Question 1

When a tax is placed on a product, the price paid by buyers

Accepted Answer

A)  rises, and the price received by sellers rises. 
B)  rises, and the price received by sellers falls. 
C)  falls, and the price received by sellers rises. 
D)  falls, and the price received by sellers falls. 
A)  rises, and the price received by sellers rises. 
B)  rises, and the price received by sellers falls. 
C)  falls, and the price received by sellers rises. 
D)  falls, and the price received by sellers falls.

Question 2

Figure 8-11  
-Refer to Figure 8-11. The price labeled as P1 on the vertical axis represents the price

Accepted Answer

A)  received by sellers before the tax is imposed. 
B)  received by sellers after the tax is imposed. 
C)  paid by buyers before the tax is imposed. 
D)  paid by buyers after the tax is imposed. 
A)  received by sellers before the tax is imposed. 
B)  received by sellers after the tax is imposed. 
C)  paid by buyers before the tax is imposed. 
D)  paid by buyers after the tax is imposed.

Question 3

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be

Accepted Answer

A)  $200. 
B)  $250. 
C)  $500. 
D)  $2,500. 
A)  $200. 
B)  $250. 
C)  $500. 
D)  $2,500.

Question 4

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. As a result of the tax,

Accepted Answer

A)  consumer surplus decreases from $200 to $80. 
B)  producer surplus decreases from $200 to $145. 
C)  the market experiences a deadweight loss of $80. 
D)  All of the above are correct. 
A)  consumer surplus decreases from $200 to $80. 
B)  producer surplus decreases from $200 to $145. 
C)  the market experiences a deadweight loss of $80. 
D)  All of the above are correct.

Question 5

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 6

If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.

Accepted Answer

A) True 
 B)False

Question 7

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. As a result of the tax, consumer surplus decreases by

Accepted Answer

A)  $130, producer surplus decreases by $170, tax revenue is $240, and deadweight loss is $60. 
B)  $150, producer surplus decreases by $150, tax revenue is $240, and deadweight loss is $60. 
C)  $160, producer surplus decreases by $160, tax revenue is $240, and deadweight loss is $80. 
D)  $240, producer surplus decreases by $240, tax revenue is $400, and deadweight loss is $80. 
A)  $130, producer surplus decreases by $170, tax revenue is $240, and deadweight loss is $60. 
B)  $150, producer surplus decreases by $150, tax revenue is $240, and deadweight loss is $60. 
C)  $160, producer surplus decreases by $160, tax revenue is $240, and deadweight loss is $80. 
D)  $240, producer surplus decreases by $240, tax revenue is $400, and deadweight loss is $80.

Question 8

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 decrease 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 9

Figure 8-6
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are

Accepted Answer

A)  $16 and 300. 
B)  $10 and 600. 
C)  $10 and 300. 
D)  $6 and 300. 
A)  $16 and 300. 
B)  $10 and 600. 
C)  $10 and 300. 
D)  $6 and 300.

Question 10

Figure 8-25  
-Refer to Figure 8-25. Suppose the government places a $4 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 11

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

Accepted Answer

A)  The response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of bananas is weak. 
B)  The response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak. 
C)  The response of buyers and sellers to a change in the price of bananas is strong. 
D)  The response of buyers and sellers to a change in the price of bananas is weak. 
A)  The response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of bananas is weak. 
B)  The response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak. 
C)  The response of buyers and sellers to a change in the price of bananas is strong. 
D)  The response of buyers and sellers to a change in the price of bananas is weak.

Question 12

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax provides to the government?

Accepted Answer

A)  Tax revenue = (P2 - P1)xQ1 
B)  Tax revenue = (P3 - P1)xQ1 
C)  Tax revenue = (P3 - P2)xQ1 
D)  Tax revenue = (P3 - P1)x(Q2 - Q1) 
A)  Tax revenue = (P2 - P1)xQ1 
B)  Tax revenue = (P3 - P1)xQ1 
C)  Tax revenue = (P3 - P2)xQ1 
D)  Tax revenue = (P3 - P1)x(Q2 - Q1)

Question 13

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low.

Accepted Answer

A) True 
 B)False

Question 14

Figure 8-29  
-Refer to Figure 8-29. If you were a policymaker choosing between a $3, $6, or $9 tax, which would you choose and why?

Accepted Answer

If the objective is to maximize tax reve

Question 15

Figure 8-10  
-Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. The tax revenue is

Accepted Answer

A)  (P0-P2) x Q2. 
B)  (P2-P8) x Q2. 
C)  (P2-P5) x Q5. 
D)  (P5-P8) x Q5. 
A)  (P0-P2) x Q2. 
B)  (P2-P8) x Q2. 
C)  (P2-P5) x Q5. 
D)  (P5-P8) x Q5.

Question 16

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 17

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

Accepted Answer

A) True 
 B)False

Question 18

Figure 8-28  
-Refer to Figure 8-28. 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 19

The graph that represents the amount of deadweight loss (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

Accepted Answer

A)  a U. 
B)  an upside-down U. 
C)  a horizontal straight line. 
D)  an upward-sloping curve. 
A)  a U. 
B)  an upside-down U. 
C)  a horizontal straight line. 
D)  an upward-sloping curve.

Question 20

Scenario 8-2
Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28.
-Refer to Scenario 8-2. Assume Roland is required to pay a tax of $10 each time he mows a lawn. Which of the following results is most likely?

Accepted Answer

A)  Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn. 
B)  Karla still is willing to pay Roland to mow her lawn, but Roland will decline her offer. 
C)  Roland still is willing to mow Karla's lawn, but Karla will decide to mow her own lawn. 
D)  Roland and Karla still can engage in a mutually-agreeable trade. 
A)  Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn. 
B)  Karla still is willing to pay Roland to mow her lawn, but Roland will decline her offer. 
C)  Roland still is willing to mow Karla's lawn, but Karla will decide to mow her own lawn. 
D)  Roland and Karla still can engage in a mutually-agreeable trade.

Exam 8: Application: the Costs of Taxation

When a tax is placed on a product, the price paid by buyers

Figure 8-11 -Refer to Figure 8-11. The price labeled as P1 on the vertical axis represents the price

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. As a result of the tax,

Ronald Reagan believed that reducing income tax rates would

If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. As a result of the tax, consumer surplus decreases by

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 decrease in the tax rate will

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are

Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax provides to the government?

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low.

Figure 8-29 -Refer to Figure 8-29. If you were a policymaker choosing between a $3, $6, or $9 tax, which would you choose and why?

Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. The tax revenue is

The Social Security tax is a tax on

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

Figure 8-28 -Refer to Figure 8-28. 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.

The graph that represents the amount of deadweight loss (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

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 of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment

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 Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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