Question 1

A tax on a good

Accepted Answer

A)   raises the price that buyers effectively pay and raises the price that sellers effectively receive.
B)   raises the price that buyers effectively pay and lowers the price that sellers effectively receive.
C)   lowers the price that buyers effectively pay and raises the price that sellers effectively receive.
D)   lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.E) A) and B)
F) A) and C)

Question 2

The supply curve for cameras is the typical upward-sloping straight line,and the demand curve for cameras is the typical downward-sloping straight line.When cameras are taxed,the area on the relevant supply-and-demand graph that represents

Accepted Answer

A)   government's tax revenue is a rectangle.
B)   the deadweight loss of the tax is a triangle.
C)   the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle.
D)   All of the above are correct.E) A) and B)
F) A) and D)

Question 3

Figure 8-12 
-Refer to Figure 8-12.Which of the following combinations will minimize the deadweight loss from a tax?

Accepted Answer

A)   supply 1 and demand 1
B)   supply 2 and demand 2
C)   supply 1 and demand 2
D)   supply 2 and demand 1E) A) and B)
F) C) and D)

Question 4

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6.Without a tax,the equilibrium price and quantity are

Accepted Answer

A)   $16 and 300.
B)   $10 and 600.
C)   $10 and 300.
D)   $6 and 300.E) A) and B)
F) C) and D)

Question 5

Which of the following statements is correct regarding the imposition of a tax on gasoline?

Accepted Answer

A)   The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government.
B)   The incidence of the tax depends upon the price elasticities of demand and supply.
C)   The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government.
D)   The amount of tax revenue raised by the tax does not depend upon the amount of the tax per unit.E) None of the above
F) All of the above

Question 6

Suppose the government increases the size of a tax by 40 percent.The deadweight loss from that tax

Accepted Answer

A)   increases by 40 percent.
B)   increases by more than 40 percent.
C)   increases but by less than 40 percent.
D)   decreases by 40 percent.E) B) and C)
F) A) and B)

Question 7

The less freedom people are given to choose the date of their retirement,the

Accepted Answer

A)   more elastic is the supply of labor.
B)   less elastic is the supply of labor.
C)   flatter is the labor supply curve.
D)   smaller is the decrease in employment that will result from a tax on labor.E) B) and D)
F) A) and B)

Question 8

The deadweight loss from a tax of $5 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.E) B) and C)
F) A) and D)

Question 9

The result of the large tax cuts in the first Reagan Administration demonstrated very convincingly that Arthur Laffer was correct when he asserted that cuts in tax rates would increase tax revenue.

Accepted Answer

A) True 
 B)False

Question 10

If the government imposes a $3 tax in a market,the equilibrium price will rise by $3.

Accepted Answer

A) True 
 B)False

Question 11

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6.When the tax is imposed in this market,buyers effectively pay what amount of the $10 tax?

Accepted Answer

A)   $0
B)   $4
C)   $6
D)   $10E) A) and B)
F) C) and D)

Question 12

When a tax is levied on buyers of a good,

Accepted Answer

A)   government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax.
B)   there is an increase in the quantity of the good supplied.
C)   a wedge is placed between the price buyers pay and the price sellers effectively receive.
D)   the effective price to buyers decreases because the demand curve shifts leftward.E) C) and D)
F) B) and C)

Question 13

Total surplus with a tax is equal to

Accepted Answer

A)   consumer surplus plus producer surplus.
B)   consumer surplus minus producer surplus.
C)   consumer surplus plus producer surplus minus tax revenue.
D)   consumer surplus plus producer surplus plus tax revenue.E) All of the above
F) B) and D)

Question 14

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) .E) None of the above
F) B) and C)

Question 15

Tax revenues increase in direct proportion to increases in the size of the tax.

Accepted Answer

A) True 
 B)False

Question 16

Suppose a tax of $1 per unit is imposed on a good.The more elastic the demand for the good,other things equal,

Accepted Answer

A)   the larger is the decrease in quantity demanded as a result of the tax.
B)   the smaller is the tax burden on buyers relative to the tax burden on sellers.
C)   the larger is the deadweight loss of the tax.
D)   All of the above are correct.E) A) and C)
F) B) and D)

Question 17

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

Accepted Answer

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

Question 18

A decrease 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) None of the above
F) A) and D)

Question 19

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 consumer surplus is

Accepted Answer

A)   (P0-P2) x Q2.
B)   x (P0-P2) x Q2.
C)   (P0-P5) x Q5.
D)   x (P0-P5) x Q5.E) B) and D)
F) None of the above

Question 20

Suppose the tax on gasoline is raised from $0.50 per gallon to $2.50 per gallon.As a result,

Accepted Answer

A)   tax revenue necessarily increases.
B)   the deadweight loss of the tax necessarily increases.
C)   the demand curve for gasoline necessarily becomes steeper.
D)   All of the above are correct.E) A) and D)
F) B) 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 tax is imposed in this market,buyers effectively pay what amount of the $10 tax?

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A tax on a good

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A tax levied on the sellers of a good shifts the

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Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6.Without a tax,the equilibrium price and quantity are

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Figure 8-12 -Refer to Figure 8-12.Which of the following combinations will minimize the deadweight loss from a tax?

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The deadweight loss from a tax of $5 per unit will be smallest in a market with

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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,producer surplus is represented by area

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Suppose the tax on gasoline is raised from $0.50 per gallon to $2.50 per gallon.As a result,

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The less freedom people are given to choose the date of their retirement,the

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Suppose the government increases the size of a tax by 40 percent.The deadweight loss from that tax

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The result of the large tax cuts in the first Reagan Administration demonstrated very convincingly that Arthur Laffer was correct when he asserted that cuts in tax rates would increase tax revenue.

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Suppose a tax of $1 per unit is imposed on a good.The more elastic the demand for the good,other things equal,

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Total surplus with a tax is equal to

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Tax revenues increase in direct proportion to increases in the size of the tax.

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

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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 consumer surplus is

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Which of the following statements is correct regarding the imposition of a tax on gasoline?

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When a tax is levied on buyers of a good,

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If the government imposes a $3 tax in a market,the equilibrium price will rise by $3.

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The supply curve for cameras is the typical upward-sloping straight line,and the demand curve for cameras is the typical downward-sloping straight line.When cameras are taxed,the area on the relevant supply-and-demand graph that represents

Correct AnswerverifiedShow Answer

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