Question 1

The size of a tax and the deadweight loss that results from the tax are

Accepted Answer

A)  positively related. 
B)  negatively related. 
C)  independent of each other. 
D)  equal to each other. 
A)  positively related. 
B)  negatively related. 
C)  independent of each other. 
D)  equal to each other.

Question 2

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. The deadweight loss of the tax is the area

Accepted Answer

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

Question 3

Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

Accepted Answer

A)  a head tax (that is, a tax everyone must pay regardless of what one does or buys) 
B)  an income tax 
C)  a tax on compact discs 
D)  a tax on caviar 
A)  a head tax (that is, a tax everyone must pay regardless of what one does or buys) 
B)  an income tax 
C)  a tax on compact discs 
D)  a tax on caviar

Question 4

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 $40 when she hires someone to clean her house for a week. Which of the following is correct?

Accepted Answer

A)  Erin will now clean her own house. 
B)  Ernesto will continue to clean Erin's house, but his producer surplus will decline. 
C)  Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase. 
D)  Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline. 
A)  Erin will now clean her own house. 
B)  Ernesto will continue to clean Erin's house, but his producer surplus will decline. 
C)  Total economic welfare (consumer surplus plus producer surplus plus tax revenue) will increase. 
D)  Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.

Question 5

If the labor supply curve is nearly vertical, a tax on labor

Accepted Answer

A)  has a large deadweight loss. 
B)  raises a small amount of tax revenue. 
C)  has little impact on the amount of work that workers are willing to do. 
D)  results in a large tax burden on the firms that hire labor. 
A)  has a large deadweight loss. 
B)  raises a small amount of tax revenue. 
C)  has little impact on the amount of work that workers are willing to do. 
D)  results in a large tax burden on the firms that hire labor.

Question 6

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 7

The most important tax in the U.S. economy is the tax on corporations' profits.

Accepted Answer

A) True 
 B)False

Question 8

Figure 8-26  
-Refer to Figure 8-26. Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Accepted Answer

Total tax revenue will increas

Question 9

Figure 8-1  
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus before the tax is measured by the area

Accepted Answer

A)  I+J+K. 
B)  I+Y. 
C)  L+M+Y. 
D)  M. 
A)  I+J+K. 
B)  I+Y. 
C)  L+M+Y. 
D)  M.

Question 10

To fully understand how taxes affect economic well-being, we must

Accepted Answer

A)  assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed. 
B)  compare the taxes raised in the United States with those raised in other countries, especially France. 
C)  compare the reduced welfare of buyers and sellers to the amount of revenue the government raises. 
D)  take into account the fact that almost all taxes reduce the welfare of buyers, increase the welfare of sellers, and raise revenue for the government. 
A)  assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed. 
B)  compare the taxes raised in the United States with those raised in other countries, especially France. 
C)  compare the reduced welfare of buyers and sellers to the amount of revenue the government raises. 
D)  take into account the fact that almost all taxes reduce the welfare of buyers, increase the welfare of sellers, and raise revenue for the government.

Question 11

Scenario 8-3
Suppose the market demand and market supply curves are given by the equations:  
-Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:   What quantity will be bought and sold after the tax is imposed?

Accepted Answer

The quanti

Question 12

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 size of the tax is

Accepted Answer

A)  P0-P2. 
B)  P2-P8. 
C)  P2-P5. 
D)  P5-P8. 
A)  P0-P2. 
B)  P2-P8. 
C)  P2-P5. 
D)  P5-P8.

Question 13

Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar 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)  The demand for cigars is less elastic than the supply of cigars. 
B)  The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50. 
C)  The deadweight loss of the tax is $12.50. 
D)  All of the above are correct. 
A)  The demand for cigars is less elastic than the supply of cigars. 
B)  The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50. 
C)  The deadweight loss of the tax is $12.50. 
D)  All of the above are correct.

Question 14

When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic.

Accepted Answer

A) True 
 B)False

Question 15

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The loss of producer surplus as a result of the tax is

Accepted Answer

A)  $1. 
B)  $2. 
C)  $3. 
D)  $4. 
A)  $1. 
B)  $2. 
C)  $3. 
D)  $4.

Question 16

Taxes cause deadweight losses because taxes

Accepted Answer

A)  reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. 
B)  prevent buyers and sellers from realizing some of the gains from trade. 
C)  cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. 
D)  All of the above are correct. 
A)  reduce the sum of producer and consumer surpluses by more than the amount of tax revenue. 
B)  prevent buyers and sellers from realizing some of the gains from trade. 
C)  cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall. 
D)  All of the above are correct.

Question 17

Figure 8-1  
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+J+K+L+M+Y represents

Accepted Answer

A)  total surplus before the tax. 
B)  total surplus after the tax. 
C)  consumer surplus before the tax. 
D)  deadweight loss from the tax. 
A)  total surplus before the tax. 
B)  total surplus after the tax. 
C)  consumer surplus before the tax. 
D)  deadweight loss from the tax.

Question 18

Figure 8-9
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-9. The equilibrium price and quantity before the imposition of the tax is

Accepted Answer

A)  P=$800 and Q=20. 
B)  P=$600 and Q=20. 
C)  P=$300 and Q=20. 
D)  P=$600 and Q=40. 
A)  P=$800 and Q=20. 
B)  P=$600 and Q=20. 
C)  P=$300 and Q=20. 
D)  P=$600 and Q=40.

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

If the tax on a good is increased from $0.30 per unit to $0.90 per unit, the deadweight loss from the tax

Accepted Answer

A)  remains constant. 
B)  increases by a factor of 4. 
C)  increases by a factor of 9. 
D)  increases by a factor of 16. 
A)  remains constant. 
B)  increases by a factor of 4. 
C)  increases by a factor of 9. 
D)  increases by a factor of 16.

Exam 8: Application: the Costs of Taxation

The size of a tax and the deadweight loss that results from the tax are

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The deadweight loss of the tax is the area

Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

If the labor supply curve is nearly vertical, a tax on labor

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

The most important tax in the U.S. economy is the tax on corporations' profits.

Figure 8-26 -Refer to Figure 8-26. Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The producer surplus before the tax is measured by the area

To fully understand how taxes affect economic well-being, we must

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: What quantity will be bought and sold after the tax is imposed?

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 size of the tax is

When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic.

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of producer surplus as a result of the tax is

Taxes cause deadweight losses because taxes

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+J+K+L+M+Y represents

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The equilibrium price and quantity before the imposition of the tax is

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

If the tax on a good is increased from $0.30 per unit to $0.90 per unit, the deadweight loss from the tax

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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