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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The price that sellers effectively receive after the tax is imposed is A) P1. B) P2. C) P3. D) P4. -Refer to Figure 8-5. The price that sellers effectively receive after the tax is imposed is


A) P1.
B) P2.
C) P3.
D) P4.

E) All of the above
F) A) and C)

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Figure 8-4 The vertical distance between points A and B represents a tax in the market. Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The amount of tax revenue received by the government is equal to A) $245. B) $350. C) $490. D) $700. -Refer to Figure 8-4. The amount of tax revenue received by the government is equal to


A) $245.
B) $350.
C) $490.
D) $700.

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

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Figure 8-16 Figure 8-16 -Refer to Figure 8-16. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (b) , Panel (a) illustrates which of the following statements? A) When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic. B) When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic. C) When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic. D) When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic. Figure 8-16 -Refer to Figure 8-16. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (b) , Panel (a) illustrates which of the following statements? A) When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic. B) When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic. C) When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic. D) When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic. -Refer to Figure 8-16. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (b) , Panel (a) illustrates which of the following statements?


A) When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic.
B) When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic.
C) When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic.
D) When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic.

E) A) and C)
F) A) and D)

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Because taxes distort incentives, they cause markets to allocate resources inefficiently.

A) True
B) False

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Which of the following quantities decrease in response to a tax on a good?


A) the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus
B) the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good
C) the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus
D) None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.

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

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Figure 8-10 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 A) [1/2 x (P0-P5) x Q5] + [1/2 x (P5-0) x Q5]. B) [1/2 x (P0-P2) x Q2] +[(P2-P8) x Q2] + [1/2 x (P8-0) x Q2]. C) (P2-P8) x Q2. D) 1/2 x (P2-P8) x (Q5-Q2) . -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


A) [1/2 x (P0-P5) x Q5] + [1/2 x (P5-0) x Q5].
B) [1/2 x (P0-P2) x Q2] +[(P2-P8) x Q2] + [1/2 x (P8-0) x Q2].
C) (P2-P8) x Q2.
D) 1/2 x (P2-P8) x (Q5-Q2) .

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

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Figure 8-6 The vertical distance between points A and B represents a tax in the market. 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, the price buyers effectively pay is A) $4. B) $6. C) $10. D) $16. -Refer to Figure 8-6. When the tax is imposed in this market, the price buyers effectively pay is


A) $4.
B) $6.
C) $10.
D) $16.

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

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Is the United States' labor supply more inelastic or more elastic? Briefly summarize the competing theories.

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Some labor economists believe that most ...

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Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct?


A) The demand for cigars is less elastic than the supply of cigars.
B) The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50.
C) The deadweight loss of the tax is $12.50.
D) All of the above are correct.

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

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Figure 8-9 The vertical distance between points A and C represents a tax in the market. Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is A) $4,000. B) $5,000. C) $6,000. D) $10,000. -Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is


A) $4,000.
B) $5,000.
C) $6,000.
D) $10,000.

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

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For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is


A) $1,750.
B) $2,250.
C) $3,000.
D) $4,500.

E) All of the above
F) B) and D)

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Taxes on labor encourage all of the following except


A) older workers to take early retirement from the labor force.
B) mothers to stay at home rather than work in the labor force.
C) workers to work overtime.
D) people to be paid "under the table."

E) All of the above
F) None of the above

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Figure 8-12 Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of tax revenue collected by the government is A) $7.50. B) $15.00. C) $22.50. D) $45.00. -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of tax revenue collected by the government is


A) $7.50.
B) $15.00.
C) $22.50.
D) $45.00.

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

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Figure 8-10 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 price that buyers pay is A) P0. B) P2. C) P5. D) P8. -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 price that buyers pay is


A) P0.
B) P2.
C) P5.
D) P8.

E) A) and D)
F) B) and D)

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When a tax is imposed on a good, the resulting decrease in consumer surplus is always larger than the resulting decrease in producer surplus.

A) True
B) False

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Figure 8-19 The vertical distance between points A and B represents the original tax. Figure 8-19 The vertical distance between points A and B represents the original tax. -Refer to Figure 8-19. The original tax can be represented by the vertical distance AB. Suppose the government is deciding whether to lower the tax to CD or raise it to FG. Which of the following statements is correct? A) Compared to the original tax, the larger tax will decrease both tax revenue and deadweight loss. B) Compared to the original tax, the smaller tax will increase both tax revenue and deadweight loss. C) Compared to the original tax, the larger tax will decrease tax revenue and increase deadweight loss. D) Both a and b are correct. -Refer to Figure 8-19. The original tax can be represented by the vertical distance AB. Suppose the government is deciding whether to lower the tax to CD or raise it to FG. Which of the following statements is correct?


A) Compared to the original tax, the larger tax will decrease both tax revenue and deadweight loss.
B) Compared to the original tax, the smaller tax will increase both tax revenue and deadweight loss.
C) Compared to the original tax, the larger tax will decrease tax revenue and increase deadweight loss.
D) Both a and b are correct.

E) All of the above
F) C) and D)

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The more elastic the supply, the larger the deadweight loss from a tax, all else equal.

A) True
B) False

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Suppose the government increases the size of a tax by 20 percent. The deadweight loss from that tax


A) increases by 20 percent.
B) increases by more than 20 percent.
C) increases but by less than 20 percent.
D) decreases by 20 percent.

E) C) and D)
F) B) and C)

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Using demand and supply diagrams, show the difference in deadweight loss between (a) a market with inelastic demand and supply and (b) a market with elastic demand and supply.

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Figure 8-9 The vertical distance between points A and C represents a tax in the market. Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The imposition of the tax causes the price received by sellers to decrease by A) $20. B) $200. C) $300. D) $500. -Refer to Figure 8-9. The imposition of the tax causes the price received by sellers to decrease by


A) $20.
B) $200.
C) $300.
D) $500.

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

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