Deck 7: Taxes

Question 1

(Table: The Market for Fried Twinkies) Look at the table The Market for Fried Twinkies.The government decides to tax fried Twinkies at a rate of $0.30 per Twinkie and collect that tax from the producers.After paying the tax, producers will receive per Twinkie, and
they will sell Twinkies after the tax.
A.$1.10; 3,000
B.$1.20; 5,000
C.$1.30; 7,000
D.$1.50; 5,000

Answer 1

$1.20; 5,000

Question 2

Figure and Table: The Market for Taxi Rides
(Figure and Table: The Market for Taxi Rides) Look at the figure and table The Market for Taxi Rides.The figure represents a competitive market for taxi rides.If the government imposes an excise tax of $2 per ride (causing the supply curve to shift upward by that amount), then the government will collect tax revenues of , but there will be a deadweight loss to
society of caused by this tax.
A.$8 million; $1 million
B.$16 million; $2 million
C.$24 million; $4.5 million
D.$48 million; $6 million

Answer 2

$16 million; $2 million

Question 3

The incidence of a tax:
A.is a measure of the revenue the government receives from the tax.
B.refers to who writes the check to the government.
C.refers to how much of the tax is actually paid by consumers and producers.
D.is a measure of the deadweight loss from the tax.

Answer 3

refers to how much of the tax is actually paid by consumers and producers.

Question 4

Recently, the government considered adding an excise tax on CDs that can be used to record music and CD players that can record discs.If this tax were enacted, we would expect:
A.that consumers would pay a higher price and producers would sell fewer of these CDs and CD players than before the tax.
B.no effect on the consumption or the prices paid by consumers of these CDs and CD players.
C.that consumers would pay a lower price and producers would receive a higher price for these CDs and CD players than before the tax.
D.an increase in economic activity due to the tax.

Question 5

Suppose the government decides to fight obesity in America by imposing an excise tax based on the saturated fat content of food.The effect of this tax would be to:
A.lower the profits of ice cream suppliers.
B.decrease revenue for the government.
C.decrease black market activity.
D.raise the profits of ice cream suppliers.

Question 6

Figure: The Market for Lattes
(Figure: The Market for Lattes) Look at the figure The Market for Lattes.If the government assesses a tax of $0.75 on each latte, the price the consumer pays for a latte after the tax will:
A.increase from $2 to $2.75.
B.increase from $2 to $2.50.
C.increase from $2 to $2.25.
D.change, but we cannot determine by how much.

Question 7

By law, FICA (the Federal Insurance Contributions Act), a payroll tax, is collected equally from the employers and the employees.In reality:
A.the law works-the employers and the employees each bear half of the burden of the tax.
B.the employees bear almost all of the burden of the tax.
C.the employers bear almost all of the burden of the tax.
D.it's impossible to determine who bears the burden of the tax.

Question 8

Figure and Table: The Market for Taxi Rides
(Figure and Table: The Market for Taxi Rides) Look at the figure and table The Market for Taxi Rides.If the government imposes an excise tax of $1 per ride (causing the supply curve to shift upward by that amount), then people who ride taxis will pay of each $1 tax.
A.$1
B.$0.50
C.$0.25
D.$0.00

Question 9

An excise tax causes inefficiency because the number of transactions in a market is reduced.Because the tax discourages mutually beneficial transactions, there is a(n) from a
tax.
A.quota rent
B.deadweight loss
C.increased consumer surplus
D.increased producer surplus

Question 10

Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold.Using economic analysis, we would predict that:
A.the price of sweaters will increase by $10.
B.consumers of sweaters will bear the entire burden of the tax.
C.the price of sweaters will increase but by less than $10.
D.the price of sweaters will decrease by $10.

Question 11

(Table: The Market for Fried Twinkies) Look at the table The Market for Fried Twinkies.The government decides to tax fried Twinkies at a rate of $0.30 per Twinkie and collect that tax from the producers.According to the table, consumers will pay per Twinkie and buy
________ Twinkies after the tax.
A.$1.20; 8,000
B.$1.30; 7,000
C.$1.40; 6,000
D.$1.50; 5,000

Question 12

The burden of a tax that is imposed on a good is said to fall completely on the consumers if the:
A.price paid by consumers for the good declines by the amount of the tax.
B.price paid by consumers for the good increases by the amount of the tax.
C.price paid by consumers does not change.
D.wages received by workers who produce the good increase by the amount of the tax.

Question 13

An excise tax that the government collects from the producers of a good:
A.shifts the supply curve upward.
B.causes a loss of revenue for the government.
C.has a similar effect as a tax subsidy.
D.shifts the supply curve downward.

Question 14

Figure: An Excise Tax
(Figure: An Excise Tax) Look at the figure An Excise Tax.If an excise tax equal to $1.10 is imposed on this good, then the price paid by consumers will:
A.rise by $1.10.
B.rise by $1.33.
C.not rise.
D.rise by $0.50.

Question 15

Figure and Table: The Market for Taxi Rides
(Figure and Table: The Market for Taxi Rides) Look at the figure and table The Market for Taxi Rides.If the government imposes an excise tax of $1 per ride (causing the supply curve to shift upward by that amount), then the government will collect tax revenues of _.However, there will be a deadweight loss to society of caused by this tax.
A.$9 million; $0.5 million
B.$16 million; $1 million
C.$45 million; $1 million
D.$50 million; $0.5 million

Question 16

If an excise tax is imposed on automobiles and collected from consumers,
A.the demand curve will shift downward by the amount of the tax.
B.the supply curve will shift upward by the amount of the tax.
C.the equilibrium quantity supplied will increase relative to the pre-tax level.
D.the equilibrium quantity demanded will increase relative to the pre-tax level.

Question 17

Figure: The Market for Lattes
(Figure: The Market for Lattes) Look at the figure The Market for Lattes.If the government assesses a tax of $0.75 on sellers of lattes, the price producers will receive for a latte after the tax will:
A.decrease from $2 to $1.75.
B.decrease from $2 to $1.50.
C.decrease from $2 to $1.25.
D.change, but we cannot determine by how much.

Question 18

(Table: Market for Fried Twinkies) Look at the table The Market for Fried Twinkies.As a result of the $0.30 tax per fried Twinkie, the government will receive total tax revenue of:
A.$500.
B.$1,000.
C.$1,500.
D.The total is impossible to calculate.

Question 19

Suppose the price elasticity of demand for yachts equals 4.04, while the price elasticity of supply for yachts equals 0.22.If Congress reinstates a luxury tax on yachts, who will pay more of the tax?
A.Yacht builders will pay more.
B.Yacht buyers will pay more.
C.Yacht builders and buyers will pay equally.
D.It's impossible to tell without additional information.

Question 20

(Table: The Market for Fried Twinkies) Look at the table The Market for Fried Twinkies.Of the
$0.30 tax per fried Twinkie, consumers actually pay , while producers actually pay
________.
A.$0.30; $0.00
B.$0.15; $0.15
C.$0.20; $0.10
D.$0.00; $0.30

Question 21

If the government imposes a $5 excise tax on leather shoes and the price of leather shoes does not change:
A.the government will receive less tax revenue than anticipated.
B.consumers are paying all of the tax.
C.producers are paying all of the tax.
D.consumers and producers are paying equal amounts of the tax.

Question 22

Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts.A price of
________ will bring the about the same price and output in the market for yachts as would an excise tax of $60,000.
A.ceiling; $80,000
B.ceiling; $100,000
C.floor; $100,000
D.floor; $160,000

Question 23

Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts.If the government imposes a $60,000 tax on yachts (collected from the producers), consumers will pay
________ of the tax and producers will pay _.
A.$30,000; $30,000
B.$40,000; $20,000
C.$20,000; $40,000
D.$10,000; $50,000

Question 24

The burden of a tax that is imposed on a good is said to fall completely on the producers if the:

A)price paid by consumers for the good declines by the amount of the tax.
B)price paid by consumers for the good increases by the amount of the tax.
C)price paid by consumers does not change.
D)wages received by workers who produce the good increase by the amount of the tax.

Question 25

Which of the following is an example of an excise tax?
A.a tax of $0.41 per gallon of gas
B.a tax of 12.4% of your wages
C.a tax on the value of your property
D.a one-time local government tax of $50

Question 26

If an excise tax is imposed on wine and collected from the consumers, the curve
will shift by the amount of the tax.
A.demand; upward
B.demand; downward
C.supply; upward
D.supply; downward

Question 27

Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts.If the government imposes a $60,000 tax on yachts and collects it from the yacht consumers, the ________
curve will shift ________ by _.
A.supply; upward; $30,000
B.supply; upward; $60,000
C.demand; downward; $30,000
D.demand; downward; $60,000

Question 28

State governments place excise taxes on alcohol because:

A)they want to subsidize alcohol production.
B)they want to encourage individuals to produce their own alcohol.
C)it discourages drinking alcohol while raising revenue for the government.
D)it is politically popular with religious groups.

Question 29

Assuming a normal upward-sloping supply curve and downward-sloping demand curve, if the government imposes a $5 excise tax on leather shoes and collects the tax from the suppliers, the price of leather shoes will:
A.increase by $5.
B.increase by more than $5.
C.increase by less than $5.
D.increase, but we cannot determine by how much.

Question 30

Figure: The Market for Productivity Apps
(Figure: The Market for Productivity Apps) Look at the figure The Market for Productivity Apps.If the government imposes a tax of $1 in this market, consumers will pay more per
app and purchase fewer apps.
A.$1; 5
B.$1; 25
C.$0.50; 5
D.$0.50; 20

Question 31

Figure: The Market for Productivity Apps
(Figure: The Market for Productivity Apps) Look at the figure The Market for Productivity Apps.If the government imposes a tax of $1 in this market, producers will receive less
per app and sell fewer apps.
A.$1; 5
B.$1; 25
C.$0.50; 5
D.$0.50; 20

Question 32

Prior to any taxes, the equilibrium price of gasoline is $3 per gallon.Then a $1 tax is levied on each gallon of gas.As a result, the price of gasoline rises to $3.75 per gallon.The incidence of the $1 tax is:
A.$0.25 paid by consumers, $0.75 paid by producers.
B.$0.50 paid by consumers, $0.50 paid by producers.
C.$1.00 paid by producers, $0 paid by consumers.
D.$0.75 paid by consumers, $0.25 paid by producers.

Question 33

Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts.A price of
________ will bring about the same price and output in the market for yachts as would an excise tax of $30,000.
A.ceiling; $80,000
B.ceiling; $100,000
C.floor; $120,000
D.floor; $140,000

Question 34

Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts.A quota of ________
will bring about the same price and output in the market for yachts as would an excise tax of
$60,000.
A.2,000
B.3,000
C.4,000
D.The answer is impossible to determine.

Question 35

An excise tax is a tax charged on:
A.each unit of a good or service that is sold.
B.earnings.
C.the ownership of real estate.
D.the inheritance of assets.

Question 36

Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts.A quota of ________
will bring about the same price and output in the market for yachts as would an excise tax of
$30,000.
A.2,000
B.3,000
C.4,000
D.The answer is impossible to determine.

Question 37

If the government imposes a $5 excise tax on leather shoes and the price of leather shoes increases by $2:
A.the government will receive less tax revenue than anticipated.
B.consumers are paying more of the tax than the producers.
C.producers are paying more of the tax than are the consumers.
C.
D.the quantity of shoes sold will increase.

Question 38

Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts.If the government imposes a $30,000 tax on yachts and collects it from the yacht suppliers, the curve
will shift ________ by _.
A.demand; downward; $15,000
B.supply; upward; $15,000
C.supply; upward; $30,000
D.demand; downward; $30,000

Question 39

If an excise tax is imposed on beer and collected from the producers, the curve will
shift by the amount of the tax.
A.demand; upward
B.demand; downward
C.supply; upward
D.supply; downward

Question 40

Tax incidence refers to:
A.who writes the check to the government.
B.who really pays the tax.
C.the deadweight loss from the tax.
D.the total revenue that the government collects from the tax.

Question 41

State governments levy excise taxes on cigarettes because:

A)they want to subsidize tobacco farming.
B)they want to discourage cigarette smuggling.
C)it is an easy way to raise tax revenue while discouraging smoking.
D)they want to reduce deadweight loss.

Question 42

When a worker earns income, she and her employer pay equal portions of FICA (the Federal Insurance Contributions Act).Which of the following statements is true?
A.The worker and the employer each bear half of the burden (incidence) of the tax.
B.The employer bears almost all of the burden (incidence) of the tax.
C.The worker bears almost all of the burden (incidence) of the tax
D.It's impossible to determine who bears the burden (incidence) of the tax.

Question 43

Determining who pays the burden of the tax is a 1. about:
A.tax incidence.
B.externality analysis.
C.public interest theory.
D.public choice theory.

Question 44

The price elasticity of demand for a particular cancer drug is equal to zero and the price elasticity of supply is equal to 0.50.If a $1 excise tax is levied on producers, how much of this tax will eventually be paid by consumers?
A.$0
B.$1
C.$0.50
D.$1.50

Question 45

If the demand curve is downward sloping and supply is perfectly elastic, then the burden of an excise tax is:
A.borne entirely by consumers.
B.borne entirely by producers.
C.shared by consumers and producers, with the burden falling mainly on consumers.
D.shared by consumers and producers, with the burden falling mainly on producers.

Question 46

Economic analysis shows that workers pay of the FICA.
A.exactly half
B.very little
C.most
D.none

Question 47

Figure: The Shrimp Market
(Figure: The Shrimp Market) Look at the figure The Shrimp Market.If the government wants to limit shrimp sales to 500 pounds, it can impose a excise tax on sellers, and the total
tax revenue generated will be _.
A.$5; $2,500
B.$7.50; $7,500
C.$10; $2,500
D.The answer cannot be determined from the information provided.

Question 48

The demand for food is very inelastic, so if a tax is levied on the consumers of food, the tax incidence:
A.is typically on consumers more than producers.
B.is typically on producers more than consumers.
C.is typically split equally between consumers and producers.
D.cannot be determined without more information.

Question 49

Taxes paid on the purchase of specific items such as gasoline, cigarettes, or alcoholic beverages are called:
A.personal income taxes.
B.excise taxes.
C.property taxes.
D.sales taxes.

Question 50

Suppose the government imposes a $10 per month tax on cell phone service.If the demand curve for cell phone service is perfectly inelastic and the supply curve is upward sloping, the price that consumers each month pay for cell phone service will increase by:
A.$5.
B.less than $10.
C.$10.
D.$0.

Question 51

As part of an antiobesity program, the government levies an excise tax on high-fat foods.We would expect consumers to pay almost all of this tax if demand is:
A.inelastic and supply is inelastic.
B.inelastic and supply is elastic.
C.elastic and supply is elastic.
D.elastic and supply is inelastic.

Question 52

Tax incidence analysis seeks to determine:
A.who actually sends the tax payment to the government.
B.who actually pays the extra cost imposed by a tax.
C.who ultimately gets the tax revenue.
D.whether a tax is in the benefits-received category or the ability-to-pay category.

Question 53

The elasticity of demand for Gala apples is relatively elastic, so if a tax is levied on the consumers of Gala apples, the tax incidence:
A.is typically on consumers more than producers.
B.is typically on producers more than consumers.
C.is typically split equally between consumers and producers.
D.cannot be determined without more information.

Question 54

Figure: Market for Hotel Rooms
(Figure: The Market for Hotel Rooms) Look at the figure The Market for Hotel Rooms.Suppose the equilibrium price is $110 and the equilibrium quantity is 250.If the local government levies a tax of $30 per night on each hotel room rented, the new equilibrium price will equal ________ and the new equilibrium quantity will equal _.
A.$140; 100
B.$130; 150
C.$120; 200
D.$110; 250

Question 55

Suppose the government imposes a $4 per month excise tax on cable TV.If the demand for cable TV is relatively inelastic and the supply curve is relatively elastic, then the price of cable TV will:
A.increase by more than $4.
B.increase by exactly $4.
C.increase by less than $4.
D.remain constant.

Question 56

If an excise tax is levied on suppliers, then the incidence of the tax:
A.is typically on the consumer more than the producer.
B.is typically on the producer more than the consumer.
C.is typically split equally between the producer and the consumer.
D.cannot be determined without more information.

Question 57

Suppose the government imposes a $4 per month excise tax on cable TV.If the demand for cable TV is perfectly inelastic and the supply curve is elastic, then the price of cable TV will:
A.increase by more than $4.
B.increase by exactly $4.
C.increase by less than $4.
D.remain constant.

Question 58

The burden of a tax imposed on a good falls at least partially on consumers if:

A)the price paid by consumers for the good declines.
B)the price paid by consumers for the good increases.
C)the wages received by workers who produce the good decline.
D)the wages received by workers who produce the good increase.

Question 59

Determining who actually pays the extra cost imposed by a tax is the study of:

A)public interest theory.
B)rational choice theory.
C)tax incidence.
D)budget analysis.

Question 60

If demand is perfectly inelastic and the supply curve is upward sloping, then the burden of an excise tax is:
A.borne entirely by consumers.
B.borne entirely by producers.
C.shared by consumers and producers, with the burden falling mainly on consumers.
D.shared by consumers and producers, with the burden falling mainly on producers.

Question 61

When the government imposes an excise tax in a market:
A.consumer surplus falls.
B.producer surplus falls.
C.a deadweight loss is created.
D.consumer surplus falls, producer surplus falls, and a deadweight loss is created.

Question 62

If the government decides to impose a $700 tax on U.S.citizens traveling abroad, then the deadweight loss from this tax will be:
A.relatively small.
B.relatively large.
C.zero.
D.absorbed by foreign governments.

Question 63

If the government removed the excise tax on gasoline, which of the following would not occur?
A.Consumer surplus would increase.
B.Producer surplus would increase.
C.Producer surplus would decrease.
D.Total surplus would increase.

Question 64

In which of the following cases will an increase in the tax rate most likely decrease tax revenue?
A.The elasticity of demand is 3.3 and the elasticity of supply is 2.1.
B.The elasticity of demand is 3.3 and the elasticity of supply is 0.5.
C.The elasticity of demand is 0.2 and the elasticity of supply is 2.1.
D.The elasticity of demand is 0.2 and the elasticity of supply is 0.5.

Question 65

Excise taxes that raise the most revenue and cause the least deadweight loss are likely to be those that are imposed on goods for which:
A.demand is inelastic and supply is elastic.
B.demand and supply are both inelastic.
C.demand is elastic and supply is inelastic.
D.demand and supply are both elastic.

Question 66

A higher tax rate is more likely to increase tax revenue collected if the price elasticity of:

A)demand and supply are both high.
B)demand and supply are both low.
C)demand is low, but the price elasticity of supply is high.
D)demand is high, but the price elasticity of supply is low.

Question 67

If the United States removed all excise taxes on cigarettes, which of the following would not
occur?
A.Producer surplus for U.S.cigarette producers would decrease.
B.Producer surplus for U.S.cigarettes would increase.
C.Consumer surplus for U.S.cigarette consumers would increase.
D.Total surplus in the U.S.cigarette market would increase.

Question 68

Figure: The Shrimp Market
(Figure: The Shrimp Market) Look at the figure The Shrimp Market.If the government wants to limit shrimp sales to 250 pounds, it can impose a excise tax on sellers, and the total
tax revenue generated will be _.
A.$5; $2,500
B.$7.50; $7,500
C.$10; $2,500
D.The answer cannot be determined from the information provided.

Question 69

The burden of a tax system comes from its:
A.administrative costs.
B.effect on marginal incentives.
C.inequity.
D.government revenue.

Question 70

Figure: The Market for Yachts
(Figure: The Market for Yachts) Look at the figure The Market for Yachts.If the government imposes a $60,000 tax on yachts (collected from the producers), the price of yachts will rise to
________ and the government will collect tax revenue equal to _.
A.$100,000; $120 million
B.$120,000; $90 million
C.$140,000; $90 million
D.$160,000; $120 million

Question 71

The number of seats in a football stadium is fixed at 70,000.The city decides to impose a tax of $10 per ticket.In response, the team management raises the ticket price from $30 to $40 and still sells all 70,000 tickets.The tax caused a change in the consumer surplus of
________, a change in the producer surplus of , and a deadweight loss of
________.
A.-$10; $0; $10
B.-$700,000; $0; $700,000
C.-$10; $0; $0
D.-$700,000; $0; $0

Question 72

Assume the same upward supply curve for each of the following goods.Considering demand only, a tax on which of the following goods would result in the largest deadweight loss?
A.gasoline
B.medicine
C.restaurant meals
D.tobacco

Question 73

A tax leads to ________ in consumer surplus and in producer surplus.
A.an increase; an increase
B.an increase; a decrease
C.a decrease; an increase
D.a decrease; a decrease

Question 74

The governor wants to impose a $1 excise tax on some good-he doesn't care which-but he does want to minimize the deadweight loss.The deadweight loss will be least when:
A.both demand and supply curves are elastic.
B.the demand is elastic and supply is inelastic.
C.the demand is inelastic and supply is elastic.
D.both demand and supply are inelastic.

Question 75

The amount of tax levied per unit of good or service is called the:

A)tax incidence.
B)tax rate.
C)tax revenue.
D)tax surplus.

Question 76

In which of the following cases will an increase in the tax rate most likely increase tax revenue?
A.The elasticity of demand is 3.3 and the elasticity of supply is 2.1.
B.The elasticity of demand is 3.3 and the elasticity of supply is 0.5.
C.The elasticity of demand is 0.2 and the elasticity of supply is 2.1.
D.The elasticity of demand is 0.2 and the elasticity of supply is 0.5.

Question 77

A higher rate is most likely to decrease the amount of revenue that the government collects from an excise tax if
A.demand and supply are both very elastic.
B.demand is very elastic and supply is very inelastic.
C.demand is very inelastic and supply is very elastic.
D.demand and supply are both very inelastic.

Question 78

If demand and supply are both very elastic, a decrease in the rate of an excise tax will likely

A)decrease government revenue.
B)increase government revenue.
C)not affect government revenue.
D)make demand and supply both inelastic.

Question 79

The deadweight loss from an excise tax comes about because:
A.the number of transactions in the market is reduced.
B.some mutually beneficial transactions do not take place.
C.a quota rent exists.
D.the number of transactions in the market is reduced and some mutually beneficial transactions do not take place.

Question 80

If demand and supply are both very inelastic, a decrease in the rate of an excise tax will likely
A.decrease government revenue.
B.increase government revenue.
C.not affect government revenue.
D.make demand and supply both elastic.