Question 1

In terms of gains from trade, why is it true that taxes cause deadweight losses?

Accepted Answer

Taxes cause deadweight losses ...

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 consumer surplus with the tax is

Accepted Answer

A)   $2,000.
B)   $4,000.
C)   $6,000.
D)   $8,000.E) A) and D)
F) C) and D)

Question 3

Figure 8-27 
-Refer to Figure 8-27. Suppose that Market A is characterized by Demand 1 and Supply 1, and Market B is characterized by Demand 2 and Supply 1. If an identical tax is imposed on each market, the tax will create a larger deadweight loss in which market? Explain.

Accepted Answer

The deadweight loss will be larger in Ma...

Question 4

According to Arthur Laffer, the graph that represents the amount of tax revenue (measured on the vertical axis)  as a function of the size of the tax (measured on the horizontal axis)  looks like

Accepted Answer

A)   a U.
B)   an upside-down U.
C)   a horizontal straight line.
D)   an upward-sloping line or curve.E) A) and C)
F) A) and B)

Question 5

Which of the following tools help us evaluate how taxes affect economic well-being?

Accepted Answer

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

Question 6

Figure 8-26 
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. What price will sellers receive for the good after the tax is imposed?

Accepted Answer

Sellers will receive...

Question 7

Economists disagree on whether labor taxes cause small or large deadweight losses. This disagreement arises primarily because economists hold different views about

Accepted Answer

A)   the size of labor taxes.
B)   the importance of labor taxes imposed by the federal government relative to the importance of labor taxes imposed by the various states.
C)   the elasticity of labor supply.
D)   the elasticity of labor demand.E) A) and D)
F) A) and C)

Question 8

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is

Accepted Answer

A)   $600.
B)   $900.
C)   $1,500.
D)   $3,000.E) A) and C)
F) A) and D)

Question 9

A tax

Accepted Answer

A)   lowers the price buyers pay and raises the price sellers receive.
B)   raises the price buyers pay and lowers the price sellers receive.
C)   places a wedge between the price buyers pay and the price sellers receive.
D)   Both b)  and c)  are correct.E) A) and B)
F) A) and C)

Question 10

Table 8-1 
-Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will maximize the deadweight loss(es)  from the tax?

Accepted Answer

A)   market B only
B)   markets A and C only
C)   markets B and D only
D)   market D onlyE) A) and B)
F) A) and C)

Question 11

Figure 8-26 
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much tax revenue is collected after the tax is imposed?

Accepted Answer

Total tax revenue is...

Question 12

Figure 8-13 
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The producer surplus after this tax is

Accepted Answer

A)   $60.
B)   $45.
C)   $30.
D)   $15.E) All of the above
F) A) and C)

Question 13

When a tax is levied on the sellers of a good, the

Accepted Answer

A)   supply curve shifts upward by the amount of the tax.
B)   quantity demanded decreases for all conceivable prices of the good.
C)   quantity supplied increases for all conceivable prices of the good.
D)   None of the above is correct.E) A) and B)
F) B) and D)

Question 14

Figure 8-25 
-Refer to Figure 8-25. Suppose the government increases the size of the tax on this good from $4 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Accepted Answer

Total tax ...

Question 15

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) A) and B)
F) A) and C)

Question 16

To fully understand how taxes affect economic well-being, we must compare the

Accepted Answer

A)   benefit to buyers with the loss to sellers.
B)   price paid by buyers to the price received by sellers.
C)   profits earned by firms to the losses incurred by consumers.
D)   decrease in total surplus to the increase in revenue raised by the government.E) A) and B)
F) C) and D)

Question 17

An increase in the size of a tax is most likely to increase tax revenue in a market with

Accepted Answer

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

Question 18

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 tax revenue received by the government is equal to the area

Accepted Answer

A)   P3ACP1.
B)   ABC.
C)   P2DAP3.
D)   P1CDP2.E) None of the above
F) B) and C)

Question 19

Figure 8-21 
-Refer to Figure 8-21. Suppose the government places a $3 per-unit tax on this good. The smallest deadweight loss from the tax would occur in a market where demand is represented by

Accepted Answer

A)   Demand 1, and supply is represented by Supply 1.
B)   Demand 1, and supply is represented by Supply 2.
C)   Demand 2, and supply is represented by Supply 1.
D)   Demand 2, and supply is represented by Supply 2.E) A) and B)
F) All of the above

Question 20

If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as

Accepted Answer

A)   T/Q.
B)   T+Q.
C)   TxQ.
D)   (TxQ) /Q.E) A) and B)
F) A) and D)

Exam 8: Application: the Costs of Taxation

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is

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Figure 8-21 -Refer to Figure 8-21. Suppose the government places a $3 per-unit tax on this good. The smallest deadweight loss from the tax would occur in a market where demand is represented by

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Figure 8-25 -Refer to Figure 8-25. Suppose the government increases the size of the tax on this good from $4 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Correct AnswerverifiedTotal tax ...View AnswerShow Answer

When a tax is levied on the sellers of a good, the

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Which of the following tools help us evaluate how taxes affect economic well-being?

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Table 8-1 -Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will maximize the deadweight loss(es) from the tax?

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Economists disagree on whether labor taxes cause small or large deadweight losses. This disagreement arises primarily because economists hold different views about

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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 producer surplus after this tax is

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Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. What price will sellers receive for the good after the tax is imposed?

Correct AnswerverifiedSellers will receive...View AnswerShow Answer

To fully understand how taxes affect economic well-being, we must compare the

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A tax placed on a good

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In terms of gains from trade, why is it true that taxes cause deadweight losses?

Correct AnswerverifiedTaxes cause deadweight losses ...View AnswerShow Answer

Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much tax revenue is collected after the tax is imposed?

Correct AnswerverifiedTotal tax revenue is...View AnswerShow Answer

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 tax revenue received by the government is equal to the area

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If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as

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Figure 8-27 -Refer to Figure 8-27. Suppose that Market A is characterized by Demand 1 and Supply 1, and Market B is characterized by Demand 2 and Supply 1. If an identical tax is imposed on each market, the tax will create a larger deadweight loss in which market? Explain.

Correct AnswerverifiedThe deadweight loss will be larger in Ma...View AnswerShow Answer

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The consumer surplus with the tax is

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A tax

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An increase in the size of a tax is most likely to increase tax revenue in a market with

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According to Arthur Laffer, the graph that represents the amount of tax revenue (measured on the vertical axis) as a function of the size of the tax (measured on the horizontal axis) looks like

Correct AnswerverifiedShow Answer

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Total tax ...
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Sellers will receive...
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Taxes cause deadweight losses ...
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Total tax revenue is...
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The deadweight loss will be larger in Ma...
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