaller tax will decrease deadweight loss. 
C) Compared to the original tax,the smaller tax will decrease tax revenue. 
D) Compared to the original tax,the larger tax will increase deadweight loss. 
A) Compared to the original tax,the larger tax will decrease tax revenue. 
B) Compared to the original tax,the smaller tax will decrease deadweight loss. 
C) Compared to the original tax,the smaller tax will decrease tax revenue. 
D) Compared to the original tax,the larger tax will increase deadweight loss.

Question 9

Figure 8-24.The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.  
-Refer to Figure 8-24.Tax revenue would

Accepted Answer

A) decrease if the economy began at point B and then the tax rate was decreased. 
B) increase if the economy began at point F and then the tax rate was decreased. 
C) decrease if the economy began at point C and then the tax rate was increased. 
D) All of the above are correct. 
A) decrease if the economy began at point B and then the tax rate was decreased. 
B) increase if the economy began at point F and then the tax rate was decreased. 
C) decrease if the economy began at point C and then the tax rate was increased. 
D) All of the above are correct.

Question 10

Figure 8-21  
-Refer to Figure 8-21.Suppose the market is represented by Demand 1 and Supply 1.At first the government places a $3 per-unit tax on this good.Then the government decides to raise the tax to $6 per unit.Compared to the original tax rate,the higher tax will

Accepted Answer

A) increase tax revenue and increase the deadweight loss from the tax. 
B) not change tax revenue and increase the deadweight loss from the tax. 
C) decrease tax revenue and increase the deadweight loss from the tax. 
D) decrease tax revenue and decrease the deadweight loss from the tax. 
A) increase tax revenue and increase the deadweight loss from the tax. 
B) not change tax revenue and increase the deadweight loss from the tax. 
C) decrease tax revenue and increase the deadweight loss from the tax. 
D) decrease tax revenue and decrease the deadweight loss from the tax.

Question 11

The Laffer curve illustrates that

Accepted Answer

A) deadweight loss rises by the square of the increase in a tax. 
B) deadweight loss rises exponentially as a tax increases. 
C) tax revenue first rises,then falls as a tax increases. 
D) Both a)and b)are correct. 
A) deadweight loss rises by the square of the increase in a tax. 
B) deadweight loss rises exponentially as a tax increases. 
C) tax revenue first rises,then falls as a tax increases. 
D) Both a)and b)are correct.

Question 12

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is doubled,the

Accepted Answer

A) base of the triangle that represents the deadweight loss quadruples. 
B) height of the triangle that represents the deadweight loss doubles. 
C) deadweight loss of the tax doubles. 
D) All of the above are correct. 
A) base of the triangle that represents the deadweight loss quadruples. 
B) height of the triangle that represents the deadweight loss doubles. 
C) deadweight loss of the tax doubles. 
D) All of the above are correct.

Question 13

Ronald Reagan believed that reducing income tax rates would

Accepted Answer

A) do little,if anything,to encourage hard work. 
B) result in large increases in deadweight losses. 
C) raise economic well-being and perhaps even tax revenue. 
D) lower economic well-being,even though tax revenue could possibly increase. 
A) do little,if anything,to encourage hard work. 
B) result in large increases in deadweight losses. 
C) raise economic well-being and perhaps even tax revenue. 
D) lower economic well-being,even though tax revenue could possibly increase.

Question 14

Which of the following statements is correct?

Accepted Answer

A) A decrease in the size of a tax always decreases the tax revenue raised by that tax. 
B) A decrease in the size of a tax always decreases the deadweight loss of that tax. 
C) Tax revenue decreases when there is a small decrease in the tax rate and the economy is on the downward-sloping part of the Laffer curve. 
D) An increase in the size of a tax leads to an increase in the deadweight loss of the tax only if the economy is on the upward-sloping part of the Laffer curve. 
A) A decrease in the size of a tax always decreases the tax revenue raised by that tax. 
B) A decrease in the size of a tax always decreases the deadweight loss of that tax. 
C) Tax revenue decreases when there is a small decrease in the tax rate and the economy is on the downward-sloping part of the Laffer curve. 
D) An increase in the size of a tax leads to an increase in the deadweight loss of the tax only if the economy is on the upward-sloping part of the Laffer curve.

Question 15

Which of the following ideas is the most plausible?

Accepted Answer

A) Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. 
B) Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. 
C) Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. 
D) Reducing a tax rate can never increase tax revenue. 
A) Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate. 
B) Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate. 
C) Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate. 
D) Reducing a tax rate can never increase tax revenue.

Question 16

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 17

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.The curve that is shown on the figure is called the

Accepted Answer

A) deadweight-loss curve. 
B) tax-incidence curve. 
C) Laffer curve. 
D) Lorenz curve. 
A) deadweight-loss curve. 
B) tax-incidence curve. 
C) Laffer curve. 
D) Lorenz curve.

Question 18

Suppose the federal government doubles the gasoline tax.The deadweight loss associated with the tax

Accepted Answer

A) also doubles. 
B) triples. 
C) quadruples. 
D) rises by a factor of 8. 
A) also doubles. 
B) triples. 
C) quadruples. 
D) rises by a factor of 8.

Question 19

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

Accepted Answer

A) The demand for gasoline becomes more inelastic. 
B) The slope of the supply curve for gasoline becomes steeper. 
C) The amount of the tax per gallon of gasoline increases. 
D) All of the above are correct. 
A) The demand for gasoline becomes more inelastic. 
B) The slope of the supply curve for gasoline becomes steeper. 
C) The amount of the tax per gallon of gasoline increases. 
D) All of the above are correct.

Question 20

Figure 8-19
The vertical distance between points A and B represents the original tax.  
-Refer to Figure 8-19.If the government changed the per-unit tax from $5.00 to $2.50,then the price paid by buyers would be $7.50,the price received by sellers would be $5,and the quantity sold in the market would be 1.5 units.Compared to the original tax rate,this lower tax rate would

Accepted Answer

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

Exam 8: Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

An increase in the size of a tax is most likely to increase tax revenue in a market with

Figure 8-22 -Refer to Figure 8-22.Suppose the government changed the per-unit tax on this good from $3.00 to $1.50.Compared to the original tax rate,this lower tax rate would

Suppose the government increases the size of a tax by 20 percent.The deadweight loss from that tax

In the early 1980s,which of the following countries had a marginal tax rate of about 80 percent?

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is tripled,the

If the tax on a good is increased from $1 per unit to $4 per unit,the deadweight loss from the tax increases by a factor of

Figure 8-22 -Refer to Figure 8-22.Suppose the government initially imposes a $3 per-unit tax on this good.Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50.Which of the following statements is not correct?

Figure 8-22 -Refer to Figure 8-22.Suppose the government initially imposes a $3 per-unit tax on this good.Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50.Which of the following statements is not correct?

Figure 8-24.The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-24.Tax revenue would

Figure 8-21 -Refer to Figure 8-21.Suppose the market is represented by Demand 1 and Supply 1.At first the government places a $3 per-unit tax on this good.Then the government decides to raise the tax to $6 per unit.Compared to the original tax rate,the higher tax will

The Laffer curve illustrates that

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is doubled,the

Ronald Reagan believed that reducing income tax rates would

Which of the following statements is correct?

Which of the following ideas is the most plausible?

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

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.The curve that is shown on the figure is called the

Suppose the federal government doubles the gasoline tax.The deadweight loss associated with the tax

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

Application International Trade: Part A

Application International Trade: Part B