Deck 7: Taxes

Question 1

An excise tax that the government collects from the producers of a good:

A) shifts the supply curve upward.
B) reduces revenue for the government.
C) has an effect similar to that of a tax subsidy.
D) shifts the supply curve downward.

Answer 1

A

Question 2

Use the following to answer questions:
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

Answer 2

C

Question 3

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.

Answer 3

C

Question 4

The burden of a tax 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 5

Use the following to answer questions:
(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 6

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, the most likely effect would be:

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 change in 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 7

The burden of a tax 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 8

Use the following to answer questions:
(Table: The 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 9

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 10

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.
D) the quantity of shoes sold will increase.

Question 11

Suppose the government imposes a $10 excise tax on the sale of sweaters by charging suppliers $10 for each sweater sold. If the demand curve is downward-sloping and the supply curve is upward-sloping:

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 by less than $10.
D) the price of sweaters will decrease by $10.

Question 12

Use the following to answer questions:
(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 13

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 14

Use the following to answer questions:
(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

Question 15

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 pretax level.
D) the equilibrium quantity demanded will increase relative to the pretax level.

Question 16

Use the following to answer questions:
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 17

Suppose the government decides to fight obesity in America by imposing an excise tax based on the saturated fat content of food. The most likely 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 18

The incidence of a tax:

A) is a measure of the revenue the government receives from it.
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.

Question 19

Use the following to answer question:
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 20

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 21

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 22

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

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

Question 23

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 24

Which of the following is 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 per capita tax of $50

Question 25

Suppose the government levies a $4 per month excise tax on cable TV. If the demand for cable TV is relatively (but not perfectly) inelastic and the supply curve is relatively (but not perfectly) 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 26

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 27

Tax incidence analysis seeks to determine:

A) who sends the tax payment to the government.
B) who actually pays the 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 28

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 29

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 monthly price for cell phone service will increase by:

A) $5.
B) less than $10.
C) $10.
D) $0.

Question 30

As part of an antiobesity program, the government levies an excise tax on high-fat foods. We expect consumers to pay almost all of this tax if demand is _____ and supply is _____.

A) inelastic; inelastic
B) inelastic; elastic
C) elastic; elastic
D) elastic; inelastic

Question 31

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 minimize the tax burden on consumers.

Question 32

Use the following to answer question:
Figure: Market for Hotel Rooms
(Figure: The Market for Hotel Rooms) Look at the figure The Market for Hotel Rooms. Suppose with no tax 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 33

An excise tax is levied on suppliers. 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 34

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 (but not perfectly 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 35

The burden of a tax 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 36

An excise tax is levied 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 37

Taxes 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 38

Prior to any taxes, the equilibrium price of gasoline is $3 per gallon. Then a $1-per-gallon tax is levied. As a result, the price of gasoline rises to $3.75 per gallon. The incidence of the $1 tax is _____ paid by consumers and _____ paid by producers.

A) $0.25; $0.75
B) $0.50; $0.50
C) $0; $1.00
D) $0.75; $0.25

Question 39

Determining who bears the burden of the tax is a question about:

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

Question 40

State governments levy 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 41

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.

Question 42

Economic analysis shows that workers pay _____ of the FICA.

A) exactly half
B) very little
C) most
D) none

Question 43

Demand for Gala apples is relatively elastic compared to the supply of Gala apples, so if a tax is imposed 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 44

The deadweight loss from an excise tax comes about because:

A) the number of transactions in the market is smaller than the no-tax equilibrium.
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 45

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

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

Question 46

A higher rate is most likely to decrease the amount of revenue that the government collects from an excise tax if demand is _____ and supply is _____.

A) elastic; elastic
B) elastic; inelastic
C) inelastic; elastic
D) inelastic; inelastic

Question 47

Use the following to answer questions:
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

When the government imposes an excise tax in a market with a downward-sloping demand curve and an upward-sloping supply curve:

A) consumer surplus falls.
B) producer surplus falls.
C) a deadweight loss occurs.
D) consumer surplus falls, producer surplus falls, and a deadweight loss occurs.

Question 49

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 50

If the government removed the excise tax on gasoline, assuming that neither demand nor supply is perfectly inelastic, which of the following would NOT occur?

A) an increase in consumer surplus
B) an increase in producer surplus
C) a decrease in producer surplus
D) an increase in total surplus

Question 51

Suppose the government imposes a $9 per month tax on cell phone service. If the demand curve for cell phone service is perfectly elastic and the supply curve is upward-sloping, the monthly price for cell phone service will:

A) increase by $4.50.
B) increase by more than $9.
C) increase by $9.
D) not change.

Question 52

The price elasticity of demand for a particular cancer drug is zero and the price elasticity of supply is 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 53

The demand for food is very inelastic compared to the supply of food, so if a tax is imposed 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 54

If the elasticity of demand is _____ and the elasticity of supply is _____, tax revenue is likely to increase.

A) 3.3; 2.1
B) 3.3; 0.5
C) 0.2; 2.1
D) 0.2; 0.5

Question 55

When workers earn income, they and their 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 of the tax.
C) The worker bears almost all of the burden of the tax.
D) It's impossible to determine who bears the burden of the tax.

Question 56

By law, FICA (the Federal Insurance Contributions Act), a payroll tax, is collected equally from employers and 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 57

If the elasticity of demand is _____ and the elasticity of supply is _____, tax revenue is likely to decrease.

A) 3.3; 2.1
B) 3.3; 0.5
C) 0.2; 2.1
D) 0.2; 0.5

Question 58

A higher tax rate is more likely to increase tax revenue if the price elasticity of demand is _____ and the price elasticity of supply is _____.

A) high; high
B) low; low
C) low; high
D) high; low

Question 59

If the United States removed all excise taxes on cigarettes, which of the following would NOT occur?

A) a decrease in producer surplus
B) an increase in producer surplus
C) an increase in consumer surplus
D) an increase in total surplus

Question 60

Use the following to answer questions:
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 61

If demand is downward-sloping and supply is upward-sloping, which of the following statements about the effects of an excise tax is INCORRECT?

A) The lower the elasticity of supply relative to the elasticity of demand, the lower the burden of the tax borne by suppliers.
B) An excise tax causes a deadweight loss because consumer and producer surpluses are reduced by more than the revenue the government collects.
C) An excise tax drives a wedge between the price paid by consumers and the price received by producers.
D) An excise tax is inefficient because it distorts incentives at the margin for both consumers and producers.

Question 62

Assume the same upward supply curve for each of the following goods. Considering demand only, a tax on _____ would result in the largest deadweight loss.

A) gasoline
B) medicine
C) restaurant meals
D) tobacco

Question 63

The burden of a tax system comes from its:

A) effect on elasticity.
B) effect on marginal incentives.
C) inequity.
D) government revenue.

Question 64

If the government decides to impose a $700 tax on U.S. citizens vacationing abroad, then the deadweight loss from this tax will be:

A) relatively small.
B) relatively large.
C) zero.
D) absorbed by foreign governments.

Question 65

A tax leads to a(n) _____ in consumer surplus and a(n) _____ in producer surplus.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question 66

Given any upward-sloping supply curve for a good, the more inelastic the demand curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss when the government imposes an excise tax.

A) more; smaller
B) more; larger
C) less; smaller
D) less; larger

Question 67

An excise tax causes inefficiency if the number of transactions in a market is reduced as a result of the tax. 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 68

An analysis of the effect of excise taxes on markets allows us to conclude that:

A) when the price elasticity of supply is equal to zero, an excise tax falls entirely on the consumers.
B) when the price elasticity of demand is lower than the price elasticity of supply, an excise tax falls mainly on the producers.
C) whether the tax is levied on consumers or producers, the quantity sold will be the same.
D) when the price elasticity of demand is higher than the price elasticity of supply, an excise tax falls mainly on the consumers.

Question 69

If the government wants to minimize the deadweight loss from taxes, it should tax goods for which:

A) the price elasticity of demand is high.
B) the price elasticity of demand is low.
C) the price elasticity of supply is high.
D) the demand is high.

Question 70

If the main purpose of a tax is to decrease the amount of a harmful activity, such as underage drinking, the government should impose it on harmful activities whose supply is _____ and demand is _____.

A) elastic; elastic
B) inelastic; inelastic
C) elastic; inelastic
D) inelastic; elastic

Question 71

Excise taxes that raise the most revenue and cause the least deadweight loss are likely to be levied on goods for which demand is _____ and supply is _____.

A) inelastic; elastic
B) inelastic; inelastic
C) elastic; inelastic
D) elastic; elastic

Question 72

If you want to reduce the inefficiency costs of taxation, you should devise taxes to fall on goods for which the supply is _____ and the demand is _____.

A) elastic; elastic
B) inelastic; inelastic
C) elastic; inelastic
D) inelastic; elastic

Question 73

The governor wants to levy 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 the demand curve is _____ and the supply curve is _____.

A) elastic; elastic
B) elastic; inelastic
C) inelastic; elastic
D) inelastic; inelastic

Question 74

Given any downward-sloping demand curve for a good, the more price-elastic the supply curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss when the government imposes an excise tax.

A) more; smaller
B) more; larger
C) less; smaller
D) less; larger

Question 75

Given any upward-sloping supply curve for a good, the more elastic the demand curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss when the government imposes an excise tax.

A) more; smaller
B) more; larger
C) less; smaller
D) less; larger

Question 76

The 1990 "yacht tax" caused a large deadweight loss because demand for luxury yachts made in the United States is:

A) very elastic.
B) very inelastic.
C) perfectly inelastic, since rich people will pay whatever is necessary.
D) very steeply sloped.

Question 77

Given any downward-sloping demand curve for a good, the more inelastic the supply curve, the _____ equilibrium output will fall and the _____ will be the deadweight loss when the government imposes an excise tax.

A) more; smaller
B) more; larger
C) less; smaller
D) less; larger

Question 78

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 79

If the government levies an excise tax in a market whose demand curve is perfectly inelastic, the burden of the tax will fall completely on the _____, and the deadweight loss will equal _____.

A) consumers; zero
B) producers; zero
C) consumers; the tax revenue
D) producers; the tax revenue

Question 80

If the government levies an excise tax in a market whose supply curve is perfectly inelastic, the burden of the tax will fall completely on the _____, and the deadweight loss will equal _____.

A) consumers; zero
B) producers; zero
C) consumers; the tax revenue
D) producers; the tax revenue