Question 1

Figure 8-2
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-2. The per-unit burden of the tax on sellers is

Accepted Answer

A)  $2. 
B)  $3. 
C)  $4. 
D)  $5. 
A)  $2. 
B)  $3. 
C)  $4. 
D)  $5.

Question 2

In 2012, in The Wall Street Journal, economists Edward Prescott and Lee Ohanian asserted that

Accepted Answer

A)  in the United States, when the average worker earns $100 from additional work, he or she will be able to consume an additional $85 worth of goods and services. 
B)  the typical American has always worked more hours per year than the typical Frenchman and the typical German, despite vastly different tax rates in those countries. 
C)  raising tax rates from their 2012 levels would significantly reduce U.S. economic activity. 
D)  raising tax rates from their 2012 levels would significantly increase the federal government's tax revenue. 
A)  in the United States, when the average worker earns $100 from additional work, he or she will be able to consume an additional $85 worth of goods and services. 
B)  the typical American has always worked more hours per year than the typical Frenchman and the typical German, despite vastly different tax rates in those countries. 
C)  raising tax rates from their 2012 levels would significantly reduce U.S. economic activity. 
D)  raising tax rates from their 2012 levels would significantly increase the federal government's tax revenue.

Question 3

Figure 8-12  
-Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The per-unit burden of the tax on sellers is

Accepted Answer

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

Question 4

Figure 8-4
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-4. The equilibrium price before the tax is imposed is

Accepted Answer

A)  $12, and the equilibrium quantity is 35. 
B)  $8, and the equilibrium quantity is 50. 
C)  $5, and the equilibrium quantity is 35. 
D)  $5, and the equilibrium quantity is 50. 
A)  $12, and the equilibrium quantity is 35. 
B)  $8, and the equilibrium quantity is 50. 
C)  $5, and the equilibrium quantity is 35. 
D)  $5, and the equilibrium quantity is 50.

Question 5

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 doubled, the

Accepted Answer

A)  base of the triangle that represents the deadweight loss quadruples. 
B)  height of the triangle that represents the deadweight loss doubles. 
C)  deadweight loss of the tax doubles. 
D)  All of the above are correct. 
A)  base of the triangle that represents the deadweight loss quadruples. 
B)  height of the triangle that represents the deadweight loss doubles. 
C)  deadweight loss of the tax doubles. 
D)  All of the above are correct.

Question 6

Taxes cause deadweight losses because they

Accepted Answer

A)  lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. 
B)  distort incentives to both buyers and sellers. 
C)  prevent buyers and sellers from realizing some of the gains from trade. 
D)  All of the above are correct. 
A)  lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government. 
B)  distort incentives to both buyers and sellers. 
C)  prevent buyers and sellers from realizing some of the gains from trade. 
D)  All of the above are correct.

Question 7

When a tax is imposed on buyers, consumer surplus decreases but producer surplus increases.

Accepted Answer

A) True 
 B)False

Question 8

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. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is

Accepted Answer

A)  $80. 
B)  $30. 
C)  $20. 
D)  $10. 
A)  $80. 
B)  $30. 
C)  $20. 
D)  $10.

Question 9

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 consumer surplus is

Accepted Answer

A)  (P0-P2) x Q2. 
B)  1/2 x (P0-P2) x Q2. 
C)  (P0-P5) x Q5. 
D)  1/2 x (P0-P5) x Q5. 
A)  (P0-P2) x Q2. 
B)  1/2 x (P0-P2) x Q2. 
C)  (P0-P5) x Q5. 
D)  1/2 x (P0-P5) x Q5.

Question 10

Figure 8-12  
-Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The per-unit burden of the tax on buyers is

Accepted Answer

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

Question 11

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 B on the curve, then an increase 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 12

When motorcycles are taxed and sellers of motorcycles are required to pay the tax to the government,

Accepted Answer

A)  the quantity of motorcycles bought and sold in the market is reduced. 
B)  the price paid by buyers of motorcycles decreases. 
C)  the demand for motorcycles decreases. 
D)  there is a movement downward and to the right along the demand curve for motorcycles. 
A)  the quantity of motorcycles bought and sold in the market is reduced. 
B)  the price paid by buyers of motorcycles decreases. 
C)  the demand for motorcycles decreases. 
D)  there is a movement downward and to the right along the demand curve for motorcycles.

Question 13

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good.  
-Refer to Figure 8-8. One effect of the tax is to

Accepted Answer

A)  reduce consumer surplus by $108. 
B)  reduce producer surplus by $72. 
C)  create a deadweight loss of $60. 
D)  All of the above are correct. 
A)  reduce consumer surplus by $108. 
B)  reduce producer surplus by $72. 
C)  create a deadweight loss of $60. 
D)  All of the above are correct.

Question 14

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Accepted Answer

A) True 
 B)False

Question 15

The demand for bread is less elastic than the demand for donuts; hence, a tax on bread will create a larger deadweight loss than will the same tax on donuts, other things equal.

Accepted Answer

A) True 
 B)False

Question 16

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. The curve that is shown on the figure is called the

Accepted Answer

A)  deadweight-loss curve. 
B)  tax-incidence curve. 
C)  Laffer curve. 
D)  Lorenz curve. 
A)  deadweight-loss curve. 
B)  tax-incidence curve. 
C)  Laffer curve. 
D)  Lorenz curve.

Question 17

The benefit that government receives from a tax is measured by

Accepted Answer

A)  deadweight loss. 
B)  consumer surplus. 
C)  tax incidence. 
D)  tax revenue. 
A)  deadweight loss. 
B)  consumer surplus. 
C)  tax incidence. 
D)  tax revenue.

Question 18

Figure 8-12  
-Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The loss of producer surplus resulting from this tax is

Accepted Answer

A)  $5.50. 
B)  $17.50. 
C)  $22.50. 
D)  $45.00 
A)  $5.50. 
B)  $17.50. 
C)  $22.50. 
D)  $45.00

Question 19

Figure 8-7
The vertical distance between points A and B represents a tax in the market.  
-Refer to Figure 8-7. Which of the following statements is correct?

Accepted Answer

A)  The loss of producer surplus that is associated with some sellers dropping out of the market as a result of the tax is $60. 
B)  The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $120. 
C)  The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax. 
D)  This tax produces $320 in tax revenue for the government. 
A)  The loss of producer surplus that is associated with some sellers dropping out of the market as a result of the tax is $60. 
B)  The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $120. 
C)  The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax. 
D)  This tax produces $320 in tax revenue for the government.

Question 20

Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 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)  The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.20 per gallon. 
B)  The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.4; and the gasoline tax amounts to $0.20 per gallon. 
C)  The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon. 
D)  There is insufficient information to make this determination. 
A)  The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.20 per gallon. 
B)  The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.4; and the gasoline tax amounts to $0.20 per gallon. 
C)  The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon. 
D)  There is insufficient information to make this determination.

Exam 8: Application: the Costs of Taxation

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The per-unit burden of the tax on sellers is

In 2012, in The Wall Street Journal, economists Edward Prescott and Lee Ohanian asserted that

Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The per-unit burden of the tax on sellers is

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The equilibrium price before the tax is imposed is

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 doubled, the

Taxes cause deadweight losses because they

When a tax is imposed on buyers, consumer surplus decreases but producer surplus increases.

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. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is

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 consumer surplus is

Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The per-unit burden of the tax on buyers is

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 B on the curve, then an increase in the tax rate will

When motorcycles are taxed and sellers of motorcycles are required to pay the tax to the government,

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. One effect of the tax is to

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

The demand for bread is less elastic than the demand for donuts; hence, a tax on bread will create a larger deadweight loss than will the same tax on donuts, other things equal.

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. The curve that is shown on the figure is called the

The benefit that government receives from a tax is measured by

Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The loss of producer surplus resulting from this tax is

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Which of the following statements is correct?

Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 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?

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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