Question 1

Suppose Australia puts the same tax on cycads harvested in the wild and ornamental ferns sold in nurseries. Cycads are a very slow growing plant that is subject to a small, regular harvest in the wild, often by Aborigines. Assume that the tax is the same for both plants and that the elasticity of demand is the same for both plants. What would be the difference in the tax burden for these cycads and ferns and why?

Accepted Answer

Cycads are basically drawn from a fixed,...

Question 2

The Laffer curve indicates that income tax collections:

Accepted Answer

A)   will be very low if income tax rates are very low
B)   will be very low if income tax rates are very high
C)   will be at a maximum if income tax rates are at some intermediate level between very low and very high
D)   all of the above are correctE) A) and B)
F) A) and C) D

Question 3

A tax on luxuries will create a smaller deadweight loss than will the same tax on necessities, ceteris paribus.

Accepted Answer

A) True 
 B)False

Question 4

Graph 8-1
 
-According to Graph 8-1, producer surplus before the tax is represented by area:

Accepted Answer

A)   A
B)   A + B + C
C)   D + E + F
D)   FE) B) and D)
F) B) and C)

Question 5

Taxes cause deadweight losses because they prevent buyers and sellers from realising some of the gains from trade.

Accepted Answer

A) True 
 B)False

Question 6

A major political problem with collecting taxes to finance government spending is that:

Accepted Answer

A)   taxes make taxpayers worse off since government spending benefits no one
B)   taxes make taxpayers worse off since government spending benefits only those on welfare
C)   the people who pay the taxes are often not the same people who benefit from the government spending of tax funds
D)   taxes reduce economic welfare more than the expenditure of tax funds benefits societyE) A) and B)
F) All of the above

Question 7

The higher a country's tax rates, the more likely that country will be:

Accepted Answer

A)   on the top of the Laffer curve
B)   on the positively sloped part of the Laffer curve
C)   above the Laffer curve
D)   on the negatively sloped part of the Laffer curveE) None of the above
F) C) and D)

Question 8

Graph 8-1
 
-According to Graph 8-1, the loss in total welfare resulting from the levying of the tax is represented by area:

Accepted Answer

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

Question 9

Graph 8-1
 
-According to Graph 8-1, the total surplus (consumer, producer, and government)  with the tax is represented by area:

Accepted Answer

A)   A + B + C
B)   D + E + F
C)   A + B + D + F
D)   C + EE) A) and B)
F) A) and C)

Question 10

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

Accepted Answer

A)   both buyers and sellers are economically worse off
B)   only sellers are worse off because they have to pay the tax
C)   only buyers are worse off because sellers pass the tax on to them
D)   there is no change because sellers will produce a different good for buyers to purchaseE) C) and D)
F) B) and C)

Question 11

The more inelastic the supply and demand curves in a market, the more taxes in that market distort behaviour, and the more likely it is that a tax cut will raise tax revenue.

Accepted Answer

A) True 
 B)False

Question 12

Tax cuts and deregulation may cause output in an economy to increase by each of the following, except:

Accepted Answer

A)   increasing the value of output by reducing deadweight tax burdens
B)   luring the underground economy to the surface
C)   increasing incentives to produce
D)   reducing competitionE) B) and D)
F) C) and D)

Question 13

Although tax revenue eventually begins to fall as tax rates increase, the revenue will always be greater than zero, no matter how large the tax is.

Accepted Answer

A) True 
 B)False

Question 14

Taxes on labour encourage all of the following, except:

Accepted Answer

A)   older workers to take early retirement from the labour force
B)   mothers to stay at home rather than work in the labour force
C)   workers to work overtime
D)   people to be paid under the tableE) C) and D)
F) All of the above

Question 15

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

Accepted Answer

A) True 
 B)False

Question 16

Assume that a tax is levied on a good and the government uses the funds to build statues of former prime ministers. In this case there would be:

Accepted Answer

A)   a decrease in consumer surplus to consumers of the taxed good
B)   a decrease in producer surplus to producers of the taxed good
C)   a probable decrease in the welfare of society that exceeded the deadweight economic loss from the tax
D)   all of the above would occurE) B) and D)
F) B) and C)

Question 17

Suppose that instead of a supply-demand diagram, you are given the following information:
Qs = 90 + P
Qd = 300 - 2P
From this information, compute the equilibrium price (P) and quantity (Q).
Now suppose that a tax (T) is placed on buyers so that
Qd = 300 - 2(P + T).
If T = 12, solve for the new equilibrium price and quantity. (Note: P is the price received by sellers and P + T is the price paid by buyers.) Compare these answers for equilibrium price and quantity with your first answers. What does this show you?

Accepted Answer

Before the tax, the market equilibrium p...

Question 18

Graph 8-3
 
-According to Graph 8-3, producer surplus before the tax equals:

Accepted Answer

A)   $1200
B)   $2400
C)   $3200
D)   $4800E) B) and C)
F) A) and D) A

Question 19

Graph 8-1
 3 B)  P2 C)  P1 D)  impossible to determine" class="answers-bank-image d-inline" rel="preload" >
-According to Graph 8-1, the price buyers pay after the tax is:

Accepted Answer

A)   P3
B)   P2
C)   P1
D)   impossible to determineE) B) and C)
F) B) and D)

Question 20

Graph 8-3
 
-According to Graph 8-3, the price sellers receive after the tax is:

Accepted Answer

A)   $8
B)   $12
C)   $16
D)   $20E) B) and D)
F) A) and B) B

Exam 8: Application: The Costs of Taxation

Correct Answer
verified
Cycads are basically drawn from a fixed,...
View Answer

The Laffer curve indicates that income tax collections:

Correct Answer
verified
D

A tax on luxuries will create a smaller deadweight loss than will the same tax on necessities, ceteris paribus.

Correct Answer
verified

Graph 8-1 -According to Graph 8-1, producer surplus before the tax is represented by area:

Correct Answer
verified

Taxes cause deadweight losses because they prevent buyers and sellers from realising some of the gains from trade.

Correct Answer
verified

A major political problem with collecting taxes to finance government spending is that:

Correct Answer
verified

The higher a country's tax rates, the more likely that country will be:

Correct Answer
verified

Graph 8-1 -According to Graph 8-1, the loss in total welfare resulting from the levying of the tax is represented by area:

Correct Answer
verified

Graph 8-1 -According to Graph 8-1, the total surplus (consumer, producer, and government) with the tax is represented by area:

Correct Answer
verified

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

Correct Answer
verified

The more inelastic the supply and demand curves in a market, the more taxes in that market distort behaviour, and the more likely it is that a tax cut will raise tax revenue.

Correct Answer
verified

Tax cuts and deregulation may cause output in an economy to increase by each of the following, except:

Correct Answer
verified

Although tax revenue eventually begins to fall as tax rates increase, the revenue will always be greater than zero, no matter how large the tax is.

Correct Answer
verified

Taxes on labour encourage all of the following, except:

Correct Answer
verified

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

Correct Answer
verified

Assume that a tax is levied on a good and the government uses the funds to build statues of former prime ministers. In this case there would be:

Correct Answer
verified

Correct Answer
verified
Before the tax, the market equilibrium p...
View Answer

Graph 8-3 -According to Graph 8-3, producer surplus before the tax equals:

Correct Answer
verified
A

Graph 8-1 -According to Graph 8-1, the price buyers pay after the tax is:

Correct Answer
verified

Graph 8-3 -According to Graph 8-3, the price sellers receive after the tax is:

Correct Answer
verified
B

Exam 8: Application: The Costs of Taxation

Correct AnswerverifiedCycads are basically drawn from a fixed,...View AnswerShow Answer

The Laffer curve indicates that income tax collections:

Correct AnswerverifiedD

A tax on luxuries will create a smaller deadweight loss than will the same tax on necessities, ceteris paribus.

Correct AnswerverifiedShow Answer

Graph 8-1 -According to Graph 8-1, producer surplus before the tax is represented by area:

Correct AnswerverifiedShow Answer

Taxes cause deadweight losses because they prevent buyers and sellers from realising some of the gains from trade.

Correct AnswerverifiedShow Answer

A major political problem with collecting taxes to finance government spending is that:

Correct AnswerverifiedShow Answer

The higher a country's tax rates, the more likely that country will be:

Correct AnswerverifiedShow Answer

Graph 8-1 -According to Graph 8-1, the loss in total welfare resulting from the levying of the tax is represented by area:

Correct AnswerverifiedShow Answer

Graph 8-1 -According to Graph 8-1, the total surplus (consumer, producer, and government) with the tax is represented by area:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The more inelastic the supply and demand curves in a market, the more taxes in that market distort behaviour, and the more likely it is that a tax cut will raise tax revenue.

Correct AnswerverifiedShow Answer

Tax cuts and deregulation may cause output in an economy to increase by each of the following, except:

Correct AnswerverifiedShow Answer

Although tax revenue eventually begins to fall as tax rates increase, the revenue will always be greater than zero, no matter how large the tax is.

Correct AnswerverifiedShow Answer

Taxes on labour encourage all of the following, except:

Correct AnswerverifiedShow Answer

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

Correct AnswerverifiedShow Answer

Assume that a tax is levied on a good and the government uses the funds to build statues of former prime ministers. In this case there would be:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedBefore the tax, the market equilibrium p...View AnswerShow Answer

Graph 8-3 -According to Graph 8-3, producer surplus before the tax equals:

Correct AnswerverifiedA

Graph 8-1 -According to Graph 8-1, the price buyers pay after the tax is:

Correct AnswerverifiedShow Answer

Graph 8-3 -According to Graph 8-3, the price sellers receive after the tax is:

Correct AnswerverifiedB

Correct Answer
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Cycads are basically drawn from a fixed,...
View Answer

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D

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Before the tax, the market equilibrium p...
View Answer

Correct Answer
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A

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Correct Answer
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B