Question 1

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 2

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

Accepted Answer

A)  buyers of the good.
B)  sellers of the good.
C)  both buyers and sellers of the good.
D)  We cannot infer anything because the shift described is not consistent with a tax.

Question 3

Deadweight loss measures the loss

Accepted Answer

A)  in a market to buyers and sellers that is not offset by an increase in government revenue.
B)  in revenue to the government when buyers choose to buy less of the product because of the tax.
C)  of equality in a market due to government intervention.
D)  of total revenue to business firms due to the price wedge caused by the tax.

Question 4

A tax places a wedge between the price buyers pay and the price sellers receive.

Accepted Answer

A) True 
 B)False

Question 5

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.Without the tax,the producer surplus is

Accepted Answer

A)  (P5-0) x Q5.
B)    1/21 / 21/2  x (P5-0) x Q5.
C)  (P8-0) x Q2.
D)    1/21 / 21/2  x (P8-0) x Q2.

Question 6

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3.The per-unit burden of the tax on sellers is

Accepted Answer

A)  P3 - P1.
B)  P3 - P2.
C)  P2 - P1.
D)  P4 - P3.

Question 7

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...

Question 8

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 price that buyers pay is

Accepted Answer

A)  P0.
B)  P2.
C)  P5.
D)  P8.

Question 9

Labor taxes may distort labor markets greatly if

Accepted Answer

A)  labor supply is highly inelastic.
B)  many workers choose to work 40 hours per week regardless of their earnings.
C)  the number of hours many part-time workers want to work is very sensitive to the wage rate.
D)  "underground" workers do not respond to changes in the wages of legal jobs because they prefer not to pay taxes.

Question 10

The more elastic the supply,the larger the deadweight loss from a tax,all else equal.

Accepted Answer

A) True 
 B)False

Question 11

The size of a tax and the deadweight loss that results from the tax are

Accepted Answer

A)  positively related.
B)  negatively related.
C)  independent of each other.
D)  equal to each other.

Question 12

For a good that is taxed,the area on the relevant supply-and-demand graph that represents government's tax revenue is

Accepted Answer

A)  smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax.
B)  bounded by the supply curve,the demand curve,the effective price paid by buyers,and the effective price received by sellers.
C)  a right triangle.
D)  a triangle,but not necessarily a right triangle.

Question 13

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 14

Taxes on labor tend to increase the number of hours that people choose to work.

Accepted Answer

A) True 
 B)False

Question 15

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 total surplus is

Accepted Answer

A)  [  1/21 / 21/2  x (P0-P5) x Q5] + [  1/21 / 21/2  x (P5-0) x Q5].
B)  [  1/21 / 21/2  x (P0-P2) x Q2] +[(P2-P8) x Q2] + [  1/21 / 21/2  x (P8-0) x Q2].
C)  (P2-P8) x Q2.
D)    1/21 / 21/2  x (P2-P8) x (Q5-Q2) .

Question 16

What happens to the total surplus in a market when the government imposes a tax?

Accepted Answer

A)  Total surplus increases by the amount of the tax.
B)  Total surplus increases but by less than the amount of the tax.
C)  Total surplus decreases.
D)  Total surplus is unaffected by the tax.

Question 17

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

Accepted Answer

A)  buyers of the good will bear most of the burden of the tax.
B)  sellers of the good will bear most of the burden of the tax.
C)  buyers and sellers will each bear 50 percent of the burden of the tax.
D)  both equilibrium price and quantity will increase.

Question 18

The benefit that government receives from a tax is measured by

Accepted Answer

A)  the change in the equilibrium quantity of the good.
B)  the change in the equilibrium price of the good.
C)  tax revenue.
D)  total surplus.

Question 19

If a tax did not induce buyers or sellers to change their behavior,it would not cause a deadweight loss.

Accepted Answer

A) True 
 B)False

Question 20

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 sellers effectively receive after the tax is imposed is

Accepted Answer

A)  P1.
B)  P2.
C)  P3.
D)  P4.

Exam 8: Application: The Costs of Taxation

What happens to the total surplus in a market when the government imposes a tax?

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Labor taxes may distort labor markets greatly if

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Taxes on labor tend to increase the number of hours that people choose to work.

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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.With the tax,the total surplus is

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The more elastic the supply,the larger the deadweight loss from a tax,all else equal.

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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

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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.Without the tax,the producer surplus is

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

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If a tax did not induce buyers or sellers to change their behavior,it would not cause a deadweight loss.

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A tax places a wedge between the price buyers pay and the price sellers receive.

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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 sellers effectively receive after the tax is imposed is

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The size of a tax and the deadweight loss that results from the tax are

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For a good that is taxed,the area on the relevant supply-and-demand graph that represents government's tax revenue is

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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 price that buyers pay is

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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 per-unit burden of the tax on sellers is

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

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The benefit that government receives from a tax is measured by

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Deadweight loss measures the loss

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When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

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