Deck 6: Taxes and Subsidies

Question 1

Why are there more births in the United States in late December than in early January?

A) People don't like having babies at Christmas.
B) Health risks are higher for babies delivered in January.
C) Parents get a tax deduction if babies are born before the year end.
D) The exuberance of Christmas causes many pregnant women to go into labor.

Answer 1

Parents get a tax deduction if babies are born before the year end.

Question 2

If a tax is imposed on sellers of a product, the demand curve will:

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

Answer 2

not shift.

Question 3

Use the following to answer questions:
Figure: Tax on Sellers
(Figure: Tax on Sellers) Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S₀ to S₁. Using the figure, calculate the amount of the tax.

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

Answer 3

$3

Question 4

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

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

Question 5

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

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

Question 6

The difference between what buyers pay for a unit of a good and what sellers receive is known as the:

A) cost of production.
B) tax.
C) brokerage fee.
D) overhead.

Question 7

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 8

Use the following to answer questions:
Figure: Soda Market
(Figure: Soda Market) After the imposition of a per-unit tax on production, consumers pay $5.00 per unit and producers receive $4.95 per unit. What is the value of the per unit tax?

A) $5.00
B) $0.50
C) $0.05
D) $0.01

Question 9

Use the following to answer questions:
Figure: Soda Market
(Figure: Soda Market) Suppose the U.S. Congress passes a tax of $0.70 on each can of soda. Using the diagram and the "wedge shortcut," determine how much deadweight loss this would create.

A) $10,500
B) $21,000
C) $35,000
D) $70,000

Question 10

Use the following to answer questions:
Figure: Tax on Sellers
(Figure: Tax on Sellers) If a $3 tax per unit purchased was placed 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 11

A tax on sellers of popcorn will:

A) increase the size of the popcorn market.
B) reduce the size of the popcorn market.
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.

Question 12

Use the following to answer questions:
Figure: Soda Market
(Figure: Soda Market) After the imposition of a per-unit tax on production, consumers pay $5.00 per unit and producers receive $4.30 per unit. What is the value of the per unit tax?

A) $5.00
B) $4.30
C) $0.70
D) $0.30

Question 13

Use the following to answer questions:
Figure: Tax on Sellers
(Figure: Tax on Sellers) Refer to the figure. Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S₀ to S₁. The equilibrium quantity sold under the tax is:

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

Question 14

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

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

Question 15

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

A) shift downward by the amount of the tax.
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 16

Use the following to answer questions:
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 the tax on gadgets?

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

Question 17

Which of the following statements is TRUE?
I. A $0.50 tax on each fishing lure sold raises the price per lure by $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 curve up by the amount of the tax.

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

Question 18

Use the following to answer questions:
Figure: Tax on Sellers
(Figure: Tax on Sellers) Refer to the figure. Suppose the imposition of a per-unit tax on sellers shifts the supply curve from S₀ to S₁. With the tax, buyers pay ________ and sellers receive ________.

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

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 is the final price per bag of apples received by sellers?

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

Question 20

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

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

Question 21

A tax imposed on sellers will:

A) shift the supply curve up by the amount of the tax.
B) shift the supply curve down by the amount of the tax.
C) shift the demand curve down by the amount of the tax.
D) shift the demand curve up by the amount of the tax.

Question 22

Use the following to answer questions:
Figure: Supply Tax
(Figure: Supply Tax) In the accompanying pizza market, with a $2 tax imposed on the sellers, how much do buyers pay for a pizza?

A) $12
B) $11.50
C) $10
D) $9.50

Question 23

With a tax on producers, demand:

A) increases.
B) decreases.
C) remains in the same location.
D) shifts in an indeterminate direction.

Question 24

Use the following to answer questions:
Figure: Tax Imposed on Sellers
(Figure: Tax Imposed on Sellers) According to the figure, the equilibrium price and quantity before the $1 tax is imposed are:

A) $5 and 800.
B) $4.40 and 900.
C) $4 and 1,000.
D) $3.40 and 900

Question 25

By law, workers pay half the Social Security tax and employers pay the other half. However, the price of labor (wages) does not adjust very quickly. If the government wanted to temporarily create a shortage of labor (or combat a surplus of labor), what should it do?

A) Move the whole tax onto workers (suppliers of labor).
B) Move the whole tax onto employers (demanders of labor).
C) Neither, because this change would have a long-run effect on who pays the Social Security tax.
D) Increase the tax on both parties.

Question 26

Use the following to answer questions:
Figure: Supply Tax
(Figure: Supply Tax) In the accompanying pizza market, with a $2 tax imposed on the sellers, how much of the tax is paid by the buyers and how much of the tax burden is borne by the sellers?

A) Buyers pay all of the $2 tax.
B) Sellers pay all of the $2 tax.
C) Buyers pay $1.50 and sellers pay $0.50 of the tax.
D) Sellers pay $1.50 and buyers pay $0.50 of the tax.

Question 27

With a tax on consumers, demand:

A) increases.
B) decreases.
C) remains in the same location.
D) shifts in an indeterminate direction.

Question 28

By law, workers pay half the Social Security tax and employers pay the other half. Is this a fair way to allocate the tax?

A) No, workers should pay the whole tax.
B) No, employers should pay the whole tax.
C) Yes, the legal responsibility for the tax has nothing to do with who ultimately pays, so it is as good an allocation as any other.
D) Economics cannot answer such a question.

Question 29

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

A) Buyers and sellers share the burden of the tax.
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 30

With a tax on producers, supply:

A) increases.
B) decreases.
C) remains in the same location.
D) shifts in an indeterminate direction.

Question 31

A tax on sellers of apples:

A) leads sellers to supply less apples at every price.
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 32

Use the following to answer questions:
Figure: Demand Tax
(Figure: Demand Tax) The figure illustrates a market for gasoline with a $1 tax imposed on the buyers. What price do sellers receive for a gallon of gasoline in this market?

A) $3.50
B) $3
C) $2.50
D) between $2.50 and $3.50, depending on the elasticity of supply

Question 33

Use the following to answer questions:
Figure: Tax on Supply and Demand
(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 34

Use the following to answer questions:
Figure: Tax on Supply and Demand
(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 35

Use the following to answer questions:
Figure: Tax Imposed on Sellers
(Figure: Tax Imposed on Sellers) According to the figure, the price that buyers pay AFTER the tax is imposed is:

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

Question 36

With a tax on consumers, supply:

A) increases.
B) decreases.
C) remains in the same location.
D) shifts in an indeterminate direction.

Question 37

Use the following to answer questions:
Figure: Tax Imposed on Sellers
(Figure: Tax Imposed on Sellers) According to the figure, the price that sellers receive AFTER the tax is imposed is:

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

Question 38

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

A) supply curve will shift downward by $40.
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 39

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.
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 40

Use the following to answer questions:
Figure: Demand Tax
(Figure: Demand Tax) The figure illustrates a market for gasoline with a $1 tax imposed on the buyers. What price do buyers pay for a gallon of gasoline in this market?

A) $3.50
B) $3
C) $2.50
D) between $2.50 and $3.50, depending on the elasticity of supply

Question 41

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

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

Question 42

Use the following to answer questions:
Figure: Tax on Buyers 2
(Figure: Tax on Buyers 2) In the diagram, the buyers pay _____ without the tax and pay _____ with the tax.

A) $6.50; $7.00
B) $6.50; $10.00
C) $7.00; $8.50
D) $7.00; $6.50

Question 43

If consumers pay 100 percent of a commodity tax, what could one conclude?

A) Suppliers have more effective lobbying in Washington than consumers.
B) The commodity in question has a perfectly elastic supply curve.
C) The commodity in question has a perfectly elastic demand curve.
D) Neither side has a perfectly elastic curve but the supply side is more elastic than the demand side.

Question 44

Suppose that there is a tax of $1 per unit, and the elasticity of supply 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 45

In the market for Good X-a necessity good without any good substitutes-the workers and capital in the industry can easily find work producing other goods. The burden of the tax is likely 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 46

Whether a buyer or a seller pays more of a commodity tax depends 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 47

Which of the following statements is TRUE?
I. Buyers bear the majority of the tax burden if the tax is originally imposed on buyers.
II. Buyers bear the majority of the tax burden if the tax is originally imposed on sellers.
III. Buyers and sellers will always bear equal amounts of the tax burden.
IV. Buyers and sellers will jointly bear the tax.

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

Question 48

The government can choose between taxing buyers of grapes at $1.00 per pound or taxing the sellers of grapes at $1.00 per pound. Which of the following statements is TRUE?
I. The choice most beneficial to buyers is placing the $1.00 tax on sellers.
II. The choice most beneficial to sellers is placing the $1.00 tax on buyers.
III. Either choice will have the same effect on both buyers and sellers.

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

Question 49

Figure: Soda Market Legislators impose a tax of $0.70 on soda that reduces the quantity of soda sold from 130,000 cans of soda to 100,000, cans. How much of the $0.70 tax per can will producers pay?

A) $0.10
B) $0.35
C) $0.60
D) $0.70

Question 50

Use the following to answer questions:
Figure: Tax on Sellers
(Figure: Tax on Sellers) In the diagram, sellers receive _____ without the tax and _____ with the tax.

A) $4; $3
B) $4; $7
C) $7; $3
D) $6; $4

Question 51

If the government taxes walnuts at 50 cent a package, who pays the tax?

A) walnut manufacturers
B) walnut retailers
C) walnut consumers
D) Walnut retailers and consumers

Question 52

Use the following to answer questions:
Figure: Tax on Buyers 2
(Figure: Tax on Buyers 2) In the diagram, the size of the tax is:

A) $1.00.
B) $2.00.
C) $3.00.
D) $4.00.

Question 53

Figure: Tax on Buyers 1 In the diagram, the demand curve that incorporates a $2 tax per unit is:

A) D₁.
B) D₂.
C) D₃.
D) D₄.

Question 54

Which of the following statements is TRUE? The buyer will pay more 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 55

Suppose that there is a tax of $5 per unit, and the demand curve is more elastic than the supply curve. Which of the following statements 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 56

Use the following to answer questions:
Figure: Tax on Buyers 2
(Figure: Tax on Buyers 2) In the diagram, the sellers receive _____ without the tax and receive _____ with the tax.

A) $8.50; $6.50
B) $6.50; $8.50
C) $7.00; $6.50
D) $7.00; $5.00

Question 57

Suppose that sellers require $6.70 per unit to sell 800 units. If a $2 tax per unit is placed on sellers, the sellers will require _______ per unit to sell 800 units, causing the supply curve ________.

A) $8.70; to shift up by $2.00
B) $8.70; to shift down by $2.00
C) $4.70; to shift up by $2.00
D) $4.70; to shift down by $2.00

Question 58

Figure: Elasticities of Supply and Demand Which combination of demand and supply curves results in the greatest tax burden to buyers?

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

Question 59

Use the following to answer questions:
Figure: Tax on Sellers
(Figure: Tax on Sellers) The size of the tax in the diagram is:

A) $3.
B) $4.
C) $7.
D) $6.

Question 60

Use the following to answer questions:
Figure: Tax on Sellers
(Figure: Tax on Sellers) In the diagram, buyers pay _____ without the tax and _____ with the tax.

A) $6; $4
B) $4; $6
C) $4; $7
D) $6; $7

Question 61

In the eighteenth century, the British Crown instituted a Stamp Tax, a commodity tax on, among other things, newspapers. During this period in history, newspapers were one of the few ways people could learn about world events, and entering the newspaper industry was relatively easy. With this in mind, who likely paid more of the tax: consumers or producers?

A) Producers were more likely to pay more of the tax, because the supply of newspapers was more elastic than the demand.
B) Producers were more likely to pay more of the tax, because the supply of newspapers was more inelastic than the demand.
C) Consumers were more likely to pay more of the tax, because the demand for newspapers was more elastic than the supply.
D) Consumers were more likely to pay more of the tax, because the demand for newspapers was more inelastic than the supply.

Question 62

Figure: Supply and Demand If the government places a tax on sellers of $0.67 per unit in this market, who will bear the burden of the tax?

A) Sellers will pay 100 percent of the tax in the form of lower prices.
B) The tax will be split 50-50 between sellers and buyers.
C) Buyers will pay the majority of the tax.
D) Sellers will pay the majority of the tax.

Question 63

If the District of Columbia decided to tax coffee at $1/cup what would happen to the price of a cup of coffee in Washington, D.C.?

A) It would go down by nearly $1.
B) It would go down, but by less than $1.
C) It would go up, but by much less than $1.
D) It would go up by nearly $1.

Question 64

On June 23, 2011, Honduras announced new taxes on various industries including the telephone industry. If local consumers have access to the Internet independent of telephones, and the local phone industry's main consumer base is in Honduras, who will bear most of burden of this tax and why?

A) Consumers will bear most of the burden; their demand curve for phones is more elastic because of the few substitutes at their disposal.
B) Consumers will bear most of the burden; their demand curve for phones is more inelastic because of having access to the Internet.
C) Producers will bear most of the burden; their supply curve for phones is more inelastic because of the difficulty in moving their operations to another country.
D) Producers will bear most of the buden; their supply curve for phones is more elastic because they can import phones from all over the world.

Question 65

Figure: Commodity Tax with Elastic Supply According to the figure, who bears the greater burden of the tax?

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

Question 66

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.
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 67

Consider the market for gasoline, a good with a relatively low elasticity of demand. Who will bear the majority of a tax imposed on gasoline?

A) It depends on the tax rate at the time the gasoline is sold.
B) Sellers will bear the majority of the tax, as long as supply is more elastic than demand.
C) Buyers will bear the majority of the tax, as long as demand is less elastic than supply.
D) No one will bear the majority of the tax; the tax burden will be borne equally by both buyers and sellers

Question 68

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

A) buyers will bear most of the burden of the tax.
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) neither the buyer nor the seller will bear the burden of the tax.

Question 69

What do subsidies and commodity taxes have in common?

A) In both cases, who the policy mainly affects depends on who is assigned the tax or subsidy.
B) Both policies create inefficient increases in trade.
C) Both policies have a greater impact on the side of the market with the more inelastic curve.
D) Both policies decrease deadweight loss.

Question 70

For a given set of supply and demand curves, the horizontal location of the tax wedge depends on:

A) whether the tax is imposed on buyers or sellers.
B) the amount of the tax.
C) whether the tax is a short-run or a long-run tax.
D) the number of sellers.

Question 71

Buyers bear a greater share of a tax burden when a tax is imposed 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 72

If the elasticity of demand is 1 in absolute value, and the elasticity of supply is 1 in absolute value, how much of a tax burden 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 any of the tax burden since demand is unit elastic.

Question 73

Andy and Annie are in a happy relationship. Annie has many substitutes for Andy, but Andy has few substitutes for Annie. Suppose that one of them has to move two hours away for work. Which one of them will do the majority of the driving if they decide to continue their relationship on a long-distance basis?

A) Andy, because he is the more elastic factor
B) Annie, because she is the more elastic factor
C) Annie, because she is the less elastic factor
D) Andy, because he is the less elastic factor

Question 74

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
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 75

The price paid by buyers minus the price paid by sellers equals:

A) the tax only if it is imposed on sellers.
B) the tax only if it is imposed on buyers.
C) the tax whether it is imposed on buyers or on sellers.
D) the subsidy whether it is given to buyers or to sellers.

Question 76

Which of the following statements is correct?

A) When demand is more inelastic than supply, sellers pay more of the tax.
B) When demand is more elastic than supply, sellers pay more of the tax.
C) When supply is more inelastic than demand, buyers pay more of the tax.
D) When supply is more elastic than demand, sellers pay more of the tax.

Question 77

______ determine(s) whether buyers or sellers ultimately bear the majority of the tax burden.

A) The amount of the tax
B) Who the tax is originally imposed on
C) Whether the tax is a commodity tax
D) The relative elasticities of demand and supply

Question 78

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

A) buyers will bear most of the burden of the tax.
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) neither the buyer nor the seller will bear the burden of the tax..

Question 79

Which of the following is a correct statement about tax burdens?

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 80

If the elasticity of demand is 2 in absolute value, and the elasticity of supply is 1 in absolute value, how much of a tax burden 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 any of the tax burden since the demand curve is twice as elastic as supply.