Question 1

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. Before the tax, what is the total surplus?

Accepted Answer

A)   $60
B)   $50
C)   $30
D)   $25E) A) and D)
F) A) and B)

Question 2

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

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

Question 4

Figure 8-21 
-Refer to Figure 8-21. Suppose the market is represented by Demand 1 and Supply 1. At first the government places a $3 per-unit tax on this good. Then the government decides to raise the tax to $6 per unit. Compared to the original tax rate, the higher tax will

Accepted Answer

A)   increase tax revenue and increase the deadweight loss from the tax.
B)   not change tax revenue and increase the deadweight loss from the tax.
C)   decrease tax revenue and increase the deadweight loss from the tax.
D)   decrease tax revenue and decrease the deadweight loss from the tax.E) A) and C)
F) B) and D)

Question 5

Figure 8-26 
-Refer to Figure 8-26. How much is total surplus at the market equilibrium?

Accepted Answer

Total surplus is the sum of co...

Question 6

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

Accepted Answer

A) True 
 B)False

Question 7

Suppose the demand curve and the supply curve in a market are both linear. To begin, there was a $5 tax per unit, and the $5 tax resulted in a deadweight loss of $1,500. Now, the tax per unit is higher, with the higher tax resulting in a deadweight loss of $6,000. What is the amount of the new tax per unit?

Accepted Answer

The new tax per unit is $10. D...

Question 8

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

Accepted Answer

A)   the larger is the decrease in quantity demanded as a result of the tax.
B)   the smaller is the tax burden on buyers relative to the tax burden on sellers.
C)   the larger is the deadweight loss of the tax.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 9

In a 2012 Wall Street Journal column, economists Edward Prescott and Lee Ohanian claimed that, in order to promote faster economic growth, the government should

Accepted Answer

A)   increase tax rates on individuals with high incomes, and leave tax rates on other individuals unchanged.
B)   equalize tax rates on all individuals, regardless of how much they earn.
C)   decrease tax rates on income and increase tax rates on consumption.
D)   increase the after-tax benefits to successful entrepreneurship and risk-taking.E) C) and D)
F) B) and C)

Question 10

Deadweight loss measures the loss

Accepted Answer

A)   in a market to buyers and sellers that is not offset by an increase in government revenue.
B)   in revenue to the government when buyers choose to buy less of the product because of the tax.
C)   of equality in a market due to government intervention.
D)   of total revenue to business firms due to the price wedge caused by the tax.E) B) and C)
F) A) and D)

Question 11

Supply-side economics is a term associated with the views of

Accepted Answer

A)   Ronald Reagan and Arthur Laffer.
B)   Karl Marx.
C)   Bill Clinton and Greg Mankiw.
D)   Milton Friedman.E) None of the above
F) B) and D)

Question 12

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The imposition of the tax causes the quantity sold to

Accepted Answer

A)   increase by 1 unit.
B)   decrease by 1 unit.
C)   increase by 2 units.
D)   decrease by 2 units.E) B) and C)
F) C) and D)

Question 13

What happens to the total surplus in a market when the government imposes a tax?

Accepted Answer

A)   Total surplus increases by the amount of the tax.
B)   Total surplus increases but by less than the amount of the tax.
C)   Total surplus decreases.
D)   Total surplus is unaffected by the tax.E) B) and C)
F) A) and D)

Question 14

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The equilibrium price and quantity before the imposition of the tax is

Accepted Answer

A)   P=$800 and Q=20.
B)   P=$600 and Q=20.
C)   P=$300 and Q=20.
D)   P=$600 and Q=40.E) A) and B)
F) A) and C)

Question 15

If the labor supply curve is very elastic, a tax on labor

Accepted Answer

A)   has a large deadweight loss.
B)   raises enough tax revenue to offset the loss in welfare.
C)   has a relatively small impact on the number of hours that workers choose to work.
D)   results in a large tax burden on the firms that hire labor.E) All of the above
F) A) and C)

Question 16

Which of the following is a tax on labor?

Accepted Answer

A)   Medicare tax
B)   inheritance tax
C)   sales tax
D)   All of the above are labor taxes.E) All of the above
F) None of the above

Question 17

Taxes are costly to market participants because they

Accepted Answer

A)   transfer resources from market participants to the government.
B)   alter incentives.
C)   distort market outcomes.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 18

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

Accepted Answer

Total surplus is the sum of co...

Question 19

Suppose that the market for product X is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $6 tax per unit?

Accepted Answer

The deadweight loss will be $1...

Question 20

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

Accepted Answer

A)   deadweight loss due to the tax.
B)   loss in consumer surplus due to the tax.
C)   loss in producer surplus due to the tax.
D)   total surplus before the tax.E) A) and D)
F) B) and C)

Exam 8: Application: The Costs of Taxation

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. Before the tax, what is the total surplus?

Correct Answer
verified

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

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 imposition of the tax causes the quantity sold to

Correct Answer
verified

Deadweight loss measures the loss

Correct Answer
verified

Correct Answer
verified
The new tax per unit is $10. D...
View Answer

What happens to the total surplus in a market when the government imposes a tax?

Correct Answer
verified

Taxes are costly to market participants because they

Correct Answer
verified

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Correct Answer
verified

If the labor supply curve is very elastic, a tax on labor

Correct Answer
verified

Supply-side economics is a term associated with the views of

Correct Answer
verified

Figure 8-26 -Refer to Figure 8-26. How much is total surplus at the market equilibrium?

Correct Answer
verified
Total surplus is the sum of co...
View Answer

In a 2012 Wall Street Journal column, economists Edward Prescott and Lee Ohanian claimed that, in order to promote faster economic growth, the government should

Correct Answer
verified

Which of the following is a tax on labor?

Correct Answer
verified

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

Correct Answer
verified

Suppose that the market for product X is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $6 tax per unit?

Correct Answer
verified
The deadweight loss will be $1...
View Answer

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The equilibrium price and quantity before the imposition of the tax is

Correct Answer
verified

Figure 8-21 -Refer to Figure 8-21. Suppose the market is represented by Demand 1 and Supply 1. At first the government places a $3 per-unit tax on this good. Then the government decides to raise the tax to $6 per unit. Compared to the original tax rate, the higher tax will

Correct Answer
verified

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

Correct Answer
verified

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

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 total surplus after the tax is imposed?

Correct Answer
verified
Total surplus is the sum of co...
View Answer

Exam 8: Application: The Costs of Taxation

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. Before the tax, what is the total surplus?

Correct AnswerverifiedShow Answer

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

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 imposition of the tax causes the quantity sold to

Correct AnswerverifiedShow Answer

Deadweight loss measures the loss

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe new tax per unit is $10. D...View AnswerShow Answer

What happens to the total surplus in a market when the government imposes a tax?

Correct AnswerverifiedShow Answer

Taxes are costly to market participants because they

Correct AnswerverifiedShow Answer

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Correct AnswerverifiedShow Answer

If the labor supply curve is very elastic, a tax on labor

Correct AnswerverifiedShow Answer

Supply-side economics is a term associated with the views of

Correct AnswerverifiedShow Answer

Figure 8-26 -Refer to Figure 8-26. How much is total surplus at the market equilibrium?

Correct AnswerverifiedTotal surplus is the sum of co...View AnswerShow Answer

In a 2012 Wall Street Journal column, economists Edward Prescott and Lee Ohanian claimed that, in order to promote faster economic growth, the government should

Correct AnswerverifiedShow Answer

Which of the following is a tax on labor?

Correct AnswerverifiedShow Answer

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

Correct AnswerverifiedShow Answer

Suppose that the market for product X is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $6 tax per unit?

Correct AnswerverifiedThe deadweight loss will be $1...View AnswerShow Answer

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The equilibrium price and quantity before the imposition of the tax is

Correct AnswerverifiedShow Answer

Figure 8-21 -Refer to Figure 8-21. Suppose the market is represented by Demand 1 and Supply 1. At first the government places a $3 per-unit tax on this good. Then the government decides to raise the tax to $6 per unit. Compared to the original tax rate, the higher tax will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

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 total surplus after the tax is imposed?

Correct AnswerverifiedTotal surplus is the sum of co...View AnswerShow Answer

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The new tax per unit is $10. D...
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Total surplus is the sum of co...
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The deadweight loss will be $1...
View Answer

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Total surplus is the sum of co...
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