Question 1

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3. Which of the following equations is valid for the deadweight loss of the tax?

Accepted Answer

A)   Deadweight loss = 1/2) P2 - P1) Q2 + Q1) 
B)   Deadweight loss = 1/2) P3 - P1) Q2 + Q1) 
C)   Deadweight loss = 1/2) P3 - P2) Q2 - Q1) 
D)   Deadweight loss = 1/2) P3 - P1) Q2 - Q1) E) B) and D)
F) B) and C) D

Question 2

Figure 8-7
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-7. As a result of the tax,

Accepted Answer

A)   consumer surplus decreases from $200 to $80.
B)   producer surplus decreases from $200 to $145.
C)   the market experiences a deadweight loss of $80.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 3

When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

Accepted Answer

A) True 
 B)False

Question 4

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. When the tax is imposed in this market, consumer surplus is

Accepted Answer

A)   $600.
B)   $900.
C)   $1,500.
D)   $3,000.E) A) and B)
F) None of the above

Question 5

Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the good, other things equal, the

Accepted Answer

A)   smaller is the response of quantity supplied to the tax.
B)   larger is the tax burden on sellers relative to the tax burden on buyers.
C)   larger is the deadweight loss of the tax.
D)   All of the above are correct.E) B) and D)
F) All of the above

Question 6

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good. 
-Refer to Figure 8-8. One effect of the tax is to

Accepted Answer

A)   reduce consumer surplus by $108.
B)   reduce producer surplus by $72.
C)   create a deadweight loss of $60.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 7

Figure 8-13 
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The producer surplus after this tax is

Accepted Answer

A)   $60.
B)   $45.
C)   $30.
D)   $15.E) None of the above
F) A) and C)

Question 8

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

Accepted Answer

Producer surplus is ...

Question 9

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

Accepted Answer

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.E) None of the above
F) B) and C)

Question 10

Economists disagree on whether labor taxes cause small or large deadweight losses. This disagreement arises primarily because economists hold different views about

Accepted Answer

A)   the size of labor taxes.
B)   the importance of labor taxes imposed by the federal government relative to the importance of labor taxes imposed by the various states.
C)   the elasticity of labor supply.
D)   the elasticity of labor demand.E) A) and B)
F) A) and C)

Question 11

Taxes cause deadweight losses because they

Accepted Answer

A)   lead to losses in surplus for consumers and for producers that, when taken together, exceed tax revenue collected by the government.
B)   distort incentives to both buyers and sellers.
C)   prevent buyers and sellers from realizing some of the gains from trade.
D)   All of the above are correct.E) All of the above
F) B) and D) D

Question 12

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents

Accepted Answer

A)   consumer surplus after the tax.
B)   consumer surplus before the tax.
C)   producer surplus after the tax.
D)   producer surplus before the tax.E) A) and B)
F) B) and C)

Question 13

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

Accepted Answer

A)   also doubles.
B)   triples.
C)   quadruples.
D)   rises by a factor of 8.E) A) and B)
F) All of the above

Question 14

Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

Accepted Answer

A)   The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.20 per gallon.
B)   The price elasticity of demand for gasoline is 0.1; the price elasticity of supply for gasoline is 0.4; and the gasoline tax amounts to $0.20 per gallon.
C)   The price elasticity of demand for gasoline is 0.2; the price elasticity of supply for gasoline is 0.6; and the gasoline tax amounts to $0.30 per gallon.
D)   There is insufficient information to make this determination.E) B) and C)
F) A) and B)

Question 15

The government's benefit from a tax can be measured by

Accepted Answer

A)   consumer surplus.
B)   producer surplus.
C)   tax revenue.
D)   All of the above are correct.E) B) and D)
F) None of the above

Question 16

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

Accepted Answer

A)   California economics.
B)   welfare economics.
C)   supply-side economics.
D)   elasticity economics.E) C) and D)
F) All of the above

Question 17

As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Accepted Answer

A) True 
 B)False

Question 18

To fully understand how taxes affect economic well-being, we must

Accepted Answer

A)   assume that economic well-being is not affected if all tax revenue is spent on goods and services for the people who are being taxed.
B)   compare the taxes raised in the United States with those raised in other countries, especially France.
C)   compare the reduced welfare of buyers and sellers to the amount of revenue the government raises.
D)   take into account the fact that almost all taxes reduce the welfare of buyers, increase the welfare of sellers, and raise revenue for the government.E) B) and C)
F) None of the above

Question 19

Figure 8-13 
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on buyers is

Accepted Answer

A)   $1.
B)   $2.
C)   $3.
D)   $5.E) None of the above
F) A) and B) B

Question 20

Illustrate on three demand-and-supply graphs how the size of a tax small, medium and large) can alter total revenue and deadweight loss.

Accepted Answer

The answer of Illustrate on three demand-and-supply graphs how the...

Exam 8: Application: The Costs of Taxation

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. Which of the following equations is valid for the deadweight loss of the tax?

Correct AnswerverifiedD

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. As a result of the tax,

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When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

Correct AnswerverifiedShow Answer

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. When the tax is imposed in this market, consumer surplus is

Correct AnswerverifiedShow Answer

Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the good, other things equal, the

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Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. One effect of the tax is to

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Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The producer surplus after this tax is

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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 is producer surplus after the tax is imposed?

Correct AnswerverifiedProducer surplus is ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Economists disagree on whether labor taxes cause small or large deadweight losses. This disagreement arises primarily because economists hold different views about

Correct AnswerverifiedShow Answer

Taxes cause deadweight losses because they

Correct AnswerverifiedD

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume the price of gasoline is $2.00 per gallon, and the equilibrium quantity of gasoline is 10 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

Correct AnswerverifiedShow Answer

The government's benefit from a tax can be measured by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Correct AnswerverifiedShow Answer

To fully understand how taxes affect economic well-being, we must

Correct AnswerverifiedShow Answer

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on buyers is

Correct AnswerverifiedB

Illustrate on three demand-and-supply graphs how the size of a tax small, medium and large) can alter total revenue and deadweight loss.

Correct AnswerverifiedShow Answer

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Producer surplus is ...
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D

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B

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