Question 1

Taxes cause deadweight losses because taxes

Accepted Answer

A)  reduce the sum of producer and consumer surpluses by more than the amount of tax revenue.
B)  prevent buyers and sellers from realizing some of the gains from trade.
C)  cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 2

Figure 8-18 
-Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the smallest in the market represented by

Accepted Answer

A)  S1.
B)  S2.
C)  S3.
D)  S4.E) A) and C)
F) A) and B)

Question 3

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

Accepted Answer

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.E) A) and D)
F) A) and B)

Question 4

When a tax is imposed on a good for which both demand and supply are very elastic,

Accepted Answer

A)  sellers effectively pay the majority of the tax.
B)  buyers effectively pay the majority of the tax.
C)  the tax burden is equally divided between buyers and sellers.
D)  None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.E) C) and D)
F) A) and D)

Question 5

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The equilibrium price and quantity before the imposition of the tax is

Accepted Answer

A)  P=$800 and Q=20.
B)  P=$600 and Q=20.
C)  P=$300 and Q=20.
D)  P=$600 and Q=40.E) B) and C)
F) B) and D)

Question 6

Figure 8-11 1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed, A) the government collects $28 in tax revenue. B) producer surplus decreases by $13. C) consumer surplus decreases by $11. D) the deadweight loss amounts to $9." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

Accepted Answer

A)  the government collects $28 in tax revenue.
B)  producer surplus decreases by $13.
C)  consumer surplus decreases by $11.
D)  the deadweight loss amounts to $9.E) None of the above
F) B) and C)

Question 7

Figure 8-10 
-Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. With the tax, the total surplus is

Accepted Answer

A)  [1/2 x (P0-P5)  x Q5] + [1/2 x (P5-0)  x Q5].
B)  [1/2 x (P0-P2)  x Q2] +[(P2-P8)  x Q2] + [1/2 x (P8-0)  x Q2].
C)  (P2-P8)  x Q2.
D)  1/2 x (P2-P8)  x (Q5-Q2) .E) A) and B)
F) A) and C)

Question 8

Provide several examples of important taxes on labor in the United States. For a typical worker, what is the marginal tax rate on labor income once all the labor taxes are summed?

Accepted Answer

*the Social Security tax
*the ...

Question 9

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3. The per unit burden of the tax on buyers is

Accepted Answer

A)  P3 - P1.
B)  P3 - P2.
C)  P2 - P1.
D)  P4 - P3.E) A) and B)
F) B) and D)

Question 10

When a tax is placed on a product, the price paid by buyers

Accepted Answer

A)  rises, and the price received by sellers rises.
B)  rises, and the price received by sellers falls.
C)  falls, and the price received by sellers rises.
D)  falls, and the price received by sellers falls.E) B) and D)
F) A) and B)

Question 11

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area

Accepted Answer

A)  I+Y.
B)  J+K+L+M.
C)  I+Y+B.
D)  I+J+K+L+M+Y.E) C) and D)
F) All of the above

Question 12

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. Without a tax, total surplus in this market is

Accepted Answer

A)  $3,000.
B)  $4,800.
C)  $6,000.
D)  $7,200.E) All of the above
F) A) and B)

Question 13

When a tax is levied on buyers, the

Accepted Answer

A)  supply curves shifts upward by the amount of the tax.
B)  tax creates a wedge between the price buyers effectively pay and the price sellers receive.
C)  tax has no effect on the well-being of sellers.
D)  All of the above are correct.E) B) and D)
F) B) and C)

Question 14

When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.

Accepted Answer

A) True 
 B)False

Question 15

A tax on a good causes the size of the market to increase.

Accepted Answer

A) True 
 B)False

Question 16

Describe the Laffer curve.

Accepted Answer

The Laffer curve depicts the r...

Question 17

The Social Security tax is a labor tax.

Accepted Answer

A) True 
 B)False

Question 18

When a tax is levied on buyers of a good,

Accepted Answer

A)  government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax.
B)  there is an increase in the quantity of the good supplied.
C)  a wedge is placed between the price buyers pay and the price sellers effectively receive.
D)  the effective price to buyers decreases because the demand curve shifts leftward.E) C) and D)
F) A) and B)

Question 19

Figure 8-26 
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much tax revenue is collected after the tax is imposed?

Accepted Answer

Total tax revenue is...

Question 20

Figure 8-18 
-Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the largest in the market represented by

Accepted Answer

A)  S1.
B)  S2.
C)  S3.
D)  S4.E) B) and D)
F) A) and B)

Exam 8: Applications: the Costs of Taxation

Describe the Laffer curve.

Correct AnswerverifiedThe Laffer curve depicts the r...View AnswerShow Answer

Figure 8-18 -Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the largest in the market represented by

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Figure 8-11 -Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

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Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area

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Figure 8-18 -Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the smallest in the market represented by

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When a tax is levied on buyers, the

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The Social Security tax is a labor tax.

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When a tax is levied on buyers of a good,

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A tax on a good causes the size of the market to increase.

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Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. With the tax, the total surplus is

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When a tax is placed on a product, the price paid by buyers

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Taxes cause deadweight losses because taxes

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Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. Without a tax, total surplus in this market is

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When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.

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Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The per unit burden of the tax on buyers is

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Provide several examples of important taxes on labor in the United States. For a typical worker, what is the marginal tax rate on labor income once all the labor taxes are summed?

Correct Answerverified*the Social Security tax*the ...View AnswerShow Answer

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The equilibrium price and quantity before the imposition of the tax is

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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

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Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much tax revenue is collected after the tax is imposed?

Correct AnswerverifiedTotal tax revenue is...View AnswerShow Answer

When a tax is imposed on a good for which both demand and supply are very elastic,

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The Laffer curve depicts the r...
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Figure 8-11 -Refer to Figure 8-11. Suppose Q₁ = 4; Q₂ = 7; P₁ = $6; P₂ = $8; and P₃ = $10. Then, when the tax is imposed,

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the Social Security tax
the ...
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Total tax revenue is...
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