Deck 8: Taxes

Question 1

The figure above shows the market for tyres. According to the figure, the government collects ________ per month in total tax revenue.

A) $900 million
B) $1,200 million
C) $2,000 million
D) $600 million
E) None of the above answers is correct.

Answer 1

$600 million

Question 2

The figure above shows the market for tyres. The government has imposed a tax on tyres, and the buyers pay ________ of the tax.

A) $20
B) $10
C) $50
D) $30
E) $60

Answer 2

$10

Question 3

The demand curve for pizza is downward sloping and the supply curve is upward sloping. If the government imposes a $2 tax on a pizza, ________ the tax.

A) only producers pay
B) the government pays
C) both producers and consumers pay part of
D) only consumers pay
E) neither producers nor consumers pay part of

Answer 3

both producers and consumers pay part of

Question 4

The figure above shows the market for tyres. According to the figure, the price elasticity of demand is ________ the price elasticity of supply.

A) greater than
B) not comparable to
C) equal to
D) less than
E) More information is needed to determine if the price elasticity of demand is greater than, equal to, less than, or comparable to the price elasticity of supply.

Question 5

Suppose the government imposes a $1 per litre tax on sellers of petrol. As a result, the

A) supply curve shifts rightward.
B) demand and supply curves both shift leftward.
C) demand curve shifts rightward.
D) demand curve shifts leftward.
E) supply curve shifts leftward.

Question 6

In the figure above, suppose that the government imposes a tax of $4 per pizza. Then, the

A) shaded area is the deadweight loss from the tax.
B) buyers and sellers equally share the incidence of the tax.
C) shaded area is the tax revenue from the tax.
D) Both answers A and B are correct.
E) Both answers A and C are correct.

Question 7

If a $10 sales tax is imposed on a good and the equilibrium price increases by $10, the tax is

A) split between buyers and sellers, but not evenly.
B) split evenly between buyers and sellers.
C) paid fully by sellers.
D) paid fully by buyers.
E) perhaps split between buyers and sellers but it is impossible to determine the incidence without further information.

Question 8

In the figure above, suppose that the government imposes a tax of $4 per pizza. Then, the tax revenue collected by the government equals

A) $4.
B) $240.
C) $320.
D) $120.
E) $160.

Question 9

Imposing a sales tax on sellers of a product has an effect that is similar to which of the following?

A) An increase in demand for the good.
B) A decrease in consumers' preferences for the good.
C) Anything that decreases the demand and shifts the demand curve leftward.
D) An increase in the costs of production.
E) A decrease in people's willingness to work.

Question 10

The above figure shows the market for gourmet ice cream. In an effort to reduce obesity, the government places a $2 tax per litre on suppliers in this market, shifting the supply curve from S0 to S1. The tax incidence is

A) split equally between consumers and producers, each paying $2 per litre.
B) such that producers pay all of the tax.
C) such that consumers pay $1 per litre and producers pay $2 per litre.
D) split equally between consumers and producers, each paying $1 per litre.
E) such that consumers pay $2 per litre and producers pay $1 per litre.

Question 11

Neither the demand for petrol nor the supply of petrol is perfectly elastic or inelastic. If the federal government eliminated the 18.4 cents per litre petrol tax, the price paid by buyers would

A) decrease by 18.4 cents.
B) decrease by less than 18.4 cents.
C) stay the same.
D) increase by 18.4 cents.
E) decrease by more than 18.4 cents.

Question 12

The figure above shows the market for tyres. The figure shows that the government has imposed a tax of ________ per tyre.

A) $10
B) $40
C) $30
D) $60
E) None of the above answers is correct.

Question 13

To calculate the revenue the government receives when a tax is imposed on a good, multiply the

A) after-tax equilibrium price by the after-tax quantity.
B) after-tax equilibrium price by the after-tax quantity and then subtract the pre-tax equilibrium price multiplied by the pre-tax quantity.
C) tax by the pre-tax quantity.
D) pre-tax equilibrium price by the pre-tax quantity.
E) tax by the after-tax quantity.

Question 14

The above figure shows the market for gourmet ice cream. In an effort to reduce obesity, the government places a $2 tax per litre on suppliers in this market, shifting the supply curve from S0 to S1. The total tax revenue is equal to

A) $800,000.
B) $500,000.
C) $200,000.
D) $400,000.
E) More information is needed to determine the total tax revenue.

Question 15

The figure above shows the market for tyres. The government has imposed a tax on tyres, and the sellers pay ________ of the tax.

A) $60
B) $10
C) $50
D) $20
E) $30

Question 16

Tax incidence is the

A) division of the burden of a tax between the buyer and the seller.
B) burden buyers have to absorb from a tax on goods and services.
C) lost revenue the government endures from goods and services that are not taxed.
D) deadweight loss created by a tax.
E) burden sellers have to absorb from a tax on goods and services.

Question 17

The demand for insulin is quite inelastic. The demand for Pepsi is quite elastic. Suppose the elasticity of supply for insulin is the same as the elasticity of supply for Pepsi. If a $0.20 tax was imposed on each of these goods (holding everything else constant), which consumers would pay more of the tax?

A) There would be no difference in the amount of tax paid by the consumers.
B) The Pepsi consumers.
C) More information is needed to determine which consumers pay more of the tax.
D) The insulin consumers.
E) The premise of the question is wrong because the elasticity of demand and the incidence of a tax are not related.

Question 18

Neither the demand nor the supply of petrol is perfectly elastic or inelastic. When the government increases the federal tax on petrol, the effect on buyers is that the price they pay

A) rises if the supply is inelastic and falls if the supply is elastic.
B) falls.
C) does not change.
D) rises if the demand is inelastic and falls if the demand is elastic.
E) rises.

Question 19

The above figure shows the market for gourmet ice cream. In an effort to reduce obesity, the government places a $2 tax per litre on suppliers in this market, shifting the supply curve from S0 to S1. The quantity of ice cream consumed before the tax is ________ litres and the quantity consumed after the tax is ________ litres.

A) 200,000; 300,000
B) 300,000; 200,000
C) 250,000; 200,000
D) 200,000; 250,000
E) 200,000; 200,000

Question 20

If a tax is placed on suppliers of a good, then the incidence of the tax

A) falls more on the sellers if demand is elastic.
B) usually falls more on the buyers than the sellers.
C) is usually split equally between the buyers and the sellers.
D) usually falls more on the sellers than the buyers.
E) falls more on the sellers if demand is inelastic.

Question 21

Why do sellers pay all of a tax when supply is perfectly inelastic?

A) Because the government requires firms to collect the tax.
B) Because a perfectly inelastic supply means that the quantity supplied is quite sensitive to a change in price.
C) Because a perfectly inelastic supply means that suppliers will produce the same amount regardless of the price.
D) Because in this case the price of the good that suppliers receive and keep does not change.
E) Because a perfectly inelastic supply means that the demand is elastic.

Question 22

If buyers pay more of a tax than the sellers,

A) supply is more elastic than demand.
B) the equilibrium price paid by buyers rises by less than half the amount of the tax.
C) demand is more elastic than supply.
D) the amount of tax revenue collected by the government is almost zero.
E) None of the above answers is correct.

Question 23

The deadweight loss of a tax

A) is greater than the total burden of a tax.
B) is the transfer of income from households to the government.
C) is part of the total burden of a tax.
D) determines the incidence of a tax.
E) equals the tax revenue collected by the government.

Question 24

The above figure shows the demand curves in four different markets. If each of the markets has an identical upward-sloping supply curve and the same tax is levied on suppliers, which market would produce the smallest amount of deadweight loss?

A) A
B) B
C) C
D) D
E) C and D

Question 25

The excess burden of a tax refers to the fact that

A) taxes are split between buyers and sellers.
B) the benefits from a tax exceed the tax revenue.
C) marginal cost is greater than marginal benefit after the tax.
D) a tax creates a deadweight loss.
E) the deadweight loss from a tax exceeds the remaining consumer surplus.

Question 26

The buyers pay all of a tax when the demand is

A) perfectly elastic.
B) perfectly inelastic.
C) more inelastic than the supply.
D) unit elastic.
E) more elastic than the supply.

Question 27

When a tax is imposed on a good, at the after-tax equilibrium the marginal benefit of the last unit produced ________ the marginal cost.

A) is less than
B) can be calculated but is not comparable to
C) is greater than
D) equals
E) The premise of the question is incorrect because after a tax is imposed, it becomes impossible to determine the marginal benefit and the marginal cost.

Question 28

If neither the demand nor supply of a good is perfectly elastic or inelastic, a tax on the good ________ consumer surplus and ________ producer surplus.

A) decreases; increases
B) decreases; decreases
C) increases; increases
D) decreases; does not change
E) increases; decreases

Question 29

The size of the deadweight loss, or excess burden, of a tax depends on the

A) number of demanders and the number of suppliers.
B) elasticities of demand and supply.
C) amount of producer surplus but not the amount of consumer surplus because it is the producers who send the tax revenues to the government.
D) strength of demand.
E) strength of supply.

Question 30

The above figure shows the demand curves in four different markets. If each of the markets has an identical upward-sloping supply curve and the same tax is levied on suppliers, which market would produce the largest amount of deadweight loss?

A) A
B) B
C) C
D) D
E) C and D

Question 31

The loss to society resulting from a tax includes the

A) consumer surplus paid to the government in the form of tax revenue.
B) deadweight loss.
C) deadweight loss minus the tax revenue collected by the government.
D) deadweight loss plus the consumer surplus and producer surplus paid to the government as tax revenue.
E) producer surplus paid to the government in the form of tax revenue.

Question 32

If a $1 sales tax is imposed on the sale of a CD, and neither the demand nor the supply is perfectly elastic or perfectly inelastic, then the price of a CD paid by consumers will

A) increase by $1 and the same number of CDs will be bought.
B) increase by more than $1 and fewer CDs will be bought.
C) increase by $1 and fewer CDs will be bought.
D) not change and the same number of CDs will be bought.
E) increase by less than $1 and fewer CDs will be bought.

Question 33

The demand for apple pies is perfectly elastic. If the government taxes pies at $1 a pie, then

A) the seller and the buyer split the tax but the seller pays more.
B) the seller and the buyer split the tax evenly.
C) the seller pays the entire tax.
D) the buyer pays the entire tax.
E) who pays the tax depends on whether the government imposes the tax on pie buyers or on pie sellers.

Question 34

The supply of sand is perfectly inelastic and the demand curve for sand is downward sloping. Hence, if a tax on sand is imposed,

A) sand buyers pay the entire tax.
B) the tax is split evenly between the buyers and sellers.
C) sand sellers pay the entire tax.
D) the government pays the entire tax.
E) the government collects no tax revenue because the supply is perfectly inelastic.

Question 35

For a given elasticity of demand, the less elastic the supply, the

A) larger the deadweight loss from a tax.
B) greater the burden on the government from a tax.
C) larger the share of a tax paid by the buyers.
D) greater is the excess burden from a tax.
E) larger the share of a tax paid by the sellers.

Question 36

A $2.00 increase in the size of a tax on a good will only cause the price for buyers to increase by $2.00 if

A) demand is perfectly inelastic.
B) demand is perfectly elastic.
C) demand is elastic, but not perfectly elastic.
D) demand is inelastic, but not perfectly inelastic.
E) demand is unit elastic.

Question 37

Suppose the elasticity of demand for takeaway food is 3.00 and the elasticity of supply is 1.20. If the government imposes a sales tax on takeaway food to promote healthy eating, which of the following occurs? i. Less takeaway food is purchased by buyers.
Ii) Less takeaway food is produced by sellers.
Iii) The government receives the excess burden as revenue.
Iv) Both the consumer surplus and the producer surplus decrease.

A) i, ii, iii and iv
B) i and ii
C) iii only
D) i, ii, and iv
E) iv only

Question 38

If the government eliminates a tax on a good with a perfectly elastic supply, who benefits most?

A) Buyers
B) Buyers if the demand is also perfectly elastic, otherwise sellers
C) Sellers
D) Buyers if the demand is unit elastic, otherwise sellers
E) Buyers and sellers benefit equally.

Question 39

Suppose the elasticity of demand for a product is 0 and elasticity of supply is 1. If the government imposes a tax on the product, then

A) buyers and sellers pay exactly the same share of the tax.
B) buyers pay a smaller share of the tax than sellers, but both buyers and sellers pay some of the tax.
C) sellers pay all of the tax.
D) buyers pay all of the tax.
E) because the elasticity of demand is zero, the government collects no revenue from this tax.

Question 40

The graph shows the market for textbooks. If the government introduces a tax of $20 a textbook, then the price paid by buyers

A) increases to $80 a textbook.
B) increases by $20.
C) decreases to $60 a textbook.
D) is $70 a textbook.
E) does not change because the demand for textbooks is perfectly elastic.

Question 41

The marginal tax rate equals 100 ×

A) (average tax rate × total income).
B) (change in tax ÷ change in income).
C) (change in tax ÷ total income).
D) (total tax ÷ change in income).
E) (total tax ÷ total income).

Question 42

The Goods and Services Tax in Australia is 10.0 per cent. This tax is

A) an example of the benefit principle of taxation.
B) progressive.
C) fair because everyone pays the same tax.
D) proportional.
E) regressive.

Question 43

If the average tax rate increases as income increases, the tax is

A) regressive.
B) progressive.
C) an excise tax.
D) proportional.
E) a decreasing marginal-rate tax.

Question 44

If the average tax rate falls as income increases, the tax is

A) regressive.
B) proportional.
C) progressive.
D) vertically unfair.
E) impossible to determine with the information given.

Question 45

The average tax rate is the

A) percentage of income paid in tax.
B) percentage of an additional dollar of income paid in tax.
C) total amount of taxes paid by an individual.
D) same as the marginal tax rate for a progressive tax.
E) average of the rates at which income and taxes increase.

Question 46

The marginal tax rate is the

A) percentage of an additional dollar of income paid in tax.
B) total amount of tax paid as a percentage of total income earned.
C) same as the average tax rate for a progressive tax.
D) average amount paid as taxes.
E) percentage of total income that is paid in tax.

Question 47

A tax that has the same average rate at all levels is

A) a marginal tax.
B) a proportional tax.
C) a sales tax.
D) an efficient-price tax.
E) a regressive tax.

Question 48

If the average tax rate ________ as income increases, then the tax is a ________ tax.

A) decreases; proportional
B) does not change; regressive
C) does not change; proportional
D) increases; regressive
E) decreases; progressive

Question 49

If there is an income tax levied on labour income, the labour demand curve ________ and the labour supply curve ________.

A) shifts leftward; shifts leftward
B) does not shift; shifts rightward
C) does not shift; shifts leftward
D) shifts leftward; does not shift
E) shifts rightward; does not shift

Question 50

At harvest time the supply of wheat is perfectly inelastic. If the government taxes wheat at $1 a tonne, then

A) the buyer pays the entire tax.
B) the seller and the buyer split the tax evenly.
C) the seller pays the entire tax.
D) the seller and the buyer split the tax but the seller pays more.
E) no one pays the tax because the wheat must be harvested or it will go to waste.

Question 51

If a tax is placed on tyres, then i. the equilibrium quantity of tyres will decrease.
Ii) a deadweight loss will be created.
Iii) the producer surplus will decrease.

A) i and iii
B) ii only
C) i and ii
D) i only
E) i, ii and iii

Question 52

What happens to the acceptable wage rate at each level of employment once an income tax is levied on labour income?

A) It increases by the amount of the tax that must be paid.
B) Because workers have to work more to make up for the tax, the acceptable wage rate falls by some amount that cannot be determined.
C) Workers and employers split the tax, so the acceptable wage increases by half the tax.
D) Because workers have to work more to make up for the tax, the acceptable wage rate falls by the precise amount of the tax that must be paid.
E) Nothing, it remains the same.

Question 53

Suppose everybody paid the same total amount of tax regardless of their income. This type of tax system would be

A) marginal.
B) regressive.
C) efficient.
D) progressive.
E) proportional.

Question 54

The graph shows the market for cell phones. The government imposes a sales tax on cell phones at $10 a cell phone. The excess burden of the sales tax on cell phones is

A) $35,000.
B) $20,000.
C) $15,000.
D) $30,000.
E) $7,500.

Question 55

Ann pays $3,850 in taxes on an income of $38,500. Therefore her

A) proportional tax rate is undefined.
B) marginal tax rate must be 10 per cent.
C) average tax rate must be 10 per cent.
D) personal exemption is 10 per cent.
E) taxes must be progressive in nature.

Question 56

If we look at the percentage of total tax revenue collected by different taxes in Australia, we see that

A) personal income taxes are the largest.
B) sales taxes are the smallest.
C) excise taxes are second only to payroll taxes.
D) corporate income taxes are by far the largest.
E) payroll taxes are the largest.

Question 57

If the average tax rate increases as income increases, then the

A) tax is a regressive tax.
B) income is tax exempt so that no tax needs to be paid on it.
C) tax is a progressive tax.
D) tax is a proportional tax.
E) marginal tax rate must be falling as income increases.

Question 58

A tax on labour income ________ a deadweight loss for low-wage workers and ________ a deadweight loss for high-wage workers.

A) creates; creates
B) creates; does not create
C) does not create; creates
D) eliminates; eliminates
E) does not create; does not create

Question 59

The buyer will pay the entire tax levied on a good when the demand for the good is ________ or when the supply of the good is ________.

A) perfectly elastic; perfectly inelastic
B) unit elastic; unit elastic
C) perfectly elastic; perfectly elastic
D) perfectly inelastic; perfectly elastic
E) perfectly inelastic; perfectly inelastic

Question 60

The percentage of an additional dollar that is paid in tax is called

A) the average tax rate.
B) a progressive tax.
C) a regressive tax.
D) the marginal tax rate.
E) a proportional tax.

Question 61

A tax on the income from land or other resource with a perfectly inelastic supply

A) is paid entirely by the owner.
B) is efficient because it does not decrease the equilibrium quantity.
C) has no deadweight loss.
D) Only answers A and B are correct.
E) Answers A, B and C are correct.

Question 62

The above figure shows the market for capital. With the tax on capital income, the deadweight loss is equal to

A) area D.
B) area C + area D + area G.
C) area C.
D) area A + area B + area C.
E) area B + area F.

Question 63

The figure above shows the labour supply and labour demand curves for personal trainers in Victoria. The initial equilibrium hourly wage is $10. The government of Victoria institutes an additional income tax on the income of personal trainers of $6 an hour in order to fund school sports programs. How much of the tax is paid by employers?

A) $0
B) $2
C) $6
D) $4
E) $600

Question 64

The above figure shows the market for capital. Without a tax on capital income, the interest rate is ________ and firms use ________ million of capital.

A) 2 per cent; $2,000
B) 4 per cent; $2,000
C) 3 per cent; $2,000
D) 2 per cent; $1,000
E) 4 per cent; $1,000

Question 65

The above figure shows the labour market for surveyors. The total amount collected as taxes equals

A) area D + area F.
B) area A.
C) area D + area G.
D) area B + area C.
E) area B + area C + area E + area F.

Question 66

The figure above shows the labour supply and labour demand curves for personal trainers in Victoria. The initial equilibrium hourly wage is $10. The government of Victoria institutes an additional income tax on the income of personal trainers of $6 an hour in order to fund school sports programs. How much of the tax is paid by employees?

A) $2
B) $4
C) $600
D) $0
E) $6

Question 67

The figure above shows the labour supply and labour demand curves for personal trainers in Victoria. The initial equilibrium hourly wage is $10. The government of Victoria institutes an additional income tax on the income of personal trainers of $6 an hour in order to fund school sports programs. The deadweight loss from this tax equals the region

A) cdf.
B) bce.
C) cef.
D) efg.
E) abe.

Question 68

The above figure shows the market for capital. With the tax on capital income, the interest rate is ________ and firms use ________ million of capital.

A) 6 per cent; $1,000
B) 2 per cent; $1,000
C) 2 per cent; $2,000
D) 4 per cent; $1,000
E) 3 per cent; $2,000

Question 69

A tax on labour income

A) decreases the quantity employed because the demand for labour increases.
B) increases the quantity employed because the supply of labour increases.
C) increases the quantity employed because the demand for labour increases.
D) decreases the quantity employed because the supply of labour decreases.
E) does not change the quantity employed because people must have jobs in order to earn any income.

Question 70

The above figure shows the market for capital. With the tax on capital income, the total tax paid is equal to

A) area B.
B) area C + area D + area G.
C) area A + area B + area C.
D) area B + area F.
E) area C.

Question 71

Because the supply of land is perfectly inelastic, when governments tax land, the tax

A) creates no deadweight loss because the equilibrium quantity is the same as without the tax.
B) decreases both the demand for and the supply of land.
C) increases the supply of land because the landlord pays all of the tax.
D) decreases the supply of land because the landlord pays all of the tax.
E) creates a deadweight loss because the supply is fixed.

Question 72

Suppose the supply of labour is more inelastic than the demand for labour. Then, a payroll tax imposed on employers

A) leads to the workers paying more of the tax than the employers.
B) lowers the wage rate received by workers.
C) shifts the demand curve for labour leftward.
D) Only answers B and C are correct.
E) Answers A, B and C are correct.

Question 73

If the supply of capital is perfectly ________ end up paying the tax on capital income.

A) elastic, lenders
B) unit elastic, firms that demand capital
C) inelastic, firms that demand capital
D) elastic, firms that demand capital
E) inelastic, lenders

Question 74

The percentage of an additional dollar of income that is paid in tax is the

A) personal income tax.
B) sales tax.
C) marginal tax rate.
D) capital tax.
E) regressive tax.

Question 75

If the payroll tax imposed on employers increases, then

A) firms' demand for labour does not change.
B) workers' supply of labour increases.
C) the equilibrium quantity of employment increases.
D) firms' demand for labour decreases.
E) firms' demand for labour increases.

Question 76

In the labour market shown in the above graph, the government introduces a 10 per cent income tax. The employer pays ________ cents of the tax and the employee pays ________ cents of the tax.

A) 95; 0
B) 50; 45
C) 0; 95
D) 42.5; 42.5
E) 45; 50

Question 77

The figure above shows the labour supply and labour demand curves for personal trainers in Victoria. The initial equilibrium hourly wage is $10. The government of Victoria institutes an additional income tax on the income of personal trainers of $6 an hour in order to fund school sports programs. With the tax in place, the labour supply curve will

A) shift to LS2.
B) shift to LS1.
C) remain at LS.
D) change so that it becomes the same as LD.
E) None of the above answers is correct.

Question 78

Consider a payroll tax paid by workers versus a payroll tax paid by employers. In comparing the outcomes of each type of tax, we see that

A) workers receive a higher take-home wage when the tax is imposed on employers than when the tax is imposed on workers.
B) employers pay a lower total wage when the tax is imposed on workers.
C) employment decreases by more when the tax is imposed on employers than when the tax is imposed on workers.
D) workers receive the same take-home wage when the tax is imposed on workers and when the tax is imposed on employers.
E) employment decreases by more when the tax is imposed on workers than when the tax is imposed on employers.

Question 79

If the Queensland government reduced its payroll tax by 2 percentage points, this will likely cause

A) a decrease in the quantity of workers employed and an increase in deadweight loss.
B) a decrease in the quantity of workers employed and a decrease in deadweight loss.
C) an increase in the quantity of workers employed and a decrease in deadweight loss.
D) an increase in the quantity of workers employed and an increase in deadweight loss.
E) no change in the quantity of workers employed since the demand for labour is more elastic than the supply of labour.

Question 80

As a result of the tax on capital income, labour productivity

A) fluctuates.
B) decreases.
C) increases.
D) does not change.
E) might change but whether it increases, decreases or does not change depends on the magnitude of the tax.