Question 1

Normally, both buyers and sellers of a good become worse off when the good is taxed.

Accepted Answer

A) True 
 B)False

Question 2

A tax places a wedge between the price buyers pay and the price sellers receive.

Accepted Answer

A) True 
 B)False

Question 3

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 4

A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases producer surplus by $600 per day, generates tax revenue of $1,220 per day, and decreases the equilibrium quantity of potato chips by 120 bags per day. The tax

Accepted Answer

A)  decreases consumer surplus by $645 per day. 
B)  decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day. 
C)  decreases total surplus from $3,000 to $1,800 per day. 
D)  creates a deadweight loss of $15 per day. 
A)  decreases consumer surplus by $645 per day. 
B)  decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day. 
C)  decreases total surplus from $3,000 to $1,800 per day. 
D)  creates a deadweight loss of $15 per day.

Question 5

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.

Question 6

When a tax is imposed on a good, consumer surplus decreases and producer surplus remains unchanged.

Accepted Answer

A) True 
 B)False

Question 7

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 consumer surplus as a result of the tax is

Accepted Answer

A)  $1.50. 
B)  $3. 
C)  $4.50. 
D)  $6. 
A)  $1.50. 
B)  $3. 
C)  $4.50. 
D)  $6.

Question 8

Kate is a personal trainer whose client William pays $80 per hour-long session. William values this service at $100 per hour, while the opportunity cost of Kate's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training?

Accepted Answer

A)  Kate and William will agree to a new price somewhere between $85 and $100. 
B)  Kate and William will agree to a new price somewhere between $70 and $110. 
C)  Kate will no longer offer personal training services to William because she must charge more than $100 in order to cover her opportunity costs and pay the tax. 
D)  The price will remain at $80, and Kate will pay the $10 tax. 
A)  Kate and William will agree to a new price somewhere between $85 and $100. 
B)  Kate and William will agree to a new price somewhere between $70 and $110. 
C)  Kate will no longer offer personal training services to William because she must charge more than $100 in order to cover her opportunity costs and pay the tax. 
D)  The price will remain at $80, and Kate will pay the $10 tax.

Question 9

Figure 8-3
The vertical distance between points A and C represents a tax in the market.  
-Refer to Figure 8-3. The amount of deadweight loss associated with the tax is equal to

Accepted Answer

A)  P3ACP1. 
B)  ABC. 
C)  P2ADP3. 
D)  P1DCP2. 
A)  P3ACP1. 
B)  ABC. 
C)  P2ADP3. 
D)  P1DCP2.

Question 10

The Social Security tax is a labor tax.

Accepted Answer

A) True 
 B)False

Question 11

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4. The per-unit burden of the tax on sellers is

Accepted Answer

A)  $7. 
B)  $5. 
C)  $4. 
D)  $3. 
A)  $7. 
B)  $5. 
C)  $4. 
D)  $3.

Question 12

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.  
-Refer to Figure 8-5. The benefit to the government is measured by

Accepted Answer

A)  tax revenue and is represented by area A+B. 
B)  tax revenue and is represented by area B+D. 
C)  the net gain in total surplus and is represented by area B+D. 
D)  the net gain in total surplus and is represented by area C+H. 
A)  tax revenue and is represented by area A+B. 
B)  tax revenue and is represented by area B+D. 
C)  the net gain in total surplus and is represented by area B+D. 
D)  the net gain in total surplus and is represented by area C+H.

Question 13

Figure 8-1  
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents

Accepted Answer

A)  consumer surplus after the tax. 
B)  consumer surplus before the tax. 
C)  producer surplus after the tax. 
D)  producer surplus before the tax. 
A)  consumer surplus after the tax. 
B)  consumer surplus before the tax. 
C)  producer surplus after the tax. 
D)  producer surplus before the tax.

Question 14

As the size of a tax rises, the deadweight loss

Accepted Answer

A)  rises, and tax revenue first rises, then falls. 
B)  rises as does tax revenue. 
C)  falls, and tax revenue first rises, then falls. 
D)  falls as does tax revenue. 
A)  rises, and tax revenue first rises, then falls. 
B)  rises as does tax revenue. 
C)  falls, and tax revenue first rises, then falls. 
D)  falls as does tax revenue.

Question 15

Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will

Accepted Answer

A)  fall entirely on the buyers of fast-food French fries. 
B)  fall entirely on the sellers of fast-food French fries. 
C)  be shared equally by the buyers and sellers of fast-food French fries. 
D)  be shared by the buyers and sellers of fast-food French fries but not necessarily equally. 
A)  fall entirely on the buyers of fast-food French fries. 
B)  fall entirely on the sellers of fast-food French fries. 
C)  be shared equally by the buyers and sellers of fast-food French fries. 
D)  be shared by the buyers and sellers of fast-food French fries but not necessarily equally.

Question 16

The decrease in total surplus that results from a market distortion, such as a tax, is called a

Accepted Answer

A)  wedge loss. 
B)  revenue loss. 
C)  deadweight loss. 
D)  consumer surplus loss. 
A)  wedge loss. 
B)  revenue loss. 
C)  deadweight loss. 
D)  consumer surplus loss.

Question 17

Using demand and supply diagrams, show the difference in deadweight loss between (a) a market with inelastic demand and supply and (b) a market with elastic demand and supply.

Accepted Answer

The answer of Using demand and supply diagrams, show the...

Question 18

When a tax is imposed on the sellers of a good, the

Accepted Answer

A)  demand curve shifts downward by less than the amount of the tax. 
B)  demand curve shifts downward by the amount of the tax. 
C)  supply curve shifts upward by less than the amount of the tax. 
D)  supply curve shifts upward by the amount of the tax. 
A)  demand curve shifts downward by less than the amount of the tax. 
B)  demand curve shifts downward by the amount of the tax. 
C)  supply curve shifts upward by less than the amount of the tax. 
D)  supply curve shifts upward by the amount of the tax.

Question 19

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4. The tax results in a loss of consumer surplus that amounts to

Accepted Answer

A)  $105. 
B)  $140. 
C)  $170. 
D)  $210. 
A)  $105. 
B)  $140. 
C)  $170. 
D)  $210.

Question 20

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. With the tax, the total surplus is

Accepted Answer

A)  [1/2 x (P0-P5) x Q5] + [1/2 x (P5-0) x Q5]. 
B)  [1/2 x (P0-P2) x Q2] +[(P2-P8) x Q2] + [1/2 x (P8-0) x Q2]. 
C)  (P2-P8) x Q2. 
D)  1/2 x (P2-P8) x (Q5-Q2). 
A)  [1/2 x (P0-P5) x Q5] + [1/2 x (P5-0) x Q5]. 
B)  [1/2 x (P0-P2) x Q2] +[(P2-P8) x Q2] + [1/2 x (P8-0) x Q2]. 
C)  (P2-P8) x Q2. 
D)  1/2 x (P2-P8) x (Q5-Q2).

Exam 8: Application: the Costs of Taxation

Normally, both buyers and sellers of a good become worse off when the good is taxed.

A tax places a wedge between the price buyers pay and the price sellers receive.

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

A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases producer surplus by $600 per day, generates tax revenue of $1,220 per day, and decreases the equilibrium quantity of potato chips by 120 bags per day. The tax

When a tax is imposed on a good, consumer surplus decreases and producer surplus remains unchanged.

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 consumer surplus as a result of the tax is

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The amount of deadweight loss associated with the tax is equal to

The Social Security tax is a labor tax.

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The per-unit burden of the tax on sellers is

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The benefit to the government is measured by

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M represents

As the size of a tax rises, the deadweight loss

Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will

The decrease in total surplus that results from a market distortion, such as a tax, is called a

Using demand and supply diagrams, show the difference in deadweight loss between (a) a market with inelastic demand and supply and (b) a market with elastic demand and supply.

When a tax is imposed on the sellers of a good, the

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The tax results in a loss of consumer surplus that amounts to

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. With the tax, the total surplus is

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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