Question 1

Figure 8-1
 
-Refer to Figure 8-1.Suppose the government imposes a tax of P' - P'''.The area measured by M 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.E) A) and D)
F) A) and B)

Question 2

As the price elasticities of supply and demand increase,the deadweight loss from a tax increases.

Accepted Answer

A) True 
 B)False

Question 3

A $3.50 tax per gallon of paint placed on the sellers of paint will shift the supply curve

Accepted Answer

A)   downward by exactly $3.50.
B)   downward by less than $3.50.
C)   upward by exactly $3.50.
D)   upward by less than $3.50.E) A) and D)
F) C) and D)

Question 4

If the government imposes a $3 tax in a market,the buyers and sellers will share an equal burden of the tax.

Accepted Answer

A) True 
 B)False

Question 5

Figure 8-11
 
-Refer to Figure 8-11.The price labeled as P₁ on the vertical axis represents the price

Accepted Answer

A)   received by sellers before the tax is imposed.
B)   received by sellers after the tax is imposed.
C)   paid by buyers before the tax is imposed.
D)   paid by buyers after the tax is imposed.E) A) and D)
F) A) and C)

Question 6

When a tax is imposed on a good for which both demand and supply are very elastic,

Accepted Answer

A)   sellers effectively pay the majority of the tax.
B)   buyers effectively pay the majority of the tax.
C)   the tax burden is equally divided between buyers and sellers.
D)   None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.E) A) and C)
F) A) and D)

Question 7

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

Accepted Answer

A)   The greater are the price elasticities of supply and demand, the greater is the deadweight loss.
B)   The greater is the price elasticity of supply and the smaller is the price elasticity of demand, the greater is the deadweight loss.
C)   The smaller are the decreases in quantity demanded and quantity supplied, the greater the deadweight loss.
D)   The smaller is the wedge between the effective price to sellers and the effective price to buyers, the greater is the deadweight loss.E) B) and C)
F) A) and D)

Question 8

Figure 8-3
The vertical distance between points A and C represents a tax in the market.
 
-Refer to Figure 8-3.Which of the following equations is valid for the tax revenue that the tax provides to the government?

Accepted Answer

A)   Tax revenue = (P2 - P1) xQ1
B)   Tax revenue = (P3 - P1) xQ1
C)   Tax revenue = (P3 - P2) xQ1
D)   Tax revenue = (P3 - P1) x(Q2 - Q1) E) A) and B)
F) A) and C)

Question 9

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.E) B) and C)
F) A) and C)

Question 10

Other things equal,the deadweight loss of a tax

Accepted Answer

A)   decreases as the size of the tax increases.
B)   increases as the size of the tax increases, but the increase in the deadweight loss is less rapid than the increase in the size of the tax.
C)   increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax.
D)   increases as the price elasticities of demand and/or supply increase, but the deadweight loss does not change as the size of the tax increases.E) B) and C)
F) A) and D)

Question 11

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.E) A) and B)
F) A) and C)

Question 12

Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

Accepted Answer

A)   a head tax (that is, a tax everyone must pay regardless of what one does or buys) 
B)   an income tax
C)   a tax on compact discs
D)   a tax on caviarE) All of the above
F) B) and D)

Question 13

Figure 8-11
 
-Refer to Figure 8-11.Suppose Q₁ = 4; Q₂ = 7; P₁ = $6; P₂ = $8; and P₃ = $10.Then the deadweight loss of the tax is

Accepted Answer

A)   $6.
B)   $8.
C)   $9.
D)   $12.E) B) and C)
F) A) and B)

Question 14

Figure 8-9
The vertical distance between points A and C represent a tax in the market.
 
-Refer to Figure 8-9.The imposition of the tax causes the price received by sellers to decrease by

Accepted Answer

A)   $20.
B)   $200.
C)   $300.
D)   $500.E) A) and C)
F) None of the above

Question 15

A tax on a good

Accepted Answer

A)   gives buyers an incentive to buy more of the good than they otherwise would buy.
B)   gives sellers an incentive to produce less of the good than they otherwise would produce.
C)   creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 16

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 deadweight loss of the tax is

Accepted Answer

A)   [  x (P0-P5)  x Q5] + [  x (P5-0)  x Q5].
B)   [  x (P0-P2)  x Q2] +[(P2-P8)  x Q2] + [  x (P8-0)  x Q2].
C)   (P2-P8)  x Q2.
D)    x (P2-P8)  x (Q5-Q2) .E) C) and D)
F) A) and D)

Question 17

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

Accepted Answer

A)   triangle.
B)   rectangle.
C)   trapezoid.
D)   None of the above is correct; government's tax revenue is the area between the supply and demand curves, above the horizontal axis, and below the effective price to buyers.E) All of the above
F) A) and B)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Normally,both buyers and sellers of a good become worse off when the good is taxed.

Accepted Answer

A) True 
 B)False

Question 20

Figure 8-5
Suppose that the government imposes a tax of P3 - P1.
 
-Refer to Figure 8-5.The tax causes a reduction in consumer surplus that is represented by area

Accepted Answer

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

Exam 8: Application: The Costs of Taxation.

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

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Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

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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 deadweight loss of the tax is

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The benefit that government receives from a tax is measured by

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If the government imposes a $3 tax in a market,the buyers and sellers will share an equal burden of the tax.

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5.The tax causes a reduction in consumer surplus that is represented by area

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A tax on a good

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Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

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Normally,both buyers and sellers of a good become worse off when the good is taxed.

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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 M represents

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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.Which of the following equations is valid for the tax revenue that the tax provides to the government?

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Figure 8-11 -Refer to Figure 8-11.Suppose Q₁ = 4; Q₂ = 7; P₁ = $6; P₂ = $8; and P₃ = $10.Then the deadweight loss of the tax is

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Figure 8-11 -Refer to Figure 8-11.The price labeled as P₁ on the vertical axis represents the price

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A $3.50 tax per gallon of paint placed on the sellers of paint will shift the supply curve

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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

Correct AnswerverifiedShow Answer

As the price elasticities of supply and demand increase,the deadweight loss from a tax increases.

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

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Other things equal,the deadweight loss of a tax

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When a tax is imposed on a good for which both demand and supply are very elastic,

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Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9.The imposition of the tax causes the price received by sellers to decrease by

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