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Exam 8: Application: the Costs of Taxation

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Question 31

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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?

A) Tax revenue = P2 - P1) xQ1
B) Tax revenue = P3 - P1) xQ1
C) Tax revenue = P3 - P2) xQ1
D) Tax revenue = P3 - P1) xQ2 - Q1)

E) None of the above
F) A) and B)

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Question 32

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The deadweight loss from a $3 tax will be largest in a market with

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) None of the above
F) B) and D)

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Question 33

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Which of the following ideas is the most plausible?

Diana is a personal trainer whose client Charles pays $80 per hour-long session. Charles values this service at $100 per hour, while the opportunity cost of Diana's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. Before the tax, what is the total surplus?

When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.

The elasticities of the supply and demand curves in the market for cigarettes affect how much a tax distorts that market.

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?

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The per-unit burden of the tax on buyers is

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

The benefit that government receives from a tax is measured by

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The producer surplus without the tax is

Figure 8-14 -Refer to Figure 8-14. Which of the following statements is not correct?

When a tax is imposed on a good for which the demand is relatively elastic and the supply is relatively inelastic,

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. As a result of the tax, consumer surplus decreases by

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The price that sellers effectively receive after the tax is imposed is

Taxes are costly to market participants because they

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. After the tax goes into effect, consumer surplus is the area

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus before the tax is measured by the area

Suppose that instead of a supply-demand diagram, you are given the following information: Qs = 100 + 3P Qd = 400 - 2P From this information compute equilibrium price and quantity. Now suppose that a tax is placed on buyers so that Qd = 400 - 2P + T). If T = 15, 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?

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: If T = 40, what price will buyers pay and what price will sellers receive?