Question 1

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. Without the tax, the consumer surplus is

Accepted Answer

A)  (P0-P2)  x Q2.
B)  1/2 x (P0-P2)  x Q2.
C)  (P0-P5)  x Q5.
D)  1/2 x (P0-P5)  x Q5.E) None of the above
F) C) and D)

Question 2

Figure 8-14 
-Refer to Figure 8-14. Which of the following combinations will minimize the deadweight loss from a tax?

Accepted Answer

A)  supply 1 and demand 1
B)  supply 2 and demand 2
C)  supply 1 and demand 2
D)  supply 2 and demand 1E) A) and C)
F) A) and B)

Question 3

A tax on a good

Accepted Answer

A)  raises the price that buyers effectively pay and raises the price that sellers effectively receive.
B)  raises the price that buyers effectively pay and lowers the price that sellers effectively receive.
C)  lowers the price that buyers effectively pay and raises the price that sellers effectively receive.
D)  lowers the price that buyers effectively pay and lowers the price that sellers effectively receive.E) B) and C)
F) A) and D)

Question 4

Figure 8-13 
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The amount of deadweight loss resulting from this tax is

Accepted Answer

A)  $120.
B)  $80.
C)  $50.
D)  $25.E) C) and D)
F) B) and D)

Question 5

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 quantity sold to

Accepted Answer

A)  increase by 20 units.
B)  increase by 500 units.
C)  decrease by 20 units.
D)  decrease by 500 units.E) None of the above
F) B) and C)

Question 6

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 not correct?

Accepted Answer

A)  Compared to the original tax, the larger tax will decrease tax revenue.
B)  Compared to the original tax, the smaller tax will decrease deadweight loss.
C)  Compared to the original tax, the smaller tax will decrease tax revenue.
D)  Compared to the original tax, the larger tax will increase deadweight loss.E) A) and C)
F) B) and C)

Question 7

When a tax on a good is enacted,

Accepted Answer

A)  buyers and sellers share the burden of the tax regardless of whether the tax is levied on buyers or on sellers.
B)  buyers always bear the full burden of the tax.
C)  sellers always bear the full burden of the tax.
D)  sellers bear the full burden of the tax if the tax is levied on them; buyers bear the full burden of the tax if the tax is levied on them.E) C) and D)
F) All of the above

Question 8

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

Accepted Answer

A)  California economics.
B)  welfare economics.
C)  supply-side economics.
D)  elasticity economics.E) All of the above
F) A) and D)

Question 9

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 associated with some sellers dropping out of the market as a result of the tax is

Accepted Answer

A)  $0.
B)  $1.
C)  $2.
D)  $3.E) All of the above
F) None of the above

Question 10

When a tax is levied on buyers of a good,

Accepted Answer

A)  government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax.
B)  there is an increase in the quantity of the good supplied.
C)  a wedge is placed between the price buyers pay and the price sellers effectively receive.
D)  the effective price to buyers decreases because the demand curve shifts leftward.E) A) and D)
F) A) and C)

Question 11

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

Question 12

Figure 8-11 
-Refer to Figure 8-11. The length of the line segment connecting points A and B represents

Accepted Answer

A)  the difference between the price paid by buyers after the tax is imposed and the price received by sellers after the tax is imposed.
B)  the size of the tax.
C)  the "tax wedge."
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 13

Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the

Accepted Answer

A)  less elastic is the demand for the good.
B)  less elastic is the supply of the good.
C)  smaller is the amount of the tax.
D)  All of the above are correct.E) All of the above
F) B) and D)

Question 14

When a tax is imposed on the sellers of a good, the

Accepted Answer

A)  demand curve shifts downward by less than the amount of the tax.
B)  demand curve shifts downward by the amount of the tax.
C)  supply curve shifts upward by less than the amount of the tax.
D)  supply curve shifts upward by the amount of the tax.E) All of the above
F) C) and D)

Question 15

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. The price that buyers effectively pay after the tax is imposed is

Accepted Answer

A)  P1.
B)  P2.
C)  P3.
D)  P4.E) A) and D)
F) None of the above

Question 16

Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.

Accepted Answer

A) True 
 B)False

Question 17

When a tax is levied on a good,

Accepted Answer

A)  government revenues exceed the loss in total welfare.
B)  there is a decrease in the quantity of the good bought and sold in the market.
C)  the price that sellers receive exceeds the price that buyers pay.
D)  All of the above are correct.E) B) and C)
F) A) and B)

Question 18

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. Consumer surplus without the tax is

Accepted Answer

A)  $6, and consumer surplus with the tax is $1.50.
B)  $6, and consumer surplus with the tax is $4.50.
C)  $10, and consumer surplus with the tax is $1.50.
D)  $10, and consumer surplus with the tax is $4.50.E) B) and D)
F) B) and C)

Question 19

Figure 8-18 
-Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the smallest in the market represented by

Accepted Answer

A)  S1.
B)  S2.
C)  S3.
D)  S4.E) B) and C)
F) None of the above

Question 20

A tax raises the price received by sellers and lowers the price paid by buyers.

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

When a tax is levied on a good,

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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 imposition of the tax causes the quantity sold to

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Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The price that buyers effectively pay after the tax is imposed is

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A tax raises the price received by sellers and lowers the price paid by buyers.

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Figure 8-18 -Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the smallest in the market represented by

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When a tax is imposed on the sellers of a good, the

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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. Without the tax, the consumer surplus is

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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 not correct?

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A tax on a good

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When a tax is levied on buyers of a good,

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Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. Consumer surplus without the tax is

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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 associated with some sellers dropping out of the market as a result of the tax is

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Figure 8-11 -Refer to Figure 8-11. The length of the line segment connecting points A and B represents

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Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The amount of deadweight loss resulting from this tax is

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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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The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

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Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the

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Figure 8-14 -Refer to Figure 8-14. Which of the following combinations will minimize the deadweight loss from a tax?

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When a tax on a good is enacted,

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