Question 1

Normally, both buyers and sellers of a good become worse off when the good is taxed.

Accepted Answer

A) True 
 B)False

Question 2

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. 
-Refer to Figure 8-23. If the economy is at point A on the curve, then a decrease in the tax rate will

Accepted Answer

A)  increase the deadweight loss of the tax and increase tax revenue.
B)  increase the deadweight loss of the tax and decrease tax revenue.
C)  decrease the deadweight loss of the tax and increase tax revenue.
D)  decrease the deadweight loss of the tax and decrease tax revenue.E) B) and C)
F) All of the above

Question 3

If a tax shifts the supply curve upward (or to the left) , we can infer that the tax was levied on

Accepted Answer

A)  buyers of the good.
B)  sellers of the good.
C)  both buyers and sellers of the good.
D)  We cannot infer anything because the shift described is not consistent with a tax.E) A) and B)
F) A) and C)

Question 4

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

Question 5

When a tax is placed on the buyers of a product, a result is that buyers effectively pay

Accepted Answer

A)  less than before the tax, and sellers effectively receive less than before the tax.
B)  less than before the tax, and sellers effectively receive more than before the tax.
C)  more than before the tax, and sellers effectively receive less than before the tax.
D)  more than before the tax, and sellers effectively receive more than before the tax.E) All of the above
F) C) and D)

Question 6

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

Accepted Answer

A)  I+J+K.
B)  I+Y.
C)  L+M+Y.
D)  M.E) A) and B)
F) B) and D)

Question 7

Figure 8-26 
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is producer surplus after the tax is imposed?

Accepted Answer

Producer surplus is ...

Question 8

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by area

Accepted Answer

A)  A.
B)  B+C.
C)  C+H.
D)  F.E) All of the above
F) B) and D)

Question 9

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

Accepted Answer

A)  at the top of the Laffer curve.
B)  on the positively sloped part of the Laffer curve.
C)  on the negatively sloped part of the Laffer curve.
D)  experiencing small deadweight losses.E) B) and D)
F) A) and B)

Question 10

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 - 2(P + 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?

Accepted Answer

Prior to the tax, the equilibrium price ...

Question 11

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. Assume Erin is required to pay a tax of $5 when she hires someone to clean her house. Which of the following is true?

Accepted Answer

A)  Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.
B)  Ernesto will continue to clean Erin's house, and his producer surplus will increase.
C)  Total economic welfare (consumer surplus plus producer surplus plus tax revenue)  will decrease.
D)  All of the above are correct.E) A) and D)
F) A) and B)

Question 12

The deadweight loss of a tax rises even more rapidly than the size of the tax.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following events is consistent with an increase in the deadweight loss of the gasoline tax from $30 million to $120 million?

Accepted Answer

A)  The tax on gasoline increases from $0.30 per gallon to $0.45 per gallon.
B)  The tax on gasoline increases from $0.30 per gallon to $0.60 per gallon.
C)  The tax on gasoline increases from $0.25 per gallon to $0.45 per gallon.
D)  The tax on gasoline increases from $0.25 per gallon to $1.00 per gallon.E) B) and D)
F) None of the above

Question 14

If a tax shifts the supply curve downward (or to the right) , we can infer that the tax was levied on

Accepted Answer

A)  buyers of the good.
B)  sellers of the good.
C)  both buyers and sellers of the good.
D)  We cannot infer anything because the shift described is not consistent with a tax.E) A) and C)
F) C) and D)

Question 15

The larger the deadweight loss from taxation, the larger the cost of government programs.

Accepted Answer

A) True 
 B)False

Question 16

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The loss of producer surplus as a result of the tax is

Accepted Answer

A)  $1.
B)  $2.
C)  $3.
D)  $4.E) A) and D)
F) C) and D)

Question 17

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The per-unit burden of the tax on sellers is

Accepted Answer

A)  $2.
B)  $3.
C)  $4.
D)  $5.E) C) and D)
F) B) and C)

Question 18

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

Accepted Answer

A)  buyers of the good will bear most of the burden of the tax.
B)  sellers of the good will bear most of the burden of the tax.
C)  buyers and sellers will each bear 50 percent of the burden of the tax.
D)  both equilibrium price and quantity will increase.E) C) and D)
F) B) and D)

Question 19

The benefit that government receives from a tax is measured by

Accepted Answer

A)  deadweight loss.
B)  consumer surplus.
C)  tax incidence.
D)  tax revenue.E) C) and D)
F) A) and B)

Question 20

Figure 8-26 
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is consumer surplus after the tax is imposed?

Accepted Answer

Consumer surplus is ...

Exam 8: Application: The Costs of Taxation

Correct Answer
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Prior to the tax, the equilibrium price ...
View 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 Answer
verified

The benefit that government receives from a tax is measured by

Correct Answer
verified

The larger the deadweight loss from taxation, the larger the cost of government programs.

Correct Answer
verified

The deadweight loss of a tax rises even more rapidly than the size of the tax.

Correct Answer
verified

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-23. If the economy is at point A on the curve, then a decrease in the tax rate will

Correct Answer
verified

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by area

Correct Answer
verified

If a tax shifts the supply curve downward (or to the right) , we can infer that the tax was levied on

Correct Answer
verified

If a tax shifts the supply curve upward (or to the left) , we can infer that the tax was levied on

Correct Answer
verified

Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is consumer surplus after the tax is imposed?

Correct Answer
verified
Consumer surplus is ...
View Answer

Normally, both buyers and sellers of a good become worse off when the good is taxed.

Correct Answer
verified

Which of the following events is consistent with an increase in the deadweight loss of the gasoline tax from $30 million to $120 million?

Correct Answer
verified

When a tax is placed on the buyers of a product, a result is that buyers effectively pay

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of producer surplus as a result of the tax is

Correct Answer
verified

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The per-unit burden of the tax on sellers is

Correct Answer
verified

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

Correct Answer
verified

Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is producer surplus after the tax is imposed?

Correct Answer
verified
Producer surplus is ...
View Answer

Correct Answer
verified

Exam 8: Application: The Costs of Taxation

Correct AnswerverifiedPrior to the tax, the equilibrium price ...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

The benefit that government receives from a tax is measured by

Correct AnswerverifiedShow Answer

The larger the deadweight loss from taxation, the larger the cost of government programs.

Correct AnswerverifiedShow Answer

The deadweight loss of a tax rises even more rapidly than the size of the tax.

Correct AnswerverifiedShow Answer

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-23. If the economy is at point A on the curve, then a decrease in the tax rate will

Correct AnswerverifiedShow Answer

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by area

Correct AnswerverifiedShow Answer

If a tax shifts the supply curve downward (or to the right) , we can infer that the tax was levied on

Correct AnswerverifiedShow Answer

If a tax shifts the supply curve upward (or to the left) , we can infer that the tax was levied on

Correct AnswerverifiedShow Answer

Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is consumer surplus after the tax is imposed?

Correct AnswerverifiedConsumer surplus is ...View AnswerShow Answer

Normally, both buyers and sellers of a good become worse off when the good is taxed.

Correct AnswerverifiedShow Answer

Which of the following events is consistent with an increase in the deadweight loss of the gasoline tax from $30 million to $120 million?

Correct AnswerverifiedShow Answer

When a tax is placed on the buyers of a product, a result is that buyers effectively pay

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of producer surplus as a result of the tax is

Correct AnswerverifiedShow Answer

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The per-unit burden of the tax on sellers is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is producer surplus after the tax is imposed?

Correct AnswerverifiedProducer surplus is ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

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Prior to the tax, the equilibrium price ...
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Consumer surplus is ...
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Producer surplus is ...
View Answer

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