Deck 6: Consumer Choices

Question 1

Which of the following statements is TRUE?
I) A $0.50 tax on each fishing lure sold raises the price per lureby $0.50
II)A tax on sellers is equivalent to a tax on buyers
III) A tax on buyers is analyzed by shifting the demand curveup by the amount of the tax.

A)I and II only
B)II and III only
C)II only
D)I, II, and III

Answer 1

C

Question 2

A tax on sellers of popcorn will:

A)increase the size of the popcorn market.
B)reduce the size of the popcorn market.(True Answer )Correct
C)may increase, decrease, or have no effect on the size of the popcorn market.
D)have no effect on the size of the popcorn market.

Answer 2

B

Question 3

(Figure: Tax on Consumers of Gadgets) According to thefigure, what is the amount of the tax that has been imposed ongadgets?
Figure: Tax on Consumers of Gadgets

A)$ 4
B)$ 2
C)$ 8
D)$ 12

Answer 3

A

Question 4

(Figure: Tax on Sellers) Refer to the figure. Suppose theimposition of a per-unit tax on sellers shifts the supply curvefrom S0 to S₁. The equilibrium quantity sold under the tax is:

A)4.
B)12.
C)16.
D)10.

Question 5

Figure: Tax on Sellers (Figure: Tax on Sellers) Refer to the figure. Suppose theimposition of a per-unit tax on sellers shifts the supply curvefrom S0 to S₁. With the tax, buyers pay ________ and sellersreceive ________.

A)$6; $3
B)$6; $6
C)$3; $6
D)$3; $4

Question 6

(Figure: Tax on Sellers of Gadgets) According to the figure,what is the amount of the tax that has been imposed on the saleof gadgets?

A)$0.50
B)$1.00
C)$1.50
D)$5.50

Question 7

The question of who pays the greater amount of a commoditytax is determined by:

A)Congress.
B)the President of the United States.
C)the relative elasticities of demand and supply.(True Answer )Correct
D)the individual who writes the check for the tax.

Question 8

(Figure: Tax on Sellers) If a $3 tax per unit purchased wasplaced on buyers instead of sellers, buyers would pay ________and sellers would receive ________.

A)$3; $6
B)$6; $3
C)$4; $6
D)$4; $3

Question 9

When a tax is imposed on consumers the demand curve will:

A)shift downward by the amount of the tax.(True Answer )Correct
B)shift upward by the amount of the tax.
C)shift downward by less than the amount of the tax.
D)not shift since sellers collect per unit taxes.

Question 10

(Figure: Tax Imposed on Sellers) According to the figure, theprice that buyers pay AFTER the tax is imposed is:

A)$5.
B)$4.40.
C)$4.
D)$3.40.

Question 11

A tax on sellers of apples:

A)leads sellers to supply less apples at every price.(True Answer )Correct
B)leads sellers to supply more apples at every price.
C)causes the supply curve to shift to the right.
D)leads buyers to demand more apples at every price.

Question 12

(Figure: Tax on Sellers) Suppose the imposition of a per-unittax on sellers shifts the supply curve from S0 to S₁. Using thefigure, calculate the amount of the tax.

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

Question 13

Suppose there is a tax of $50 on bicycles. The supply curve forbicycles slopes upward. The demand curve for bicycles slopesdownward. Sellers are required by law to pay the tax. If the taxis reduced from $50 to $10 per bicycle, then the:

A)supply curve will shift downward by $40.(True Answer )Correct
B)demand curve will shift downward by $40.
C)demand curve will shift upward by $40.
D)supply curve will shift upward by $40.

Question 14

(Figure: Tax Imposed on Sellers) According to the figure, theprice that sellers receive AFTER the tax is imposed is:

A)$5.
B)$4.40.
C)$4.
D)$3.40.

Question 15

If a tax is imposed on sellers of a product the demand curvewill:

A)shift upward.
B)shift downward.
C)not shift.
D)shift upward or downward depending on elasticity of demand.

Question 16

A tax on the seller of a product:

A)causes the seller's take-home price to rise above that paid by the buyer.
B)causes the demand curve for the product to shift to the right.
C)causes the supply curve for the product to shift to the left.
D)always causes the equilibrium quantity traded in the market to increase.

Question 17

Which of the following is correct concerning the burden of a taximposed on coffee mugs?

A)Buyers and sellers share the burden of the tax.(True Answer )Correct
B)Buyers bear the entire burden of the tax.
C)Sellers bear the entire burden of the tax.
D)It depends on whether the buyers or the sellers are required to pay the tax.

Question 18

Figure: Tax on Sellers of Gadgets (Figure: Tax on Sellers of Gadgets) According to the figure,what is the tax revenue that the government collects from thetax on gadgets?

A)$350
B)$450
C)$175
D)$550

Question 19

Without taxes, the market price per bag of apples is $5. With a$2 tax per bag of apples, buyers now pay $5.75 per bag. What isthe final price per bag of apples received by sellers?

A)$5.00
B)$7.75
C)$3.00
D)$3.75

Question 20

(Figure: Tax on Sellers of Gadgets) According to the figure,what is the amount of the deadweight loss caused by theimposition of the tax on gadgets?

A)$100
B)$1
C)$0.50
D)$50

Question 21

When a payroll tax is enacted or a mandate requires firms toprovide health insurance the wage paid to workers ______ andthe wage paid by firms ______.

A)rises; rises
B)rises; falls
C)falls; falls
D)falls; rises

Question 22

Buyers bear a greater share of a tax burden when a tax isimposed in a market where:

A)demand is more elastic than supply.
B)supply is more elastic than demand.
C)the tax is imposed on sellers.
D)the tax is imposed on buyers.

Question 23

Suppose that there is a tax of $5 per unit, and the demand curveis more elastic than the supply curve. Which of the followingstatements could be true?

A)Buyers pay $3 of the tax.
B)Buyers pay $1 of the tax.
C)Sellers pay $1 of the tax.
D)Sellers pay all of the tax.

Question 24

Whether a buyer or a seller pays more of a commodity taxdepends on:

A)their relative price elasticities.
B)the decisions made by Congress.
C)whether the demand curve is negatively or positively sloped.
D)whether the supply curve is negatively or positively sloped.

Question 25

Suppose that there is a tax of $1 per unit, and the elasticity ofsupply is 3 and the elasticity of demand is 2 (in absolute value).How much of the $1 tax is paid by sellers?

A)$0.60
B)$0.40
C)$0.75
D)$0.67

Question 26

Which of the following statements is TRUE?
The buyer will paymore of the tax burden if:
I) the good is a luxury good
II)the good is a necessity
III) the good has no substitutes.

A)I only
B)II only
C)II and III only
D)I and III only

Question 27

In the market for Good X-a necessity good without any goodsubstitutes-the workers and capital in the industry can easilyfind work producing other goods. The burden of the tax islikely to fall:

A)more heavily on buyers, given that demand is more inelastic than supply.
B)evenly between buyers and sellers.
C)more heavily on sellers, given that supply is more inelastic than demand.
D)more heavily on buyers, given that demand is more elastic than supply.

Question 28

(Figure: Elasticities of Supply and Demand) Whichcombination of demand and supply curves results in thegreatest tax burden to buyers?
Figure: Elasticities of Supply and Demand

A)D0 and S0
B)D₁ and S₁
C)D0 and S₁
D)D₁ and S0

Question 29

(Figure: Tax on Supply and Demand) According to the figure,if the tax is placed on buyers, the equilibrium is at Point:

A)B, and the equilibrium price and quantity are P₃ and Q₂.
B)C, and the equilibrium price and quantity are P₃ and Q₂.
C)C, and the equilibrium price and quantity are P₁ and Q₂.
D)D, and the equilibrium price and quantity are P₂ and Q₁.

Question 30

If a tax is imposed on a market with elastic demand andinelastic supply:

A)buyers will bear most of the burden of the tax.
B)sellers will bear most of the burden of the tax.(True Answer )Correct
C)the burden of the tax will be shared equally between buyers and sellers.
D)there is no way to determine how the burden of the tax will be shared.

Question 31

If the elasticity of demand is 2 in absolute value, and theelasticity of supply is 1 in absolute value, how much of a taxburden will the buyer bear relative to the seller?

A)The buyer will bear more of the tax burden than will the seller.
B)The seller will bear more of the tax burden than will the buyer.
C)The buyer and seller will share the tax burden equally.
D)The buyer will not bear none of the tax burden since demand curve is twice as elastic as supply.

Question 32

If a tax is imposed on a market with inelastic demand andelastic supply:

A)buyers will bear most of the burden of the tax.(True Answer )Correct
B)sellers will bear most of the burden of the tax.
C)the burden of the tax will be shared equally between buyers and sellers.
D)there is no way to determine how the burden of the tax will be shared.

Question 33

If the elasticity of demand is 1 in absolute value, and theelasticity of supply is 1 in absolute value, how much of a taxburden will the buyer bear relative to the seller?

A)The buyer will bear more of the tax burden than will the seller.
B)The seller will bear more of the tax burden than will the buyer.
C)The buyer and seller will share the tax burden equally.(True Answer )Correct
D)The buyer will not bear any of the tax burden since demand is unit elastic.

Question 34

(Figure: Tax on Supply and Demand) According to the figure,if the tax is placed on sellers, the equilibrium is at Point:

A)A, and the equilibrium price and quantity are P₃ and Q₂.
B)A, and the equilibrium price and quantity are P4 and Q₃.
C)B, and the equilibrium price and quantity are P₃ and Q₂.
D)C, and the equilibrium price and quantity are P₁ and Q₂

Question 35

(Figure: Commodity Tax with Elastic Demand) According tothe figure, who bears the greater burden of a commodity tax?
Figure: Commodity Tax with Elastic Demand

A)The buyer will bear the greater burden of the tax.
B)The seller will bear the greater burden of the tax.(True Answer )Correct
C)The buyer and the seller will split the tax burden equally.
D)The government will bear the full burden of the tax.

Question 36

With regard to tax burdens, what does the ―elasticity = escape‖idea tell you?

A)that the curve (between demand and supply) that is relatively more elastic will bear less of the tax burden (True Answer
)Correct
B)that the curve (between demand and supply) that is relatively more inelastic will bear less of the tax burden
C)that the curve (between demand and supply) that is relatively more elastic will escape the tax burden entirely
D)that the ratio of the buyers' tax burden to the sellers' tax burden is always greater than 1

Question 37

If the elasticity of supply is 1, and the elasticity of demand is 3(in absolute value), then for a tax of $1 buyers will pay:

A)an extra 25 cents and sellers will receive 75 cents less.(True Answer )Correct
B)an extra 75 cents and sellers will receive 25 cents less.
C)an extra 50 cents and sellers will receive 50 cents less.
D)nothing extra since this is the special case where demand is unit elastic.

Question 38

Most labor economists believe that the supply of labor is ______elastic than firms' demand for labor, and therefore ______ bearmost of the burden of a payroll tax.

A)more; workers
B)less; workers
C)less; firms
D)more; firms

Question 39

Which of the following is a correct statement about taxburdens?

A)A tax burden is distributed independently of relative elasticities of supply and demand.
B)A tax burden falls most heavily on the side of the market that is closer to unit elastic.
C)A tax burden falls most heavily on the side of the market that is less elastic.
D)A tax burden falls most heavily on the side of the market that is more elastic.

Question 40

If buyers are required to pay a tax on top of the price, buyers'willingness to pay will:

A)decrease and the demand curve will shift down.(True Answer )Correct
B)decrease and the demand curve will shift up.
C)increase and the demand curve will shift down.
D)increase and the demand curve will shift up.

Question 41

Which of the following statements is TRUE regarding cigarettetaxes?

A)Cigarette manufacturers bear almost all of the cigarette taxes.
B)Cigarette manufacturers tend to ship their product from low- tax states to high-tax states.
C)The elasticity of cigarette supply in all states is very small so cigarette manufacturers receive higher after-tax prices in
Higher-tax states.
D)After-tax prices received by cigarette manufacturers are about the same in all states.

Question 42

(Figure: Commodity Tax on Suppliers) Refer to the figure. If atax shifts the supply curve from S₁ to S₂, the value ofdeadweight loss is:

A)$200.
B)$100.
C)$50.
D)$25.

Question 43

(Figure: Imposition of a Tax) Refer to the figure. After theimposition of a $4 tax, the government collects revenues of:

A)$75.
B)$100.
C)$210.
D)$50.

Question 44

Which one of the following statements about subsidies is NOTcorrect?

A)Subsidies cause deadweight losses.
B)Who actually receives the subsidy does not depend on who gets the check from the government.
C)Subsidies always increase the gains from trade for producers.
D)Who benefits from the subsidy depends on the relative elasticities of demand and supply.

Question 45

A ________ creates a situation in which the price received bysellers ________ the price paid by buyers.

A)tax; exceeds
B)tax; equals
C)subsidy; is less than
D)subsidy; exceeds

Question 46

Which of the following statements is NOT true for a case inwhich the demand for labor is more elastic than the supply oflabor?

A)Firms can substitute capital for labor if the health insurance on labor gets too costly.
B)Most workers would continue to work even if their wages were lower because of the cost of health insurance.
C)Firms cannot escape the cost of health insurance for labor by employing fewer workers.
D)Firms can move overseas if the tax on labor gets too high.

Question 47

(Figure: Tax on Consumers of Gadgets) Refer to the figure.What is the tax revenue that the government collects from thetax on gadgets?

A)$800
B)$3,200
C)$400
D)$200

Question 48

Suppose the demand for pizza is inelastic and the supply ofpizza is elastic, and the demand for cigarettes is inelastic andthe supply of cigarettes is elastic. If a tax were levied on thesellers of both of these commodities, we would expect that theburden of:

A)the pizza tax would fall more heavily on sellers than on buyers, and the burden of the cigarette tax would fall more
Heavily on buyers than on sellers.
B)the pizza tax would fall more heavily on buyers than on sellers, and the burden of the cigarette tax would fall more
Heavily on sellers than on buyers.
C)both the pizza and the cigarette taxes would fall more heavily on buyers than on sellers.
D)both the pizza and the cigarette taxes would fall more heavily on sellers than on buyers.

Question 49

Figure: Supply and Demand with Subsidy (Figure: Supply and Demand with Subsidy) Refer to the figure.The deadweight loss from a $2 subsidy is:

A)$100.
B)$800.
C)$50.
D)$400.

Question 50

(Figure: Supply and Demand with Subsidy) Refer to the figure.The quantity traded with a $2 subsidy is:

A)greater than 400.
B)400.
C)200.
D)less than 200.

Question 51

Which of the following statements is TRUE?
A tax and subsidyare similar in that:
I) they both create a deadweight loss
II)the burden of the tax and benefit of the subsidy depend onrelative elasticities of demand and supply
III) they both change the equilibrium level of output.

A)I only
B)I and II only
C)I, II, and III
D)I and III only

Question 52

Which of the following is the correct answer to the question:Why do smokers pay almost all the taxes assessed on cigarettes?
I) Because they are addictive, the demand for cigarettes isrelatively elastic when compared to the supply curve ofcigarettes
II)Because they are addictive, the demand for cigarettes isrelatively inelastic when compared to the supply of cigarettes
III) Cigarette manufacturers can very easily escape a state taxby selling in a different state.

A)I only
B)II only
C)I and III only
D)II and III only

Question 53

(Figure: Commodity Tax on Suppliers) Refer to the figure. If atax shifts the supply curve from S₁ to S₂, tax revenue is:

A)$3,600.
B)$2,700.
C)$1,800.
D)$1,000.

Question 54

(Figure: Consumer and Producer Surplus) According to thefigure, what would happen to the deadweight loss if the taxincreased to $2 per basket of apples?

A)The new tax would minimize deadweight loss.
B)Deadweight loss does not change due to a change in the tax.
C)There is no way to tell what will happen to deadweight loss.
D)Deadweight loss will increase.

Question 55

(Figure: Supply and Demand with Subsidy) Refer to the figure.With a $2-per-unit subsidy, the price received by sellers is________ and the price paid by consumers is ________.

A)$3; $2
B)$2; $4
C)$4; $2
D)$3; $4

Question 56

(Figure: Imposition of a Tax) Refer to the figure. With a $4 tax,the deadweight loss is:

A)$10.
B)$35.
C)$20.
D)$40.

Question 57

To be efficient, the revenue from taxation must provide goodsthat have benefits that ________ the deadweight loss caused bythe taxation itself.

A)maximize
B)exceed
C)eliminate
D)minimize

Question 58

(Figure: Consumer and Producer Surplus) According to thefigure, what is the value of the deadweight loss?

A)The deadweight loss cannot be calculated.
B)$900
C)$100
D)$50

Question 59

(Figure: Tax on Consumers of Gadgets) Refer to the figure.What is the amount of the deadweight loss caused by theimposition of the tax on gadgets?

A)$800
B)$3,200
C)$400
D)$200

Question 60

Martin's maximum willingness to pay for an electric boatmotor is $250. Because of a tax, the price of the motor increasesfrom $230 to $280. The deadweight loss of the tax attributableto Martin is:

A)$20.
B)$250.
C)$50.
D)$30.

Question 61

A subsidy is:

A)similar to a reverse tax.
B)calculated as the price received by sellers minus the price paid by buyers.
C)paid for by taxpayers.
D)All of the answer choices are correct.

Question 62

Which of the following statements is correct?

A)If the elasticity of demand is greater than the elasticity of supply, sellers will receive more of the subsidy.(True Answer
)Correct
B)If the elasticity of demand is greater than the elasticity of supply, sellers will receive less of the subsidy.
C)If the elasticity of demand is less than the elasticity of supply, sellers will receive more of the subsidy.
D)If the elasticity of demand is greater than the elasticity of supply, buyers will receive more of the subsidy.

Question 63

(Figure: Wage Subsidy) Consider the use of wage subsidiesversus the minimum wage. Employment with a wage subsidy is:________, versus employment with an $8 minimum wage is:________.

A)180; 120
B)120; 180
C)150; 150
D)180; 180

Question 64

When demand is more elastic than supply, buyers bear more ofthe tax burden.

Question 65

(Figure: Wage Subsidy) Refer to the figure. How manyadditional workers have been hired as a result of the wagesubsidy?

A)150
B)180
C)30
D)No additional workers have been hired as a result of the wage subsidy.

Question 66

If the demand curve for a good is perfectly inelastic, anycommodity tax that is imposed on that market will be entirelypaid by the consumer.

Question 67

Why has the Earned Income Tax Credit (EITC) increasedemployment among single mothers?

A)It provides a certain amount of tax relief for single men.
B)It provides a certain amount of tax relief for childless married couples.
C)It provides a certain amount of tax relief for families with children.
D)It provides a certain amount of tax relief for all low income workers.

Question 68

Which of the following statements is correct for a specific goodor service?

A)Whoever pays for a subsidy also pays the entire commodity tax on an item.
B)Whoever bears the burden of a tax also receives the benefit of the subsidy.
C)Whoever bears the burden of a tax also bears the cost of the subsidy.
D)Governments bear the burdens of both taxes and subsidies.

Question 69

If the demand and supply curves have equal slopes in absolutevalue, the burden of a commodity tax will be split equallyregardless of on whom the tax is placed.

Question 70

Which of the following statements is TRUE regarding subsidy?

A)A subsidy causes the value of goods to exceed the cost of producing the goods.
B)A subsidy reduces deadweight loss of non-beneficial trade.
C)A subsidy means that the sellers receive less than buyers pay.
D)Suppliers receive more benefit of a subsidy if the elasticity of supply is less than the elasticity of demand.(True Answer
)Correct

Question 71

In a market with a downward sloping demand curve and anupward sloping supply curve, a tax placed on sellers will causesellers to receive a lower price and buyers to pay a higher price.

Question 72

Why do cotton growers spend billions of dollars to dam riversand transport water hundreds of miles to grow cotton inCalifornia deserts?

A)Cotton growers in California don't pay payroll taxes.
B)The water used to grow California cotton is highly subsidized by the government.
C)Cotton growers in California are mostly operated as nonprofit enterprises.
D)The water used to grow California cotton is high in mineral contents, making for a bigger cotton yield.

Question 73

Figure: Demand and Supply with Subsidy (Figure: Supply and Demand with Subsidy) Refer to the figure.Suppose a subsidy allows sellers to receive their product at theprice of $8 with a quantity of 400 units. What is the dollaramount of the subsidy per unit of the good?

A)$1
B)$6
C)$2
D)$100

Question 74

If a tax is levied on the buyers of a product, the tax burden willfall entirely on the buyers.

Question 75

Unlike price floors, subsidies:

A)cause surpluses.
B)discourage firms from producing.
C)do not create surpluses.
D)create shortages.

Question 76

(Figure: Supply and Demand with Subsidy) Refer to the figure.What is the total cost of the subsidy for taxpayers?

A)$400
B)$800
C)$3,200
D)$2,400

Question 77

If the elasticity of supply is 3 and the elasticity of demand is 1(in absolute value), buyers will bear less of the tax than sellers.

Question 78

A wage subsidy will:

A)reduce the wages received by workers.
B)reduce the number of workers employed.
C)increase the number of workers employed.(True Answer )Correct
D)increase the unemployment rate, especially among low-skilled workers.

Question 79

Figure: Demand and Supply with Subsidy (Figure: Supply and Demand with Subsidy) Refer to the figure.What is the deadweight loss caused by the subsidy?

A)$100
B)$200
C)$3,200
D)$800

Question 80

Figure: Wage Subsidy (Figure: Wage Subsidy) Refer to the figure. If a minimum wageof $8 had been implemented instead of a wage subsidy, howmany workers would have been unemployed?

A)60
B)30
C)180
D)120