Question 1

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Accepted Answer

A) True 
 B)False

Question 2

Figure 8-14  
-Refer to Figure 8-14. Which of the following combinations will minimize 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 3

Suppose that the market for product X is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. Suppose the price elasticity of supply is 0.7. Will the deadweight loss from a $3 tax per unit be smaller if the absolute value of the price elasticity of demand is 0.6 or if the absolute value of the price elasticity of demand is 1.5?

Accepted Answer

The deadweight loss will be smaller if t

Question 4

The supply curve for whiskey is the typical upward-sloping straight line, and the demand curve for whiskey is the typical downward-sloping straight line. When whiskey is taxed, the area on the relevant supply-and-demand graph that represents

Accepted Answer

A)  government's tax revenue is a rectangle. 
B)  the deadweight loss of the tax is a triangle. 
C)  the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle. 
D)  All of the above are correct. 
A)  government's tax revenue is a rectangle. 
B)  the deadweight loss of the tax is a triangle. 
C)  the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle. 
D)  All of the above are correct.

Question 5

If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax.

Accepted Answer

A) True 
 B)False

Question 6

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the loss in total surplus?

Accepted Answer

A)  $50 
B)  $30 
C)  $25 
D)  $0 
A)  $50 
B)  $30 
C)  $25 
D)  $0

Question 7

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 (a), Panel (b) 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 8

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area

Accepted Answer

A)  A. 
B)  A+B+C. 
C)  D+H+F. 
D)  F. 
A)  A. 
B)  A+B+C. 
C)  D+H+F. 
D)  F.

Question 9

If a tax shifts the supply curve downward (or to the right), we can infer that the tax was levied on

Accepted Answer

A)  buyers of the good. 
B)  sellers of the good. 
C)  both buyers and sellers of the good. 
D)  We cannot infer anything because the shift described is not consistent with a tax. 
A)  buyers of the good. 
B)  sellers of the good. 
C)  both buyers and sellers of the good. 
D)  We cannot infer anything because the shift described is not consistent with a tax.

Question 10

A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve

Accepted Answer

A)  downward by exactly $2. 
B)  downward by less than $2. 
C)  upward by exactly $2. 
D)  upward by less than $2. 
A)  downward by exactly $2. 
B)  downward by less than $2. 
C)  upward by exactly $2. 
D)  upward by less than $2.

Question 11

A tax placed on buyers of tuxedoes shifts the

Accepted Answer

A)  demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to increase. 
B)  demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to decrease. 
C)  supply curve for tuxedoes upward, decreasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to increase. 
D)  supply curve for tuxedoes upward, increasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to decrease. 
A)  demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to increase. 
B)  demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to decrease. 
C)  supply curve for tuxedoes upward, decreasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to increase. 
D)  supply curve for tuxedoes upward, increasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to decrease.

Question 12

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.

Question 13

Scenario 8-1
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week.
-Refer to Scenario 8-1. Assume Erin is required to pay a tax of $5 when she hires someone to clean her house. Which of the following is true?

Accepted Answer

A)  Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline. 
B)  Ernesto will continue to clean Erin's house, and his producer surplus will increase. 
C)  Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will decrease. 
D)  All of the above are correct. 
A)  Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline. 
B)  Ernesto will continue to clean Erin's house, and his producer surplus will increase. 
C)  Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will decrease. 
D)  All of the above are correct.

Question 14

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

Accepted Answer

A)  $250. 
B)  $500. 
C)  $750. 
D)  $1,000. 
A)  $250. 
B)  $500. 
C)  $750. 
D)  $1,000.

Question 15

When a tax on a good is enacted,

Accepted Answer

A)  buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers. 
B)  buyers always bear the full burden of the tax. 
C)  sellers always bear the full burden of the tax. 
D)  sellers bear the full burden of the tax if the tax is levied on them; buyers bear the full burden of the tax if the tax is levied on them. 
A)  buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers. 
B)  buyers always bear the full burden of the tax. 
C)  sellers always bear the full burden of the tax. 
D)  sellers bear the full burden of the tax if the tax is levied on them; buyers bear the full burden of the tax if the tax is levied on them.

Question 16

The larger the deadweight loss from taxation, the larger the cost of government programs.

Accepted Answer

A) True 
 B)False

Question 17

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. The tax causes producer surplus to decrease by the area

Accepted Answer

A)  D+F. 
B)  D+F+G. 
C)  D+F+J. 
D)  D+F+G+H. 
A)  D+F. 
B)  D+F+G. 
C)  D+F+J. 
D)  D+F+G+H.

Question 18

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 19

Figure 8-11  
-Refer to Figure 8-11. Neither a shift of the demand curve nor a shift of the supply curve is shown on the figure. However, we know that, when the tax is imposed,

Accepted Answer

A)  the demand curve will shift. 
B)  the supply curve will shift. 
C)  either the demand curve or the supply curve will shift. 
D)  None of the above are correct; the tax causes neither the demand curve nor the supply curve to shift. 
A)  the demand curve will shift. 
B)  the supply curve will shift. 
C)  either the demand curve or the supply curve will shift. 
D)  None of the above are correct; the tax causes neither the demand curve nor the supply curve to shift.

Question 20

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

Accepted Answer

A)  first year after it is imposed than in the eighth year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. 
B)  first year after it is imposed than in the eighth year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year. 
C)  eighth year after it is imposed than in the first year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. 
D)  eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year. 
A)  first year after it is imposed than in the eighth year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. 
B)  first year after it is imposed than in the eighth year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year. 
C)  eighth year after it is imposed than in the first year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year. 
D)  eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.

Exam 8: Application: the Costs of Taxation

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

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

The supply curve for whiskey is the typical upward-sloping straight line, and the demand curve for whiskey is the typical downward-sloping straight line. When whiskey is taxed, the area on the relevant supply-and-demand graph that represents

If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax.

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the loss in total surplus?

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 (a), Panel (b) illustrates which of the following statements?

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area

If a tax shifts the supply curve downward (or to the right), we can infer that the tax was levied on

A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve

A tax placed on buyers of tuxedoes shifts the

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

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

When a tax on a good is enacted,

The larger the deadweight loss from taxation, the larger the cost of government programs.

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The tax causes producer surplus to decrease by the area

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

Figure 8-11 -Refer to Figure 8-11. Neither a shift of the demand curve nor a shift of the supply curve is shown on the figure. However, we know that, when the tax is imposed,

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

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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