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Exam 8: Application: The Costs of Taxation

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Question 121

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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.

E) C) and D)
F) B) and D)

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Question 122

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Which of the following tools help us evaluate how taxes affect economic well-being? (i) Consumer surplus (ii) Producer surplus (iii) Tax revenue (iv) Deadweight loss

A) (i) and (ii) only
B) (i) , (ii) , and (iii) only
C) (iii) and (iv) only
D) (i) , (ii) , (iii) , and (iv)

E) A) and C)
F) All of the above

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Question 123

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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 price that buyers effectively pay after the tax is imposed is

Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The amount of tax revenue received by the government is

Which of the following ideas is the most plausible?

Which of the following quantities decrease in response to a tax on a good?

A tax on insulin is likely to cause a very large deadweight loss to society.

Economists use the government's tax revenue to measure the public benefit from a tax.

Figure 8-17 The vertical distance between points A and B represents the original tax. -Refer to Figure 8-17. 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

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The amount of the tax on each unit of the good is

Figure 8-12 -Refer to Figure 8-12. Which of the following combinations will maximize the deadweight loss from a tax?

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. The price paid by buyers increases by $2 and the after-tax price received by sellers falls by $3. The government is able to raise $750 per month in revenue from the tax. The deadweight loss from the tax is

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, buyers effectively pay

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 producer surplus is

The deadweight loss from a $3 tax will be largest in a market with

For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of the

The loss in total surplus resulting from a tax is called

Scenario 8-2 Tom mows Stephanie's lawn for $25. Tom's opportunity cost of mowing Stephanie's lawn is $20, and Stephanie's willingness to pay Tom to mow her lawn is $28. -Refer to Scenario 8-2. If Stephanie hires Tom to mow her lawn, Tom's producer surplus is

If a tax shifts the demand curve downward (or to the left) , we can infer that the tax was levied on

Suppose that instead of a supply-demand diagram, you are given the following information: Q_s = 100 + 3P Q_d = 400 - 2P From this information compute equilibrium price and quantity. Now suppose that a tax is placed on buyers so that Q_d = 400 - 2(P + T).If T = 15, solve for the new equilibrium price and quantity. (Note: P is the price received by sellers and P + T is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers. What does this show you?