Question 1

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) None of the above
F) All of the above

Question 2

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5.Consumer surplus before the tax was levied is represented by area

Accepted Answer

A)   A.
B)   A+B+C.
C)   D+H+F.
D)   F.E) None of the above
F) All of the above

Question 3

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3.The amount of deadweight loss associated with the tax is equal to

Accepted Answer

A)   P3ACP1.
B)   ABC.
C)   P2ADP3.
D)   P1DCP2.E) B) and C)
F) C) and D)

Question 4

A tax placed on a good

Accepted Answer

A)   causes the effective price to sellers to increase.
B)   affects the welfare of buyers of the good but not the welfare of sellers.
C)   causes the equilibrium quantity of the good to decrease.
D)   creates a burden that is usually borne entirely by the sellers of the good.E) B) and C)
F) All of the above

Question 5

Economists generally agree that the most important tax in the U.S.economy is the

Accepted Answer

A)   income tax.
B)   tax on labor.
C)   inheritance or death tax.
D)   tax on corporate profits.E) All of the above
F) C) and D)

Question 6

Concerning the labor market and taxes on labor,economists disagree about

Accepted Answer

A)   the size of the tax on labor.
B)   the size of the deadweight loss of the tax on labor.
C)   whether or not a tax on labor places a wedge between the wage that firms pay and the wage that workers receive.
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 7

Diana is a personal trainer whose client Charles pays $80 per hour-long session.Charles values this service at $100 per hour,while the opportunity cost of Diana's time is $75 per hour.The government places a tax of $10 per hour on personal trainers.Before the tax,what is the total surplus?

Accepted Answer

A)   $25
B)   $20
C)   $5
D)   $0E) A) and B)
F) C) and D)

Question 8

The Social Security tax,and to a large extent,the federal income tax,are labor taxes.

Accepted Answer

A) True 
 B)False

Question 9

Total surplus with a tax is equal to

Accepted Answer

A)   consumer surplus plus producer surplus.
B)   consumer surplus minus producer surplus.
C)   consumer surplus plus producer surplus minus tax revenue.
D)   consumer surplus plus producer surplus plus tax revenue.E) A) and D)
F) B) and C)

Question 10

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

Accepted Answer

A)   $16 for each unit of the good,and sellers effectively receive $12 for each unit of the good.
B)   $16 for each unit of the good,and sellers effectively receive $8 for each unit of the good.
C)   $12 for each unit of the good,and sellers effectively receive $8 for each unit of the good.
D)   $14 for each unit of the good,and sellers effectively receive $10 for each unit of the good.E) None of the above
F) A) and C)

Question 11

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

Accepted Answer

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.E) All of the above
F) C) and D)

Question 12

The more elastic are supply and demand in a market,the greater are the distortions caused by a tax on that market,and the more likely it is that a tax cut in that market will raise tax revenue.

Accepted Answer

A) True 
 B)False

Question 13

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2.The imposition of the tax causes the quantity sold to

Accepted Answer

A)   increase by 1 unit.
B)   decrease by 1 unit.
C)   increase by 2 units.
D)   decrease by 2 units.E) B) and C)
F) None of the above

Question 14

A tax raises the price received by sellers and lowers the price paid by buyers.

Accepted Answer

A) True 
 B)False

Question 15

Figure 8-4
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-4.The price that buyers effectively pay after the tax is imposed is

Accepted Answer

A)   $24.
B)   $16.
C)   $14.
D)   $10.E) A) and D)
F) B) and C)

Question 16

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

Accepted Answer

A)   remains constant.
B)   doubles.
C)   quadruples.
D)   increases by a percentage that cannot be determined without further information.E) A) and C)
F) None of the above

Question 17

When a tax is imposed on a good,the

Accepted Answer

A)   supply curve for the good always shifts.
B)   demand curve for the good always shifts.
C)   amount of the good that buyers are willing to buy at each price always remains unchanged.
D)   equilibrium quantity of the good always decreases.E) All of the above
F) B) and D)

Question 18

According to the economist Milton Friedman,the "least bad" tax is a tax on

Accepted Answer

A)   income received from profits and interest.
B)   labor income.
C)   the value of unimproved land.
D)   the value of land including the improvements to the land.E) B) and D)
F) All of the above

Question 19

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

Accepted Answer

A)   the larger is the decrease in quantity demanded as a result of the tax.
B)   the smaller is the tax burden on buyers relative to the tax burden on sellers.
C)   the larger is the deadweight loss of the tax.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 20

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

Accepted Answer

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.E) C) and D)
F) All of the above

Exam 8: Application: The Costs of Taxation

A tax raises the price received by sellers and lowers the price paid by buyers.

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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 amount of deadweight loss associated with the tax is equal to

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

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The Social Security tax,and to a large extent,the federal income tax,are labor taxes.

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

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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

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When a tax is imposed on a good,the

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Economists generally agree that the most important tax in the U.S.economy is the

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According to the economist Milton Friedman,the "least bad" tax is a tax on

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The more elastic are supply and demand in a market,the greater are the distortions caused by a tax on that market,and the more likely it is that a tax cut in that market will raise tax revenue.

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Total surplus with a tax is equal to

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5.Consumer surplus before the tax was levied is represented by area

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A tax placed on a good

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Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2.The imposition of the tax causes the quantity sold to

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When a tax is levied on buyers,the

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Diana is a personal trainer whose client Charles pays $80 per hour-long session.Charles values this service at $100 per hour,while the opportunity cost of Diana's time is $75 per hour.The government places a tax of $10 per hour on personal trainers.Before the tax,what is the total surplus?

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

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Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4.The price that buyers effectively pay after the tax is imposed is

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

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Concerning the labor market and taxes on labor,economists disagree about

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