Deck 8: 3: Sec 83 Mc Deadweight Loss and Tax Revenue As Taxes Vary

Question 1

If the tax on a good is tripled,the deadweight loss of the tax

A)remains constant.
B)triples.
C)increases by a factor of 9.
D)increases by a factor of 12.

Answer 1

A

Question 2

Figure 8-19
The vertical distance between points A and B represents the original tax.
Refer to Figure 8-19.The original tax can be represented by the vertical distance AB.Suppose the government is deciding whether to lower the tax to CD or raise it to FG.Which of the following statements is correct?

A)Compared to the original tax,the larger tax will decrease both tax revenue and deadweight loss.
B)Compared to the original tax,the smaller tax will increase both tax revenue and deadweight loss.
C)Compared to the original tax,the larger tax will decrease tax revenue and increase deadweight loss.
D)Both a and b are correct.

Answer 2

D

Question 3

If the tax on a good is doubled,the deadweight loss of the tax

A)increases by 50 percent.
B)doubles.
C)triples.
D)quadruples.

Answer 3

D

Question 4

Suppose the government increases the size of a tax by 20 percent.The deadweight loss from that tax

A)increases by 20 percent.
B)increases by more than 20 percent.
C)increases but by less than 20 percent.
D)decreases by 20 percent.

Question 5

If the tax on a good is increased from $0.30 per unit to $0.90 per unit,the deadweight loss from the tax

A)remains constant.
B)increases by a factor of 4.
C)increases by a factor of 9.
D)increases by a factor of 16.

Question 6

An increase in the size of a tax is most likely to increase tax revenue in a market with

A)elastic demand and elastic supply.
B)elastic demand and inelastic supply.
C)inelastic demand and elastic supply.
D)inelastic demand and inelastic supply.

Question 7

Which of the following statements correctly describes the relationship between the size of the deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax?

A)Both the size of the deadweight loss and tax revenue increase.
B)The size of the deadweight loss increases,but the tax revenue decreases.
C)The size of the deadweight loss increases,but the tax revenue first increases,then decreases.
D)Both the size of the deadweight loss and tax revenue decrease.

Question 8

Figure 8-19
The vertical distance between points A and B represents the original tax.
Refer to Figure 8-19.The original tax can be represented by the vertical distance AB.Suppose the government is deciding whether to lower the tax to CD or raise it to FG.Which of the following statements is not correct?

A)Compared to the original tax,the larger tax will increase tax revenue.
B)Compared to the original tax,the smaller tax will decrease deadweight loss.
C)Compared to the original tax,the smaller tax will decrease tax revenue.
D)Compared to the original tax,the larger tax will increase deadweight loss.

Question 9

Suppose the tax on automobile tires is increased so that the tax goes from being a "medium" tax to being a "large" tax.As a result,it is likely that

A)tax revenue increases,and the deadweight loss increases.
B)tax revenue increases,and the deadweight loss decreases.
C)tax revenue decreases,and the deadweight loss increases.
D)tax revenue decreases,and the deadweight loss decreases.

Question 10

If the tax on a good is increased from $1 per unit to $4 per unit,the deadweight loss from the tax increases by a factor of

A)5.
B)9.
C)16.
D)24.

Question 11

Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100.If the tax is increased to $0.25 per unit,the deadweight loss from the new tax would be

A)$200.
B)$250.
C)$475.
D)$625.

Question 12

A decrease in the size of a tax is most likely to increase tax revenue in a market with

A)elastic demand and elastic supply.
B)elastic demand and inelastic supply.
C)inelastic demand and elastic supply.
D)inelastic demand and inelastic supply.

Question 13

If the size of a tax increases,tax revenue

A)increases.
B)decreases.
C)remains the same.
D)may increase,decrease,or remain the same.

Question 14

Figure 8-19
The vertical distance between points A and B represents the original tax.
Refer to Figure 8-19.If the government changed the per-unit tax from $5.00 to $2.50,then the price paid by buyers would be $7.50,the price received by sellers would be $5,and the quantity sold in the market would be 1.5 units.Compared to the original tax rate,this lower tax rate would

A)increase government revenue and increase the deadweight loss from the tax.
B)increase government revenue and decrease the deadweight loss from the tax.
C)decrease government revenue and increase the deadweight loss from the tax.
D)decrease government revenue and decrease the deadweight loss from the tax.

Question 15

Figure 8-19
The vertical distance between points A and B represents the original tax.
Refer to Figure 8-19.If the government changed the per-unit tax from $5.00 to $7.50,then the price paid by buyers would be $10.50,the price received by sellers would be $3,and the quantity sold in the market would be 0.5 units.Compared to the original tax rate,this higher tax rate would

A)increase government revenue and increase the deadweight loss from the tax.
B)increase government revenue and decrease the deadweight loss from the tax.
C)decrease government revenue and increase the deadweight loss from the tax.
D)decrease government revenue and decrease the deadweight loss from the tax.

Question 16

Which of the following ideas is the most plausible?

A)Tax revenue is more likely to increase when a low tax rate is increased than when a high tax rate is increased.
B)Tax revenue is less likely to increase when a low tax rate is increased than when a high tax rate is increased.
C)Tax revenue is likely to increase by the same amount when a low tax rate is increased and when a high tax rate is increased.
D)Decreasing a tax rate can never increase tax revenue.

Question 17

As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on,the

A)tax revenue increases at first,but it eventually peaks and then decreases.
B)deadweight loss increases at first,but it eventually peaks and then decreases.
C)tax revenue always increases,and the deadweight loss always increases.
D)tax revenue always decreases,and the deadweight loss always increases.

Question 18

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

A)As the size of the tax increases,tax revenue continually rises and deadweight loss continually falls.
B)As the size of the tax increases,tax revenue and deadweight loss rise initially,but both eventually begin to fall.
C)As the size of the tax increases,tax revenue rises initially,but it eventually begins to fall;deadweight loss continually rises.
D)As the size of the tax increases,tax revenue rises initially,but it eventually begins to fall;deadweight loss falls initially,but eventually it begins to rise.

Question 19

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

A)The price elasticity of demand is small,and the price elasticity of supply is large.
B)The price elasticity of demand is large,and the price elasticity of supply is small.
C)The price elasticity of demand and the price elasticity of supply are both small.
D)The price elasticity of demand and the price elasticity of supply are both large.

Question 20

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100.If the tax is increased to $2.50 per unit,the deadweight loss from the new tax would be

A)$200.
B)$250.
C)$500.
D)$2,500.

Question 21

In which of the following instances would the deadweight loss of the tax on cartons of cigarettes increase by a factor of 9?

A)The tax on cartons of cigarettes increases from $10 to $11.11.
B)The tax on cartons of cigarettes increases from $10 to $20.
C)The tax on cartons of cigarettes increases from $10 to $30.
D)The tax on cartons of cigarettes increases from $10 to $90.

Question 22

Which of the following scenarios is consistent with the Laffer curve?

A)The tax rate is 1 percent,and tax revenue is very low.
B)The tax rate is 1 percent,and tax revenue is very high.
C)The tax rate is 99 percent,and tax revenue is very high.
D)The tax rate is moderate (between very high and very low),and tax revenue is very low.

Question 23

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

A)California economics.
B)welfare economics.
C)supply-side economics.
D)elasticity economics.

Question 24

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is doubled,the

A)base of the triangle that represents the deadweight loss quadruples.
B)height of the triangle that represents the deadweight loss doubles.
C)deadweight loss of the tax doubles.
D)All of the above are correct.

Question 25

With linear demand and supply curves in a market,suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40.If the tax is increased to $0.50 per unit,the deadweight loss from the new tax will be

A)$200.
B)$250.
C)$475.
D)$625.

Question 26

The graph that represents the amount of deadweight loss (measured on the vertical axis)as a function of the size of the tax (measured on the horizontal axis)looks like

A)a U.
B)an upside-down U.
C)a horizontal straight line.
D)an upward-sloping curve.

Question 27

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is tripled,the

A)base of the triangle that represents the deadweight loss triples.
B)height of the triangle that represents the deadweight loss triples.
C)deadweight loss of the tax increases by a factor of nine.
D)All of the above are correct.

Question 28

Ronald Reagan believed that reducing income tax rates would

A)do little,if anything,to encourage hard work.
B)result in large increases in deadweight losses.
C)raise economic well-being and perhaps even tax revenue.
D)lower economic well-being,even though tax revenue could possibly increase.

Question 29

The Laffer curve relates

A)the tax rate to tax revenue raised by the tax.
B)the tax rate to the deadweight loss of the tax.
C)the price elasticity of supply to the deadweight loss of the tax.
D)government welfare payments to the birth rate.

Question 30

Supply-side economics is a term associated with the views of

A)Ronald Reagan and Arthur Laffer.
B)Karl Marx.
C)Bill Clinton and Greg Mankiw.
D)Milton Friedman.

Question 31

Assume that for good X the supply curve for a good is a typical,upward-sloping straight line,and the demand curve is a typical downward-sloping straight line.If the good is taxed,and the tax is doubled,the

A)base of the triangle that represents the deadweight loss doubles.
B)height of the triangle that represents the deadweight loss doubles.
C)deadweight loss of the tax quadruples.
D)All of the above are correct.

Question 32

Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon.As a result,

A)tax revenue necessarily decreases.
B)the deadweight loss of the tax necessarily decreases.
C)the demand curve for gasoline necessarily becomes steeper.
D)the supply curve for gasoline necessarily becomes flatter.

Question 33

Suppose that the market for large,64-ounce soft drinks in the town of Pudgyville is characterized by a typical,downward-sloping,linear demand curve and a typical,upward-sloping,linear supply curve.The market is initially in equilibrium with 1,000 soft drinks sold per day.The newly-elected Mayor of Pudgyville wants to tax 64-ounce soft drinks.She is considering either a $0.10 tax or a $0.30 tax.Her chief economic advisor estimates that the number of soft drinks sold after a $0.10 tax will be 900 and after a $0.30 tax will be 500.Which tax is better?

A)The $0.10 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.30 tax.
B)The $0.30 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.10 tax.
C)It is not clear which tax is better because although the $0.30 tax raises more tax revenues,it creates a larger deadweight loss than the $0.10 tax.
D)It is not clear which tax is better because although the $0.10 tax raises more tax revenues,it creates a larger deadweight loss than the $0.30 tax.

Question 34

When a country is on the downward-sloping side of the Laffer curves,a cut in the tax rate will

A)decrease tax revenue and decrease the deadweight loss.
B)decrease tax revenue and increase the deadweight loss.
C)increase tax revenue and decrease the deadweight loss.
D)increase tax revenue and increase the deadweight loss.

Question 35

In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9?

A)The tax on airline tickets increases from $20 per ticket to $60 per ticket.
B)The tax on airline tickets increases from $20 per ticket to $90 per ticket.
C)The tax on airline tickets increases from $15 per ticket to $60 per ticket.
D)The tax on airline tickets increases from $15 per ticket to $135 per ticket.

Question 36

Which of the following events is consistent with an increase in the deadweight loss of the gasoline tax from $30 million to $120 million?

A)The tax on gasoline increases from $0.30 per gallon to $0.45 per gallon.
B)The tax on gasoline increases from $0.30 per gallon to $0.60 per gallon.
C)The tax on gasoline increases from $0.25 per gallon to $0.45 per gallon.
D)The tax on gasoline increases from $0.25 per gallon to $1.00 per gallon.

Question 37

According to Arthur Laffer,the graph that represents the amount of tax revenue (measured on the vertical axis)as a function of the size of the tax (measured on the horizontal axis)looks like

A)a U.
B)an upside-down U.
C)a horizontal straight line.
D)an upward-sloping line or curve.

Question 38

Which of the following scenarios is not consistent with the Laffer curve?

A)The tax rate is very low,and tax revenue is very low.
B)The tax rate is very high,and tax revenue is very low.
C)The tax rate is very high,and tax revenue is very high.
D)The tax rate is moderate (between very high and very low),and tax revenue is relatively high.

Question 39

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

A)The demand for gasoline becomes more inelastic.
B)The slope of the supply curve for gasoline becomes steeper.
C)The amount of the tax per gallon of gasoline increases.
D)All of the above are correct.

Question 40

The higher a country's tax rates,the more likely that country will be

A)at the top of the Laffer curve.
B)on the positively sloped part of the Laffer curve.
C)on the negatively sloped part of the Laffer curve.
D)experiencing small deadweight losses.

Question 41

As the size of a tax rises,the deadweight loss

A)rises,and tax revenue first rises,then falls.
B)rises as does tax revenue.
C)falls,and tax revenue first rises,then falls.
D)falls as does tax revenue.

Question 42

Figure 8-21
Refer to Figure 8-21.Suppose the market is represented by Demand 1 and Supply 1.At first the government places a $3 per-unit tax on this good.Then the government decides to raise the tax to $6 per unit.Compared to the original tax rate,the higher tax will

A)increase tax revenue and increase the deadweight loss from the tax.
B)not change tax revenue and increase the deadweight loss from the tax.
C)decrease tax revenue and increase the deadweight loss from the tax.
D)decrease tax revenue and decrease the deadweight loss from the tax.

Question 43

Figure 8-21
Refer to Figure 8-21.Suppose the market is represented by Demand 1 and Supply 1.At first the government places a $3 per-unit tax on this good.Then the government decides to raise the tax to $6 per unit.How would you characterize the decision to raise the tax rate from $3 to $6 per unit? The decision is

A)a good one because it increases tax revenue while decreasing the deadweight loss from the tax.
B)a bad one because it does not increase tax revenue yet increases the deadweight loss from the tax.
C)a bad one because it decreases tax revenue while increasing the deadweight loss from the tax.
D)unclear because it increases tax revenue yet also increases the deadweight loss from the tax.

Question 44

Which of the following ideas is the most plausible?

A)Reducing a high tax rate is less likely to increase tax revenue than is reducing a low tax rate.
B)Reducing a high tax rate is more likely to increase tax revenue than is reducing a low tax rate.
C)Reducing a high tax rate will have the same effect on tax revenue as reducing a low tax rate.
D)Reducing a tax rate can never increase tax revenue.

Question 45

The Laffer curve illustrates that

A)deadweight loss rises by the square of the increase in a tax.
B)deadweight loss rises exponentially as a tax increases.
C)tax revenue first rises,then falls as a tax increases.
D)Both a)and b)are correct.

Question 46

Figure 8-23.The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.
Refer to Figure 8-23.The curve that is shown on the figure is called the

A)deadweight-loss curve.
B)tax-incidence curve.
C)Laffer curve.
D)Lorenz curve.

Question 47

Figure 8-20
On the vertical axis of each graph,DWL is deadweight loss.
Refer to Figure 8-20.Which graph correctly illustrates the relationship between the size of a tax and the size of the deadweight loss associated with the tax?

A)Panel (a)
B)Panel (b)
C)Panel (c)
D)Panel (d)

Question 48

In the early 1980s,which of the following countries had a marginal tax rate of about 80 percent?

A)United States
B)Canada
C)Japan
D)Sweden

Question 49

Figure 8-21
Refer to Figure 8-21.Suppose the government places a $3 per-unit tax on this good.The largest deadweight loss from the tax would occur in a market where demand is represented by

A)Demand 1,and supply is represented by Supply 1.
B)Demand 1,and supply is represented by Supply 2.
C)Demand 2,and supply is represented by Supply 1.
D)Demand 2,and supply is represented by Supply 2.

Question 50

Figure 8-22
Refer to Figure 8-22.Suppose the government initially imposes a $3 per-unit tax on this good.Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50.Which of the following statements is correct?

A)Compared to the original tax,the smaller tax will decrease both tax revenue and deadweight loss.
B)Compared to the original tax,the larger tax will increase both tax revenue and deadweight loss.
C)Compared to the original tax,the larger tax will decrease tax revenue and increase deadweight loss.
D)Both a and b are correct.

Question 51

Figure 8-22
Refer to Figure 8-22.Suppose the government initially imposes a $3 per-unit tax on this good.Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50.Which of the following statements is not correct?

A)Compared to the original tax,the larger tax will decrease tax revenue.
B)Compared to the original tax,the smaller tax will decrease deadweight loss.
C)Compared to the original tax,the smaller tax will decrease tax revenue.
D)Compared to the original tax,the larger tax will increase deadweight loss.

Question 52

If the tax on gasoline increases from $2 to $4 per gallon,the deadweight loss from the tax increases by a factor of

A)one-half.
B)two.
C)four.
D)six.

Question 53

Figure 8-22
Refer to Figure 8-22.Suppose the government changed the per-unit tax on this good from $3.00 to $1.50.Compared to the original tax rate,this lower tax rate would

A)increase tax revenue and increase the deadweight loss from the tax.
B)increase tax revenue and decrease the deadweight loss from the tax.
C)decrease tax revenue and increase the deadweight loss from the tax.
D)decrease tax revenue and decrease the deadweight loss from the tax.

Question 54

Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

A)a head tax (that is,a tax everyone must pay regardless of what one does or buys)
B)an income tax
C)a tax on compact discs
D)a tax on caviar

Question 55

Figure 8-22
Refer to Figure 8-22.Suppose the government changed the per-unit tax from $3.00 to $4.50.Compared to the original tax rate,this higher tax rate would

A)increase tax revenue and increase the deadweight loss from the tax.
B)increase tax revenue and decrease the deadweight loss from the tax.
C)decrease tax revenue and increase the deadweight loss from the tax.
D)decrease tax revenue and decrease the deadweight loss from the tax.

Question 56

Figure 8-22
Refer to Figure 8-22.Suppose the government initially imposes a $3 per-unit tax on this good.Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50.Which of the following statements is not correct?

A)Compared to the original tax,the larger tax will decrease tax revenue.
B)Compared to the original tax,the smaller tax will decrease deadweight loss.
C)Compared to the original tax,the smaller tax will decrease tax revenue.
D)Compared to the original tax,the larger tax will increase deadweight loss.

Question 57

Figure 8-23.The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.
Refer to Figure 8-23.If the economy is at point A on the curve,then a small increase in the tax rate will

A)increase the deadweight loss of the tax and increase tax revenue.
B)increase the deadweight loss of the tax and decrease tax revenue.
C)decrease the deadweight loss of the tax and increase tax revenue.
D)decrease the deadweight loss of the tax and decrease tax revenue.

Question 58

Suppose the federal government doubles the gasoline tax.The deadweight loss associated with the tax

A)also doubles.
B)triples.
C)quadruples.
D)rises by a factor of 8.

Question 59

Which of the following statements is correct?

A)A decrease in the size of a tax always decreases the tax revenue raised by that tax.
B)A decrease in the size of a tax always decreases the deadweight loss of that tax.
C)Tax revenue decreases when there is a small decrease in the tax rate and the economy is on the downward-sloping part of the Laffer curve.
D)An increase in the size of a tax leads to an increase in the deadweight loss of the tax only if the economy is on the upward-sloping part of the Laffer curve.

Question 60

Figure 8-21
Refer to Figure 8-21.Suppose the government places a $3 per-unit tax on this good.The smallest deadweight loss from the tax would occur in a market where demand is represented by

A)Demand 1,and supply is represented by Supply 1.
B)Demand 1,and supply is represented by Supply 2.
C)Demand 2,and supply is represented by Supply 1.
D)Demand 2,and supply is represented by Supply 2.

Question 61

Figure 8-24.The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.
Refer to Figure 8-24.For an economy that is currently at point D on the curve,a decrease in the tax rate would

A)decrease consumer surplus.
B)decrease producer surplus.
C)increase tax revenue.
D)increase the deadweight loss of the tax.

Question 62

Figure 8-24.The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.
Refer to Figure 8-24.Tax revenue would

A)decrease if the economy began at point B and then the tax rate was decreased.
B)increase if the economy began at point F and then the tax rate was decreased.
C)decrease if the economy began at point C and then the tax rate was increased.
D)All of the above are correct.