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

Assume the price of gasoline is $2.40 per gallon,and the equilibrium quantity of gasoline is 12 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) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent;and the tax on gasoline amounts to $0.40 per gallon. 
B) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent;and the tax on gasoline amounts to $0.40 per gallon. 
C) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent;and the tax on gasoline amounts to $0.35 per gallon. 
D) There is insufficient information to make this determination. 
A) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent;and the tax on gasoline amounts to $0.40 per gallon. 
B) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent;and the tax on gasoline amounts to $0.40 per gallon. 
C) A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent;and the tax on gasoline amounts to $0.35 per gallon. 
D) There is insufficient information to make this determination.

Question 3

The less freedom people are given to choose the date of their retirement,the

Accepted Answer

A) more elastic is the supply of labor. 
B) less elastic is the supply of labor. 
C) flatter is the labor supply curve. 
D) smaller is the decrease in employment that will result from a tax on labor. 
A) more elastic is the supply of labor. 
B) less elastic is the supply of labor. 
C) flatter is the labor supply curve. 
D) smaller is the decrease in employment that will result from a tax on labor.

Question 4

The deadweight loss from a tax

Accepted Answer

A) does not vary in amount when the price elasticity of demand changes. 
B) does not vary in amount when the amount of the tax per unit changes. 
C) is larger,the larger is the amount of the tax per unit. 
D) is smaller,the larger is the amount of the tax per unit. 
A) does not vary in amount when the price elasticity of demand changes. 
B) does not vary in amount when the amount of the tax per unit changes. 
C) is larger,the larger is the amount of the tax per unit. 
D) is smaller,the larger is the amount of the tax per unit.

Question 5

Consider a good to which a per-unit tax applies.The greater the price elasticities of demand and supply for the good,the

Accepted Answer

A) smaller the deadweight loss from the tax. 
B) greater the deadweight loss from the tax. 
C) more efficient is the tax. 
D) more equitable is the distribution of the tax burden between buyers and sellers. 
A) smaller the deadweight loss from the tax. 
B) greater the deadweight loss from the tax. 
C) more efficient is the tax. 
D) more equitable is the distribution of the tax burden between buyers and sellers.

Question 6

Figure 8-15    
-Refer to Figure 8-15.Panel (a)and Panel (b)each illustrate a $4 tax placed on a market.In comparison to Panel (b),Panel (a)illustrates which of the following statements?

Accepted Answer

A) When demand is relatively inelastic,the deadweight loss of a tax is smaller than when demand is relatively elastic. 
B) When demand is relatively elastic,the deadweight loss of a tax is larger than when demand is relatively inelastic. 
C) When supply is relatively inelastic,the deadweight loss of a tax is smaller than when supply is relatively elastic. 
D) When supply is relatively elastic,the deadweight loss of a tax is larger than when supply is relatively inelastic. 
A) When demand is relatively inelastic,the deadweight loss of a tax is smaller than when demand is relatively elastic. 
B) When demand is relatively elastic,the deadweight loss of a tax is larger than when demand is relatively inelastic. 
C) When supply is relatively inelastic,the deadweight loss of a tax is smaller than when supply is relatively elastic. 
D) When supply is relatively elastic,the deadweight loss of a tax is larger than when supply is relatively inelastic.

Question 7

Figure 8-14  
-Refer to Figure 8-14.Which of the following statements is not correct?

Accepted Answer

A) Supply 2 is more elastic than supply 1. 
B) Demand 2 is more elastic than demand 1. 
C) Supply 1 is more inelastic than supply 2. 
D) Demand 2 is more inelastic than supply 2. 
A) Supply 2 is more elastic than supply 1. 
B) Demand 2 is more elastic than demand 1. 
C) Supply 1 is more inelastic than supply 2. 
D) Demand 2 is more inelastic than supply 2.

Question 8

Other things equal,the deadweight loss of a tax

Accepted Answer

A) decreases as the size of the tax increases. 
B) increases as the size of the tax increases,but the increase in the deadweight loss is less rapid than the increase in the size of the tax. 
C) increases as the size of the tax increases,and the increase in the deadweight loss is more rapid than the increase in the size of the tax. 
D) increases as the price elasticities of demand and/or supply increase,but the deadweight loss does not change as the size of the tax increases. 
A) decreases as the size of the tax increases. 
B) increases as the size of the tax increases,but the increase in the deadweight loss is less rapid than the increase in the size of the tax. 
C) increases as the size of the tax increases,and the increase in the deadweight loss is more rapid than the increase in the size of the tax. 
D) increases as the price elasticities of demand and/or supply increase,but the deadweight loss does not change as the size of the tax increases.

Question 9

The marginal tax rate on labor income for many workers in the United States is almost

Accepted Answer

A) 30 percent. 
B) 40 percent. 
C) 50 percent. 
D) 65 percent. 
A) 30 percent. 
B) 40 percent. 
C) 50 percent. 
D) 65 percent.

Question 10

When a tax is imposed on a good for which both demand and supply are very elastic,

Accepted Answer

A) sellers effectively pay the majority of the tax. 
B) buyers effectively pay the majority of the tax. 
C) the tax burden is equally divided between buyers and sellers. 
D) None of the above is correct;further information would be required to determine how the burden of the tax is distributed between buyers and sellers. 
A) sellers effectively pay the majority of the tax. 
B) buyers effectively pay the majority of the tax. 
C) the tax burden is equally divided between buyers and sellers. 
D) None of the above is correct;further information would be required to determine how the burden of the tax is distributed between buyers and sellers.

Question 11

Figure 8-14  
-Refer to Figure 8-14.Which of the following combinations will maximize the deadweight loss from a tax?

Accepted Answer

A) supply 1 and demand 1 
B) supply 2 and demand 2 
C) supply 1 and demand 2 
D) supply 2 and demand 1 
A) supply 1 and demand 1 
B) supply 2 and demand 2 
C) supply 1 and demand 2 
D) supply 2 and demand 1

Question 12

As more people become self-employed,which allows them to determine how many hours they work per week,we would expect the deadweight loss from the Social Security tax to

Accepted Answer

A) increase,and the revenue generated from the tax to increase. 
B) increase,and the revenue generated from the tax to decrease. 
C) decrease,and the revenue generated from the tax to increase. 
D) decrease,and the revenue generated from the tax to decrease. 
A) increase,and the revenue generated from the tax to increase. 
B) increase,and the revenue generated from the tax to decrease. 
C) decrease,and the revenue generated from the tax to increase. 
D) decrease,and the revenue generated from the tax to decrease.

Question 13

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

Accepted Answer

A) The greater are the price elasticities of supply and demand,the greater is the deadweight loss. 
B) The greater is the price elasticity of supply and the smaller is the price elasticity of demand,the greater is the deadweight loss. 
C) The smaller are the decreases in quantity demanded and quantity supplied,the greater the deadweight loss. 
D) The smaller is the wedge between the effective price to sellers and the effective price to buyers,the greater is the deadweight loss. 
A) The greater are the price elasticities of supply and demand,the greater is the deadweight loss. 
B) The greater is the price elasticity of supply and the smaller is the price elasticity of demand,the greater is the deadweight loss. 
C) The smaller are the decreases in quantity demanded and quantity supplied,the greater the deadweight loss. 
D) The smaller is the wedge between the effective price to sellers and the effective price to buyers,the greater is the deadweight loss.

Question 14

Figure 8-18  
-Refer to Figure 8-18.Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1,S2,S3,and S4.The deadweight will be the largest in the market represented by

Accepted Answer

A) S1. 
B) S2. 
C) S3. 
D) S4. 
A) S1. 
B) S2. 
C) S3. 
D) S4.

Question 15

The less freedom young mothers have to work outside the home,the

Accepted Answer

A) more elastic the supply of labor will be. 
B) less elastic the supply of labor will be. 
C) more horizontal the labor supply curve will be. 
D) larger is the decrease in employment that will result from a tax on labor. 
A) more elastic the supply of labor will be. 
B) less elastic the supply of labor will be. 
C) more horizontal the labor supply curve will be. 
D) larger is the decrease in employment that will result from a tax on labor.

Question 16

Assume the supply curve for diapers is a typical,upward-sloping straight line,and the demand curve for diapers is a typical,downward-sloping straight line.Suppose the equilibrium quantity in the market for diapers is 1,000 per month when there is no tax.Then a tax of $0.50 per diaper is imposed.The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40.The government's tax revenue amounts to $475 per month.Which of the following statements is correct?

Accepted Answer

A) After the tax is imposed,the equilibrium quantity of diapers is 900 per month. 
B) The demand for diapers is more elastic than the supply of diapers. 
C) The deadweight loss of the tax is $12.50. 
D) The tax causes a decrease in consumer surplus of $380. 
A) After the tax is imposed,the equilibrium quantity of diapers is 900 per month. 
B) The demand for diapers is more elastic than the supply of diapers. 
C) The deadweight loss of the tax is $12.50. 
D) The tax causes a decrease in consumer surplus of $380.

Question 17

The deadweight loss from a tax of $x per unit will be smallest in a market

Accepted Answer

A) in which demand is elastic and supply is inelastic. 
B) in which demand is inelastic and supply is elastic. 
C) in which demand is inelastic and supply is inelastic. 
D) None of the above are correct;we need to know the value of x in order to determine the answer. 
A) in which demand is elastic and supply is inelastic. 
B) in which demand is inelastic and supply is elastic. 
C) in which demand is inelastic and supply is inelastic. 
D) None of the above are correct;we need to know the value of x in order to determine the answer.

Question 18

Consider a good to which a per-unit tax applies.The size of the deadweight that results from the tax is smaller,the

Accepted Answer

A) larger is the price elasticity of demand. 
B) smaller is the price elasticity of supply. 
C) larger is the amount of the tax. 
D) All of the above are correct. 
A) larger is the price elasticity of demand. 
B) smaller is the price elasticity of supply. 
C) larger is the amount of the tax. 
D) All of the above are correct.

Question 19

Suppose the price of milk is $2.39 per gallon,and the equilibrium quantity of milk is 100 thousand gallons per day with no tax on milk.Starting from this initial situation,which of the following scenarios would result in the smallest deadweight loss?

Accepted Answer

A) The price elasticity of demand for milk is 0.3,the price elasticity of supply for milk is 0.7,and the milk tax amounts to $0.40 per gallon. 
B) The price elasticity of demand for milk is 0.2,the price elasticity of supply for milk is 0.5,and the milk tax amounts to $0.30 per gallon. 
C) The price elasticity of demand for milk is 0.2,the price elasticity of supply for milk is 0.7,and the milk tax amounts to $0.30 per gallon. 
D) The price elasticity of demand for milk is 0.1,the price elasticity of supply for milk is 0.5,and the milk tax amounts to $0.20 per gallon. 
A) The price elasticity of demand for milk is 0.3,the price elasticity of supply for milk is 0.7,and the milk tax amounts to $0.40 per gallon. 
B) The price elasticity of demand for milk is 0.2,the price elasticity of supply for milk is 0.5,and the milk tax amounts to $0.30 per gallon. 
C) The price elasticity of demand for milk is 0.2,the price elasticity of supply for milk is 0.7,and the milk tax amounts to $0.30 per gallon. 
D) The price elasticity of demand for milk is 0.1,the price elasticity of supply for milk is 0.5,and the milk tax amounts to $0.20 per gallon.

Question 20

The demand for chicken wings is more elastic than the demand for razor blades.Suppose the government levies an equivalent tax on chicken wings and razor blades.The deadweight loss would be larger in the market for

Accepted Answer

A) chicken wings than in the market for razor blades because the quantity of chicken wings would fall by more than the quantity of razor blades. 
B) chicken wings than in the market for razor blades because the quantity of razor blades would fall by more than the quantity of chicken wings. 
C) razor blades than in the market for chicken wings because the quantity of chicken wings would fall by more than the quantity of razor blades. 
D) razor blades than in the market for chicken wings because the quantity of razor blades would fall by more than the quantity of chicken wings. 
A) chicken wings than in the market for razor blades because the quantity of chicken wings would fall by more than the quantity of razor blades. 
B) chicken wings than in the market for razor blades because the quantity of razor blades would fall by more than the quantity of chicken wings. 
C) razor blades than in the market for chicken wings because the quantity of chicken wings would fall by more than the quantity of razor blades. 
D) razor blades than in the market for chicken wings because the quantity of razor blades would fall by more than the quantity of chicken wings.

Exam 8: Application the Cost of Taxation: The Determinants of the Deadweight Loss

The Social Security tax is a tax on

Assume the price of gasoline is $2.40 per gallon,and the equilibrium quantity of gasoline is 12 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?

The less freedom people are given to choose the date of their retirement,the

The deadweight loss from a tax

Consider a good to which a per-unit tax applies.The greater the price elasticities of demand and supply for the good,the

Figure 8-15 -Refer to Figure 8-15.Panel (a)and Panel (b)each illustrate a $4 tax placed on a market.In comparison to Panel (b),Panel (a)illustrates which of the following statements?

Figure 8-14 -Refer to Figure 8-14.Which of the following statements is not correct?

Other things equal,the deadweight loss of a tax

The marginal tax rate on labor income for many workers in the United States is almost

When a tax is imposed on a good for which both demand and supply are very elastic,

Figure 8-14 -Refer to Figure 8-14.Which of the following combinations will maximize the deadweight loss from a tax?

As more people become self-employed,which allows them to determine how many hours they work per week,we would expect the deadweight loss from the Social Security tax to

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

Figure 8-18 -Refer to Figure 8-18.Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1,S2,S3,and S4.The deadweight will be the largest in the market represented by

The less freedom young mothers have to work outside the home,the

The deadweight loss from a tax of $x per unit will be smallest in a market

Consider a good to which a per-unit tax applies.The size of the deadweight that results from the tax is smaller,the

Suppose the price of milk is $2.39 per gallon,and the equilibrium quantity of milk is 100 thousand gallons per day with no tax on milk.Starting from this initial situation,which of the following scenarios would result in the smallest deadweight loss?

The demand for chicken wings is more elastic than the demand for razor blades.Suppose the government levies an equivalent tax on chicken wings and razor blades.The deadweight loss would be larger in the market for

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: Deadweight Loss and Tax Revenue As Taxes Vary

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