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Exam 8: Applications: The Costs of Taxation

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Question 71

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A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases producer surplus by $600 per day, generates tax revenue of $1,220 per day, and decreases the equilibrium quantity of potato chips by 120 bags per day. The tax

A) decreases consumer surplus by $645 per day.
B) decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day.
C) decreases total surplus from $3,000 to $1,800 per day.
D) creates a deadweight loss of $15 per day.

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

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Question 72

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Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax

A) also doubles.
B) triples.
C) quadruples.
D) rises by a factor of 8.

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

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Question 73

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When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will

Scenario 8-3 ​ Suppose the market demand and market supply curves are given by the equations: ​ Q^D = 200 - P -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: Q^D = 200 - (P + T) If T = 40, how many units will be bought and sold after the tax is imposed?

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Which of the following scenarios is consistent with the Laffer curve?

In the market for doodads, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for doodads is 150 per month when there is no tax. Then a tax of $3 per doodad is imposed. As a result, the government is able to raise $300 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

If the tax on a good is increased from $1 per unit to $4 per unit, the deadweight loss from the tax increases by a factor of

Figure 8-10 ​ ​ -Refer to Figure 8-10. Suppose the government places a $3 tax per unit on this good. How much is total surplus after the tax is imposed?

A tax levied on the buyers of a good shifts the

Figure 8-3 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-3. As a result of the tax,

The idea that tax cuts would increase the quantity of labor supplied, thus increasing tax revenue, became known as supply-side economics.

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low.

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 250 units. The deadweight loss from the tax is

To fully understand how taxes affect economic well-being, we must

Kate is a personal trainer whose client William pays $80 per hour-long session. William values this service at $100 per hour, while the opportunity cost of Kate's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training?

The size of a tax and the deadweight loss that results from the tax are