Question 1

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

Accepted Answer

A)   first year after it is imposed than in the eighth year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year.
B)   first year after it is imposed than in the eighth year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.
C)   eighth year after it is imposed than in the first year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year.
D)   eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.E) A) and B)
F) All of the above

Question 2

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

Accepted Answer

A)   increase by 20 units.
B)   increase by 500 units.
C)   decrease by 20 units.
D)   decrease by 500 units.E) A) and B)
F) A) and C)

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)   $200.
B)   $250.
C)   $475.
D)   $625.E) All of the above
F) A) and D)

Question 6

When a tax is imposed on a good, the resulting decrease in consumer surplus is always larger than the resulting decrease in producer surplus.

Accepted Answer

A) True 
 B)False

Question 7

Taxes on labor encourage all of the following except

Accepted Answer

A)   older workers to take early retirement from the labor force.
B)   mothers to stay at home rather than work in the labor force.
C)   workers to work overtime.
D)   people to be paid "under the table."E) C) and D)
F) B) and D)

Question 8

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 decrease 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 D)

Question 9

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

Accepted Answer

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.E) A) and D)
F) A) and C)

Question 10

Figure 8-25 
-Refer to Figure 8-25. How much is total surplus at the market equilibrium?

Accepted Answer

Total surp...

Question 11

Which of the following is not correct?

Accepted Answer

A)   Economists who argue that labor taxes are highly distorting believe that labor supply is fairly elastic.
B)   Economists who argue that labor taxes are not highly distorting believe that labor supply is fairly inelastic.
C)   Economists who argue that labor supply is fairly inelastic cite elderly workers who adjust the date they retire as an example.
D)   Economists who argue that labor supply is fairly elastic cite workers who adjust the hours of overtime that they work as an example.E) A) and B)
F) All of the above

Question 12

Figure 8-13 
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The amount of tax revenue collected by the government is

Accepted Answer

A)   $120.
B)   $80.
C)   $50.
D)   $30.E) C) and D)
F) A) and B)

Question 13

One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the

Accepted Answer

A)   equilibrium quantity of the good is unchanged.
B)   price the buyer effectively pays is lower.
C)   supply curve for the good shifts upward by the amount of the tax.
D)   tax reduces the welfare of both buyers and sellers.E) All of the above
F) B) and D)

Question 14

Which of the following is a tax on labor?

Accepted Answer

A)   Medicare tax
B)   Social Security tax
C)   federal income tax
D)   All of the above are labor taxes.E) C) and D)
F) A) and C)

Question 15

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 tax revenue received by the government is

Accepted Answer

A)   $2.50.
B)   $4.
C)   $5.
D)   $9.E) C) and D)
F) A) and B)

Question 16

Figure 8-12 
-Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The per-unit burden of the tax on sellers is

Accepted Answer

A)   $1.
B)   $2.
C)   $3.
D)   $4.E) B) and D)
F) A) and D)

Question 17

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

Accepted Answer

A)   remains constant.
B)   triples.
C)   increases by a factor of 9.
D)   increases by a factor of 12.E) None of the above
F) C) and D)

Question 18

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+c.
D)   I+J+K+L+M+Y.E) A) and B)
F) B) and C)

Question 19

A tax affects

Accepted Answer

A)   buyers only.
B)   sellers only.
C)   buyers and sellers only.
D)   buyers, sellers, and the government.E) B) and C)
F) A) and B)

Question 20

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The loss of producer surplus as a result of the tax is

Accepted Answer

A)   $3,000.
B)   $6,000.
C)   $9,000.
D)   $12,000.E) C) and D)
F) None of the above

Exam 8: Application: The Costs of Taxation

Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The per-unit burden of the tax on sellers is

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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 amount of tax revenue collected by the government is

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One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the

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When a tax is imposed on a good, the resulting decrease in consumer surplus is always larger than the resulting decrease in producer surplus.

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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

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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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Which of the following is a tax on labor?

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Which of the following is not correct?

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Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

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

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The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

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

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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 decrease in the tax rate will

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Figure 8-25 -Refer to Figure 8-25. How much is total surplus at the market equilibrium?

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Taxes on labor encourage all of the following except

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A tax affects

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

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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 amount of tax revenue received by the government is

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Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The loss of producer surplus as a result of the tax is

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

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Total surp...
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