Question 1

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. The tax results in a deadweight loss that amounts to

Accepted Answer

A)   $600.
B)   $900.
C)   $1,500.
D)   $1,800.E) A) and B)
F) A) and C)

Question 2

Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon. As a result,

Accepted Answer

A)   tax revenue necessarily decreases.
B)   the deadweight loss of the tax necessarily decreases.
C)   the demand curve for gasoline necessarily becomes steeper.
D)   the supply curve for gasoline necessarily becomes flatter.E) B) and C)
F) B) and D)

Question 3

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

Question 4

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. Total surplus without the tax is

Accepted Answer

A)   $10, and total surplus with the tax is $2.50.
B)   $10, and total surplus with the tax is $7.50.
C)   $20, and total surplus with the tax is $2.50.
D)   $20, and total surplus with the tax is $7.50.E) A) and C)
F) C) and D)

Question 5

Scenario 8-2
Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28.
-Refer to Scenario 8-2. Assume Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?

Accepted Answer

A)   Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn.
B)   Karla is willing to pay Roland to mow her lawn, but Roland will decline her offer.
C)   Roland is willing to mow Karla's lawn, but Karla will decide to mow her own lawn.
D)   Roland and Karla still can engage in a mutually-agreeable trade.E) A) and D)
F) A) and C)

Question 6

Figure 8-4
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-4. The equilibrium price before the tax is imposed is

Accepted Answer

A)   $12, and the equilibrium quantity is 35.
B)   $8, and the equilibrium quantity is 50.
C)   $5, and the equilibrium quantity is 35.
D)   $5, and the equilibrium quantity is 50.E) None of the above
F) A) and D)

Question 7

Figure 8-25 
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is total surplus after the tax is imposed?

Accepted Answer

Total surp...

Question 8

Figure 8-7
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-7. Which of the following statements summarizes the incidence of the tax?

Accepted Answer

A)   For each unit of the good that is sold, buyers bear one-half of the tax burden, and sellers bear one-half of the tax burden.
B)   For each unit of the good that is sold, buyers bear one-third of the tax burden, and sellers bear two-thirds of the tax burden.
C)   For each unit of the good that is sold, buyers bear one-fourth of the tax burden, and sellers bear three-fourths of the tax burden.
D)   For each unit of the good that is sold, buyers bear three-fourths of the tax burden, and sellers bear one-fourth of the tax burden.E) B) and D)
F) None of the above

Question 9

Figure 8-17 
-Refer to Figure 8-17. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the market represented by

Accepted Answer

A)   D1.
B)   D2.
C)   D3.
D)   D4.E) B) and C)
F) All of the above

Question 10

Figure 8-25 
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

Accepted Answer

60 units will be bou...

Question 11

Which of the following ideas is the most plausible?

Accepted Answer

A)   Tax revenue is more likely to increase when a low tax rate is increased than when a high tax rate is increased.
B)   Tax revenue is less likely to increase when a low tax rate is increased than when a high tax rate is increased.
C)   Tax revenue is likely to increase by the same amount when a low tax rate is increased and when a high tax rate is increased.
D)   Decreasing a tax rate can never increase tax revenue.E) B) and D)
F) A) and C)

Question 12

Scenario 8-1
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week.
-Refer to Scenario 8-1. If Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is

Accepted Answer

A)   $80.
B)   $30.
C)   $20.
D)   $10.E) None of the above
F) A) and D)

Question 13

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3. The loss in producer surplus caused by the tax is measured by the area

Accepted Answer

A)   ABC.
B)   P1P3ABC.
C)   P1P2BC.
D)   P1C0.E) All of the above
F) B) and C)

Question 14

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax?

Accepted Answer

A)   the maximum value that Rebecca would pay for dog sitting
B)   the $30 tax
C)   the lost benefit to Rebecca and Susan because after the tax, Susan will not dog sit for Rebecca
D)   the lost benefit to Rebecca of being unable to hire a dog sitter because Rebecca is the one who would pay the taxE) All of the above
F) B) and D)

Question 15

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

Question 16

Figure 8-11 
-Refer to Figure 8-11. Neither a shift of the demand curve nor a shift of the supply curve is shown on the figure. However, we know that, when the tax is imposed,

Accepted Answer

A)   the demand curve will shift.
B)   the supply curve will shift.
C)   either the demand curve or the supply curve will shift.
D)   None of the above are correct; the tax causes neither the demand curve nor the supply curve to shift.E) C) and D)
F) B) and C)

Question 17

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 buyers effectively pay after the tax is imposed is

Accepted Answer

A)   P1.
B)   P2.
C)   P3.
D)   P4.E) A) and B)
F) A) and C)

Question 18

Figure 8-25 
-Refer to Figure 8-25. What are the equilibrium price and equilibrium quantity in this market?

Accepted Answer

The equilibrium pric...

Question 19

Figure 8-26 
-Refer to Figure 8-26. Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Accepted Answer

Total tax revenue will increas...

Question 20

As the size of a tax rises, the deadweight loss

Accepted Answer

A)   rises, and tax revenue first rises, then falls.
B)   rises as does tax revenue.
C)   falls, and tax revenue first rises, then falls.
D)   falls as does tax revenue.E) A) and B)
F) None of the above

Exam 8: Application: The Costs of Taxation

Figure 8-17 -Refer to Figure 8-17. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the market represented by

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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. The tax results in a deadweight loss that amounts to

Correct Answer
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Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. Total surplus without the tax is

Correct Answer
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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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As the size of a tax rises, the deadweight loss

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Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Which of the following statements summarizes the incidence of the tax?

Correct Answer
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Figure 8-25 -Refer to Figure 8-25. What are the equilibrium price and equilibrium quantity in this market?

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The equilibrium pric...
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Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. -Refer to Scenario 8-1. If Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is

Correct Answer
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Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon. As a result,

Correct Answer
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Correct Answer
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Figure 8-11 -Refer to Figure 8-11. Neither a shift of the demand curve nor a shift of the supply curve is shown on the figure. However, we know that, when the tax is imposed,

Correct Answer
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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 L+M+Y represents

Correct Answer
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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 loss in producer surplus caused by the tax is measured by the area

Correct Answer
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Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The equilibrium price before the tax is imposed is

Correct Answer
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Figure 8-26 -Refer to Figure 8-26. Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Correct Answer
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Total tax revenue will increas...
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Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is total surplus after the tax is imposed?

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Total surp...
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Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

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60 units will be bou...
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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 buyers effectively pay after the tax is imposed is

Correct Answer
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Which of the following ideas is the most plausible?

Correct Answer
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Exam 8: Application: The Costs of Taxation

Figure 8-17 -Refer to Figure 8-17. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the market represented by

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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. The tax results in a deadweight loss that amounts to

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Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. Total surplus without the tax is

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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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As the size of a tax rises, the deadweight loss

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Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Which of the following statements summarizes the incidence of the tax?

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Figure 8-25 -Refer to Figure 8-25. What are the equilibrium price and equilibrium quantity in this market?

Correct AnswerverifiedThe equilibrium pric...View AnswerShow Answer

Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. -Refer to Scenario 8-1. If Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is

Correct AnswerverifiedShow Answer

Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon. As a result,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 8-11 -Refer to Figure 8-11. Neither a shift of the demand curve nor a shift of the supply curve is shown on the figure. However, we know that, when the tax is imposed,

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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 L+M+Y 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. The loss in producer surplus caused by the tax is measured by the area

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Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The equilibrium price before the tax is imposed is

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Figure 8-26 -Refer to Figure 8-26. Suppose the government increases the size of the tax on this good from $3 per unit to $6 per unit. Will the tax revenue collected from the tax increase, decrease, or stay the same?

Correct AnswerverifiedTotal tax revenue will increas...View AnswerShow Answer

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Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is total surplus after the tax is imposed?

Correct AnswerverifiedTotal surp...View AnswerShow Answer

Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

Correct Answerverified60 units will be bou...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 price that buyers effectively pay after the tax is imposed is

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Which of the following ideas is the most plausible?

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The equilibrium pric...
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Total tax revenue will increas...
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Total surp...
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60 units will be bou...
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