Deck 7: Taxation and Government Intervention

Question 1

Unlike excise taxes, price ceilings create no deadweight loss.

Answer 1

False

Question 2

Total producer surplus is measured as the area:

A)between the demand curve and the supply curve.
B)above the supply curve.
C)beneath the demand curve and above the market price.
D)beneath the market price and above the supply curve.

Answer 2

beneath the market price and above the supply curve.

Question 3

If the demand for Insulin is highly inelastic, the burden of a tax on Insulin will be borne almost entirely by sellers.

Answer 3

False

Question 4

Refer to the graph shown. In equilibrium, consumer surplus is equal to:

A)600.
B)1,200.
C)1,400.
D)2,000.

Question 5

Refer to the graph shown. In equilibrium, total surplus is equal to:

A)600.
B)1,200.
C)1,400.
D)2,000.

Question 6

If a tax is legally required to be paid by sellers, sellers typically bear the full burden of the tax.

Question 7

Refer to the graph shown. In equilibrium, producer surplus is equal to:

A)600.
B)1,200.
C)1,400.
D)2,000.

Question 8

The distance between the supply curve and the price the producer receives for a product for a given quantity supplied is referred to as:

A)market surplus.
B)market shortage.
C)consumer surplus.
D)producer surplus.

Question 9

The total cost of taxation to consumers and producers generally exceeds the amount of tax revenue collected by government.

Question 10

If the government's goal is to alter people's behavior through taxation, taxing goods with relatively elastic demand and supply would be most effective.

Question 11

When the market is in equilibrium, total surplus is maximized.

Question 12

Total consumer surplus is measured as the area:

A)between the demand curve and the supply curve.
B)above the demand curve.
C)beneath the demand curve and above the market price.
D)beneath the market price and above the supply curve.

Question 13

The military draft can be seen as an implicit tax on potential recruits and a subsidy to those who demand defense services.

Question 14

An excise tax on alcohol causes the supply of alcohol to decrease and the price of alcohol to decrease.

Question 15

A price ceiling is, in essence, an implicit tax on producers and an implicit subsidy to consumers.

Question 16

The distance between the demand curve and the price the consumer has to pay for a product (given quantity demanded)is referred to as:

A)market surplus.
B)market shortage.
C)consumer surplus.
D)producer surplus.

Question 17

Price ceilings create shortages, but taxes do not.

Question 18

The more inelastic the demand for agricultural output, the stronger the incentive for farmers to engage in rent-seeking activities.

Question 19

Refer to the graph shown. The market represented here is in equilibrium when the price is:

A)$5.00 per unit and 220 units are bought and sold.
B)$8.15 per unit and 220 units are bought and sold.
C)$5.00 per unit and 400 units are bought and sold.
D)$3.65 per unit and 400 units are bought and sold.

Question 20

If the minimum that the Smith family would be willing to sell their house for is $185,000, but they in fact sell it for $210,000, they will receive:

A)producer surplus in the amount of $210,000.
B)producer surplus in the amount of $25,000.
C)consumer surplus in the amount of $210,000.
D)consumer surplus in the amount of $25,000.

Question 21

Refer to the graph shown. If price is increased from $3 to $4, consumer surplus will fall by:

A)25.
B)50.
C)100.
D)125.

Question 22

Refer to the graph shown. If the price of this product fell from $10 to $8, producer surplus would fall from:

A)250 to 180.
B)750 to 540.
C)750 to 270.
D)1,000 to 540.

Question 23

Refer to the graph shown. If the price were somehow held at $8.15 per unit, producer surplus would then equal:

A)1,400.
B)600.
C)423.5.
D)1,171.5.

Question 24

Refer to the graph shown. When the market is in equilibrium, consumer surplus is equal to:

A)1,125.
B)1,500.
C)2,250.
D)2,500.

Question 25

Refer to the graph shown. When the market is in equilibrium, producer surplus is equal to:

A)500.
B)1,000.
C)1,500.
D)2,000.

Question 26

Refer to the graph shown. When the market is in equilibrium, producer surplus is area:

A)A.
B)F.
C)A plus area F.
D)D plus area E plus area F.

Question 27

Refer to the graph shown. If the price were somehow held at $8.15 per unit, consumer surplus would then equal:

A)1,400.
B)600.
C)423.5.
D)1,171.5.

Question 28

Refer to the graph shown. If price is increased from $3 to $4, total surplus will fall by:

A)50.
B)100.
C)150.
D)200.

Question 29

Refer to the graph shown. If consumers had to pay $13 per unit for this product instead of $10 per unit, consumer surplus would fall from:

A)2,250 to 1,125.
B)1,125 to 810.
C)1,500 to 810.
D)1,125 to 405.

Question 30

Refer to the graph shown. The difference between total surplus in equilibrium and total surplus when price is $8.15 and quantity is 220 is:

A)405.
B)423.5.
C)600.
D)810.

Question 31

Refer to the graph shown. When the market is in equilibrium, total surplus is area:

A)A plus area B.
B)E plus area F.
C)A plus area F.
D)A plus area F plus area E plus area D.

Question 32

There is no deadweight loss if:

A)demand is perfectly inelastic.
B)demand is perfectly elastic.
C)taxes collected are used for societal good.
D)demand shifts the amount of the tax.

Question 33

If price is increased by law from a market equilibrium value of $5 to a higher value of $6:

A)both producer surplus and consumer surplus will increase.
B)consumer surplus will decrease and there will be some lost surplus.
C)producer surplus will decrease and there will be some lost surplus.
D)there will be lost surplus, as both producer surplus and consumer surplus decrease.

Question 34

Refer to the graph shown. When the market is in equilibrium, producer surplus is equal to:

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

Question 35

Refer to the graph shown. If the price of this product fell from $5.00 to $2.50 (because of a price ceiling or a shift in demand), producer surplus would fall from:

A)2,000 to 500.
B)1,000 to 500.
C)1,000 to 250.
D)500 to 250.

Question 36

Refer to the graph shown. Total surplus is maximized when:

A)the market is in equilibrium at price P₁ and quantity Q₁.
B)producers are able to charge a price above P₁.
C)consumers are able to pay a price below P₁.
D)excess demand is maximized.

Question 37

Refer to the graph shown. If consumers had to pay $7.50 per unit for this product instead of $5.00 per unit (because of a price floor or a shift in supply), consumer surplus would fall from:

A)2,000 to 500.
B)1,000 to 500.
C)1,000 to 250.
D)500 to 250.

Question 38

Refer to the graph shown. When the market is in equilibrium, consumer surplus is equal to:

A)500.
B)1,000.
C)1,500.
D)2,000.

Question 39

If price is lowered by law from the market equilibrium value of $5 to a lower value of $4:

A)both producer surplus and consumer surplus will increase.
B)consumer surplus will decrease and there will be some total surplus lost.
C)producer surplus will decrease and there will be some total surplus lost.
D)there will be lost surplus, as both producer surplus and consumer surplus decrease.

Question 40

Refer to the graph shown. When the market is in equilibrium, consumer surplus is area:

A)A.
B)F.
C)A plus area F.
D)F plus area E.

Question 41

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. If the government imposes a $4 per-unit tax on this product, equilibrium quantity will change to:

A)300.
B)400.
C)500.
D)1,000.

Question 42

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, consumer surplus will fall from:

A)80 to 45.
B)160 to 90.
C)90 to 45.
D)160 to 80.

Question 43

Refer to the graph shown. Assume the market is initially in equilibrium at point b in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The effect of the tax is to raise equilibrium price from:

A)P₁ to P₁ + t.
B)P₁ to P₂.
C)P₂ − t to P₂.
D)P₂ − t to P₁ + t.

Question 44

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. In equilibrium, producer surplus is equal to:

A)40.
B)80.
C)120.
D)160.

Question 45

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. In equilibrium, consumer surplus is equal to:

A)40.
B)80.
C)120.
D)160.

Question 46

A per-unit tax will result in a deadweight loss unless the tax causes no change in:

A)the price consumers pay.
B)the price producers receive after paying it.
C)equilibrium quantity sold.
D)either equilibrium price or equilibrium quantity.

Question 47

Graphically, deadweight loss is shown by the:

A)welfare loss rectangle.
B)welfare loss triangle.
C)tax revenue rectangle.
D)consumer surplus loss triangle.

Question 48

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, the equilibrium price will change to:

A)$4.
B)$5.
C)$7.
D)$8.

Question 49

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, it will collect tax revenue in the amount of:

A)$60.
B)$80.
C)$100.
D)$120.

Question 50

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. In equilibrium, consumer surplus is equal to:

A)1,500.
B)2,500.
C)3,500.
D)5,000.

Question 51

Refer to the graph shown. Assume the market is initially in equilibrium at point b in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The amount of revenue government will collect from this tax is equal to the:

A)amount of the per-unit tax multiplied by Q₁.
B)amount of the per-unit tax multiplied by Q₂.
C)area of the triangle abc.
D)area of the triangle bcd.

Question 52

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, the deadweight loss from the tax will be:

A)10.
B)60.
C)70.
D)80.

Question 53

A per-unit tax on coffee paid by the seller causes the:

A)supply of coffee curve to shift upward by the amount of the per-unit tax.
B)supply of coffee curve to shift downward by the amount of the per-unit tax.
C)demand for coffee curve to shift upward by the amount of the per-unit tax.
D)demand for coffee curve to shift downward by the amount of the per-unit tax.

Question 54

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, equilibrium quantity will change to:

A)30.
B)50.
C)60.
D)100.

Question 55

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $6 and a quantity of 40 units. If the government imposes a $2 per-unit tax on this product, producer surplus will fall from:

A)80 to 45.
B)160 to 90.
C)90 to 45.
D)160 to 80.

Question 56

Refer to the graph shown. Assume the market is initially in equilibrium at point b in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The welfare loss triangle from this tax is represented by area:

A)cfg.
B)beg.
C)abc.
D)abdc.

Question 57

Refer to the graph shown. Assume the market is initially in equilibrium at point b in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The lost consumer surplus of this tax is equal to the area:

A)P₁(P₂ − t)ab.
B)P₂P₁bc.
C)cab.
D)cdb.

Question 58

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. If the government imposes a $4 per-unit tax on this product, the equilibrium price will change to:

A)$4.
B)$8.
C)$12.
D)$14.

Question 59

Refer to the graph shown. Assume the market is initially in equilibrium at point b in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The lost producer surplus of this tax is equal to the area:

A)P₁(P₂ − t)ab.
B)P₁P₂cb.
C)abc.
D)bcd.

Question 60

When government imposes a per-unit tax on a product, the net price producers actually receive for the product (after taxation)typically:

A)increases by the amount of the per-unit tax.
B)increases by less than the amount of the per-unit tax.
C)decreases by the amount of the per-unit tax.
D)decreases by less than the amount of the per-unit tax.

Question 61

Refer to the graph shown. Assume the market is initially in equilibrium at point j in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The lost producer surplus of this tax is equal to the area:

A)cdjh.
B)deij.
C)hji.
D)khj.

Question 62

Refer to the graph shown. Assume the market is initially in equilibrium at point j in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The lost consumer surplus of this tax is equal to the area:

A)cdjh.
B)deij.
C)hji.
D)cehi.

Question 63

Refer to the graph shown. Assume the market is initially in equilibrium at point j in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The welfare loss triangle from this tax is represented by area:

A)ahf.
B)eig.
C)hji.
D)ajg.

Question 64

Refer to the graph shown. Initially, the market is in equilibrium with price equal to $12 and quantity equal to 140. As a result of a per-unit tax imposed by the government, the supply curve shifts from S₀ to S₁. The effect of the tax is to:

A)raise the price consumers pay from $12 to $14.
B)lower the price consumers pay from $14 to $12.
C)raise the price sellers keep after paying the tax from $12 to $14.
D)lower the price sellers keep after paying the tax from $14 to $12.

Question 65

Refer to the graph shown. Initial market equilibrium is at the intersection of the demand curve and S₀. When government imposes a per-unit tax, supply shifts from S₀ to S₁. The deadweight loss associated with this tax is represented by area:

A)GHI.
B)HJI.
C)CDGH.
D)ABIJ.

Question 66

Refer to the graph shown. Initially, the market is in equilibrium with price equal to $3 and quantity equal to 100. Government imposes a tax on suppliers of $1 per unit. The effect of the tax is to:

A)raise the price consumers pay from $3 to $4.
B)lower the price consumers pay from $3 to $2.
C)raise the price sellers keep after paying the tax.
D)lower the price sellers keep after paying the tax.

Question 67

Refer to the graph shown. Initially, the market is in equilibrium with price equal to $3 and quantity equal to 100. Government imposes a tax on suppliers of $1 per unit. The effect of the tax is to:

A)give government tax revenues of $100.
B)give government tax revenues of $400.
C)reduce producer surplus by $100.
D)reduce producer surplus by $400.

Question 68

Suppose people freely choose to spend 40 percent of their income on healthcare, but then the government decides to tax 40 of a person's income to provide the same level of coverage as before. What can be said about deadweight loss in each case?

A)Taxing income results in deadweight loss, and purchasing healthcare on one's own doesn't result in deadweight loss.
B)Taxing income results in less deadweight loss because government knows better what healthcare coverage is good for society.
C)There is no difference because the goods are purchased in the market in either case.
D)There is no difference because the total spending remains the same and the healthcare purchased remains the same.

Question 69

Refer to the graph shown. Assume the market is initially in equilibrium at point j in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The effect of the tax is to raise equilibrium price from:

A)d to b.
B)d to c.
C)c to b.
D)e to c.

Question 70

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. If the government imposes a $4 per-unit tax on this product, it will collect tax revenue in the amount of:

A)$0.
B)$1,200.
C)$1,600.
D)$2,000.

Question 71

Refer to the graph shown. Initially, the market is in equilibrium with price equal to $25 and quantity equal to 100. As a result of a per-unit tax imposed by the government, the supply curve shifts from S₀ to S₁. The effect of the tax is to:

A)raise the price consumers pay from $25 to $30.
B)lower the price consumers pay from $25 to $15.
C)raise the price sellers keep after paying the tax from $25 to $30.
D)lower the price sellers keep after paying the tax from $25 to $20.

Question 72

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. If the government imposes a $4 per-unit tax on this product, the deadweight loss from the tax will be:

A)200.
B)400.
C)1,600.
D)1,800.

Question 73

If the supply curve is perfectly inelastic, the burden of a tax on suppliers is borne:

A)entirely by the suppliers.
B)entirely by the consumers.
C)mostly by the suppliers and partly by the consumers if the demand curve is inelastic.
D)partly by the suppliers and mostly by the consumers if the demand curve is elastic.

Question 74

Refer to the graph shown. Initially, the market is in equilibrium with price equal to $12 and quantity equal to 140. As a result of a per-unit tax imposed by the government, the supply curve shifts from S₀ to S₁. The effect of the tax is to:

A)give government tax revenues of $100.
B)give government tax revenues of $280.
C)reduce consumer surplus by $240.
D)reduce consumer surplus by $200.

Question 75

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. In equilibrium, producer surplus is equal to:

A)1,500.
B)2,500.
C)3,500.
D)5,000.

Question 76

Refer to the graph shown. Initially, the market is in equilibrium with price equal to $25 and quantity equal to 100. As a result of a per-unit tax imposed by the government, the supply curve shifts from S₀ to S₁. The effect of the tax is to:

A)give government tax revenues of $100.
B)give government tax revenues of $400.
C)reduce producer surplus by $375.
D)reduce producer surplus by $400.

Question 77

Refer to the graph shown. Assume the market is initially in equilibrium at point j in the graph but the imposition of a per-unit tax on this product shifts the supply curve up from S₀ to S₁. The amount of revenue the government will collect from this tax is equal to the area of:

A)rectangle chie.
B)triangle ach.
C)triangle egi.
D)rectangle bkjd.

Question 78

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. If the government imposes a $4 per-unit tax on this product, consumer surplus will fall from:

A)2,500 to 1,600.
B)5,000 to 3,200.
C)2,500 to 1,200.
D)5,000 to 2,500.

Question 79

Refer to the graph shown. Assume that the market is initially in equilibrium at a price of $10 and a quantity of 500 units. If the government imposes a $4 per-unit tax on this product, producer surplus will fall from:

A)2,500 to 1,600.
B)5,000 to 3,200.
C)3,200 to 1,600.
D)5,000 to 2,500.

Question 80

If the supply curve is perfectly elastic, the burden of a tax on suppliers is borne:

A)entirely by the suppliers.
B)entirely by the consumers.
C)mostly by the suppliers and partly by the consumers if the demand curve is inelastic.
D)partly by the suppliers and mostly by the consumers if the demand curve is elastic.