Question 1

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

Accepted Answer

A)   $250.
B)   $500.
C)   $750.
D)   $1,000.

Question 2

Suppose a tax of $3 is imposed on each new garden hose that is sold, resulting in a deadweight loss of $22,500. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. Before the tax was imposed, the equilibrium quantity of garden hoses was 100,000. We can conclude that the equilibrium quantity of garden hoses after the tax is imposed is

Accepted Answer

A)   75,000.
B)   85,000.
C)   90,000.
D)   95,000.

Question 3

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.

Question 4

Taxes on labor tend to encourage the elderly to retire early.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

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.

Question 7

The deadweight loss from a tax of $2 per unit will be smallest in a market with

Accepted Answer

A)   inelastic supply and elastic demand.
B)   inelastic supply and inelastic demand.
C)   elastic supply and elastic demand.
D)   elastic supply and inelastic demand.

Question 8

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.

Question 9

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.

Question 10

Figure 8-4
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-4. The equilibrium price before the tax is imposed is

Accepted Answer

A)   $12, and the equilibrium quantity is 35.
B)   $8, and the equilibrium quantity is 50.
C)   $5, and the equilibrium quantity is 35.
D)   $5, and the equilibrium quantity is 50.

Question 11

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

Accepted Answer

A) True 
 B)False

Question 12

Taxes are costly to market participants because they

Accepted Answer

A)   transfer resources from market participants to the government.
B)   alter incentives.
C)   distort market outcomes.
D)   All of the above are correct.

Question 13

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

Accepted Answer

A)   The response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of bananas is weak.
B)   The response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak.
C)   The response of buyers and sellers to a change in the price of bananas is strong.
D)   The response of buyers and sellers to a change in the price of bananas is weak.

Question 14

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. The tax revenue is

Accepted Answer

A)   (P0-P2)  x Q2.
B)   (P2-P8)  x Q2.
C)   (P2-P5)  x Q5.
D)   (P5-P8)  x Q5.

Question 15

Assume the supply curve for diapers is a typical, upward-sloping straight line, and the demand curve for diapers is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for diapers is 1,000 per month when there is no tax. Then a tax of $0.50 per diaper is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct?

Accepted Answer

A)   After the tax is imposed, the equilibrium quantity of diapers is 900 per month.
B)   The demand for diapers is more elastic than the supply of diapers.
C)   The deadweight loss of the tax is $12.50.
D)   The tax causes a decrease in consumer surplus of $380.

Question 16

Figure 8-25 
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Accepted Answer

The deadwe...

Question 17

Figure 8-14 
-Refer to Figure 8-14. Which of the following statements is not correct?

Accepted Answer

A)   Supply 2 is more elastic than supply 1.
B)   Demand 2 is more elastic than demand 1.
C)   Supply 1 is more inelastic than supply 2.
D)   Demand 2 is more inelastic than supply 2.

Question 18

A tax levied on the sellers of a good shifts the

Accepted Answer

A)   supply curve upward (or to the left) .
B)   supply curve downward (or to the right) .
C)   demand curve upward (or to the right) .
D)   demand curve downward (or to the left) .

Question 19

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area

Accepted Answer

A)   A.
B)   A+B+C.
C)   D+H+F.
D)   F.

Question 20

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

Exam 8: Application: The Costs of Taxation

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

Correct Answer
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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. The tax revenue is

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

Correct Answer
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The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

Correct Answer
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Taxes on labor tend to encourage the elderly to retire early.

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

Correct Answer
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The deadweight loss from a tax of $2 per unit will be smallest in a market with

Correct Answer
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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 equilibrium price before the tax is imposed is

Correct Answer
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Taxes are costly to market participants because they

Correct Answer
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A tax levied on the sellers of a good shifts the

Correct Answer
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Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

Correct Answer
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Figure 8-14 -Refer to Figure 8-14. Which of the following statements is not correct?

Correct Answer
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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

Correct Answer
verified

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 Answer
verified

Correct Answer
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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

Correct Answer
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Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Correct Answer
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The deadwe...
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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area

Correct Answer
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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

Correct Answer
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Exam 8: Application: The Costs of Taxation

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

Correct AnswerverifiedShow Answer

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. The tax revenue is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

Correct AnswerverifiedShow Answer

Taxes on labor tend to encourage the elderly to retire early.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The deadweight loss from a tax of $2 per unit will be smallest in a market with

Correct AnswerverifiedShow Answer

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The equilibrium price before the tax is imposed is

Correct AnswerverifiedShow Answer

Taxes are costly to market participants because they

Correct AnswerverifiedShow Answer

A tax levied on the sellers of a good shifts the

Correct AnswerverifiedShow Answer

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

Correct AnswerverifiedShow Answer

Figure 8-14 -Refer to Figure 8-14. Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Correct AnswerverifiedThe deadwe...View AnswerShow Answer

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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The deadwe...
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