Question 1

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

Accepted Answer

A)   $2,000.
B)   $5,000.
C)   $8,000.
D)   $16,000.E) All of the above
F) A) and B)

Question 2

Figure 8-22 
-Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is correct?

Accepted Answer

A)   Compared to the original tax, the smaller tax will decrease both tax revenue and deadweight loss.
B)   Compared to the original tax, the larger 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) A) and B)
F) None of the above

Question 3

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

Accepted Answer

A)   P3ACP1.
B)   ABC.
C)   P2DAP3.
D)   P1CDP2.E) B) and C)
F) A) and B)

Question 4

When a tax is levied on a good, the buyers and sellers of the good share the burden,

Accepted Answer

A)   provided the tax is levied on the sellers.
B)   provided the tax is levied on the buyers.
C)   provided a portion of the tax is levied on the buyers, with the remaining portion levied on the sellers.
D)   regardless of how the tax is levied.E) None of the above
F) All of the above

Question 5

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. Consumer surplus before the tax was levied is represented by area

Accepted Answer

A)   A.
B)   A+B+C.
C)   D+H+F.
D)   F.E) A) and B)
F) A) and D)

Question 6

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, producer surplus is the area

Accepted Answer

A)   D+F+G+H+J.
B)   D+F+G+H.
C)   D+F+J.
D)   J.E) B) and C)
F) A) and D)

Question 7

Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the

Accepted Answer

A)   tax is placed on the sellers of the product.
B)   tax is placed on the buyers of the product.
C)   supply of the product is more elastic than the demand for the product.
D)   demand for the product is more elastic than the supply of the product.E) B) and D)
F) C) and D)

Question 8

Figure 8-29 
-Refer to Figure 8-29. If you were a policymaker choosing between a $3, $6, or $9 tax, which would you choose and why?

Accepted Answer

If the objective is to maximize tax reve...

Question 9

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, how much is the burden of the tax on the buyers and on the sellers?

Accepted Answer

The burden of the ta...

Question 10

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are

Accepted Answer

A)   $16 and 300.
B)   $10 and 600.
C)   $10 and 300.
D)   $6 and 300.E) B) and C)
F) None of the above

Question 11

The marginal tax rate on labor income for many workers in the United States is almost

Accepted Answer

A)   30 percent.
B)   40 percent.
C)   50 percent.
D)   65 percent.E) A) and B)
F) B) and D)

Question 12

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

Question 13

If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax.

Accepted Answer

A) True 
 B)False

Question 14

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. What happens to producer surplus when the tax is imposed in this market?

Accepted Answer

A)   Producer surplus falls by $600.
B)   Producer surplus falls by $900.
C)   Producer surplus falls by $1,800.
D)   Producer surplus falls by $2,100.E) B) and C)
F) A) and D)

Question 15

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The total surplus with the tax is

Accepted Answer

A)   $2,000.
B)   $3,000.
C)   $15,000.
D)   $20,000.E) A) and B)
F) C) and D)

Question 16

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+L+M represents

Accepted Answer

A)   total surplus after the tax.
B)   total surplus before the tax.
C)   deadweight loss from the tax.
D)   tax revenue.E) B) and C)
F) A) and C)

Question 17

Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the good, other things equal, the

Accepted Answer

A)   smaller is the response of quantity supplied to the tax.
B)   larger is the tax burden on sellers relative to the tax burden on buyers.
C)   larger is the deadweight loss of the tax.
D)   All of the above are correct.E) B) and C)
F) A) and C)

Question 18

A tax on a good

Accepted Answer

A)   gives buyers an incentive to buy less of the good than they otherwise would buy.
B)   gives sellers an incentive to produce more of the good than they otherwise would produce.
C)   creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 19

As more people become self-employed, which allows them to determine how many hours they work per week, we would expect the deadweight loss from the Social Security tax to

Accepted Answer

A)   increase, and the revenue generated from the tax to increase.
B)   increase, and the revenue generated from the tax to decrease.
C)   decrease, and the revenue generated from the tax to increase.
D)   decrease, and the revenue generated from the tax to decrease.E) A) and B)
F) None of the above

Question 20

Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and decreases producer surplus by $4,400. The deadweight loss of the tax is

Accepted Answer

A)   $200.
B)   $400.
C)   $600.
D)   $1,200.E) B) and C)
F) All of the above

Exam 8: Application: The Costs of Taxation

Suppose a tax of $4 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 2,000 units to 1,700 units. The tax decreases consumer surplus by $3,000 and decreases producer surplus by $4,400. The deadweight loss of the tax is

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Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The total surplus with the tax is

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If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax.

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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,

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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, how much is the burden of the tax on the buyers and on the sellers?

Correct AnswerverifiedThe burden of the ta...View AnswerShow Answer

Figure 8-29 -Refer to Figure 8-29. If you were a policymaker choosing between a $3, $6, or $9 tax, which would you choose and why?

Correct AnswerverifiedIf the objective is to maximize tax reve...View AnswerShow Answer

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+L+M represents

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. Consumer surplus before the tax was levied is represented by area

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Suppose a tax of $1 per unit is imposed on a good. The more elastic the supply of the good, other things equal, the

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Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the

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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. Without a tax, the equilibrium price and quantity are

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As more people become self-employed, which allows them to determine how many hours they work per week, we would expect the deadweight loss from the Social Security tax to

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Figure 8-22 -Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is correct?

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When a tax is levied on a good, the buyers and sellers of the good share the burden,

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A tax on a good

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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 amount of tax revenue received by the government is equal to the area

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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. What happens to producer surplus when the tax is imposed in this market?

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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, producer surplus is the area

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The marginal tax rate on labor income for many workers in the United States is almost

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

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The burden of the ta...
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If the objective is to maximize tax reve...
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