Question 1

Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

Accepted Answer

A)   The demand for gasoline becomes more inelastic.
B)   The slope of the supply curve for gasoline becomes steeper.
C)   The amount of the tax per gallon of gasoline increases.
D)   All of the above are correct.E) B) and C)
F) B) and D)

Question 2

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.The price that sellers receive is

Accepted Answer

A)   P0.
B)   P2.
C)   P5.
D)   P8.E) A) and B)
F) A) and C)

Question 3

If the tax on a good is increased from $0.15 per unit to $0.60 per unit,the deadweight loss from the tax

Accepted Answer

A)   remains constant.
B)   increases by a factor of 4.
C)   increases by a factor of 9.
D)   increases by a factor of 16.E) All of the above
F) None of the above

Question 4

In which of the following instances would the deadweight loss of the tax on cartons of cigarettes increase by a factor of 9?

Accepted Answer

A)   The tax on cartons of cigarettes increases from $10 to $11.11.
B)   The tax on cartons of cigarettes increases from $10 to $20.
C)   The tax on cartons of cigarettes increases from $10 to $30.
D)   The tax on cartons of cigarettes increases from $10 to $90.E) A) and B)
F) None of the above

Question 5

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

Accepted Answer

A)   $8,000.
B)   $12,000.
C)   $20,000.
D)   $40,000.E) B) and D)
F) All of the above

Question 6

Which of the following quantities decrease in response to a tax on a good?

Accepted Answer

A)   the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus
B)   the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good
C)   the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus
D)   None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.E) A) and B)
F) A) and C)

Question 7

Assume the price of gasoline is $2.40 per gallon,and the equilibrium quantity of gasoline is 12 million gallons per day with no tax on gasoline.Starting from this initial situation,which of the following scenarios would result in the largest deadweight loss?

Accepted Answer

A)   A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent; and the tax on gasoline amounts to $0.40 per gallon.
B)   A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent; and the tax on gasoline amounts to $0.40 per gallon.
C)   A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent; and the tax on gasoline amounts to $0.35 per gallon.
D)   There is insufficient information to make this determination.E) A) and D)
F) A) and C)

Question 8

When demand is relatively elastic,the deadweight loss of a tax is larger than when demand is relatively inelastic.

Accepted Answer

A) True 
 B)False

Question 9

Figure 8-3
The vertical distance between points A and C represents a tax in the market.
 
-Refer to Figure 8-3.Which of the following equations is valid for the deadweight loss of the tax?

Accepted Answer

A)   Deadweight loss = (1/2) (P2 - P1) (Q2 + Q1) 
B)   Deadweight loss = (1/2) (P3 - P1) (Q2 + Q1) 
C)   Deadweight loss = (1/2) (P3 - P2) (Q2 - Q1) 
D)   Deadweight loss = (1/2) (P3 - P1) (Q2 - Q1) E) All of the above
F) C) and D)

Question 10

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

Accepted Answer

A)   consumer surplus after the tax.
B)   consumer surplus before the tax.
C)   producer surplus after the tax.
D)   producer surplus before the tax.E) B) and D)
F) B) and C)

Question 11

Figure 8-15
 
-Refer to Figure 8-15.Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1,D2,D3,and D4.The deadweight will be the smallest in the market represented by

Accepted Answer

A)   D1.
B)   D2.
C)   D3.
D)   D4.E) B) and C)
F) A) and C)

Question 12

Figure 8-19. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax.
 
-Refer to Figure 8-19.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) C) and D)
F) B) and C)

Question 13

Who once said that taxes are the price we pay for a civilized society?

Accepted Answer

A)   Aristotle
B)   George Washington
C)   Oliver Wendell Holmes, Jr.
D)   Ronald ReaganE) B) and C)
F) A) and D)

Question 14

Taxes are of interest to

Accepted Answer

A)   microeconomists because they consider how to balance equality and efficiency.
B)   microeconomists because they consider how best to design a tax system.
C)   macroeconomists because they consider how policymakers can use the tax system to stabilize economic activity.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 15

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

Accepted Answer

A)   also doubles.
B)   triples.
C)   quadruples.
D)   rises by a factor of 8.E) All of the above
F) C) and D)

Question 16

Figure 8-9
The vertical distance between points A and C represent a tax in the market.
 
-Refer to Figure 8-9.The amount of amount of deadweight loss as a result of the tax is

Accepted Answer

A)   $4,000.
B)   $5,000.
C)   $6,000.
D)   $10,000.E) B) and C)
F) None of the above

Question 17

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,producer surplus in this market is

Accepted Answer

A)   $1,500.
B)   $2,400.
C)   $3,000.
D)   $3,600.E) None of the above
F) A) and C)

Question 18

Figure 8-7
The vertical distance between points A and B represents a tax in the market.
 
-Refer to Figure 8-7.Before the tax is imposed,the equilibrium price is

Accepted Answer

A)   $16, and the equilibrium quantity is 15.
B)   $12, and the equilibrium quantity is 15.
C)   $12, and the equilibrium quantity is 25.
D)   $8, and the equilibrium quantity is 15.E) None of the above
F) B) and D)

Question 19

When a tax is levied on the buyers of a good,the

Accepted Answer

A)   supply curve shifts upward by the amount of the tax.
B)   quantity supplied increases for all conceivable prices of the good.
C)   buyers of the good will send tax payments to the government.
D)   demand curve shifts to the right by the horizontal distance of the tax.E) A) and B)
F) A) and C)

Question 20

Consider a good to which a per-unit tax applies.The greater the price elasticities of demand and supply for the good,the

Accepted Answer

A)   smaller the deadweight loss from the tax.
B)   greater the deadweight loss from the tax.
C)   more efficient is the tax.
D)   more equitable is the distribution of the tax burden between buyers and sellers.E) A) and D)
F) All of the above

Exam 8: Application: The Costs of Taxation.

Who once said that taxes are the price we pay for a civilized society?

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Which of the following events always would increase the size of the deadweight loss that arises from the tax on gasoline?

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

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

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Figure 8-15 -Refer to Figure 8-15.Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1,D2,D3,and D4.The deadweight will be the smallest in the market represented by

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When a tax is levied on the buyers of a good,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,producer surplus in this market is

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If the tax on a good is increased from $0.15 per unit to $0.60 per unit,the deadweight loss from the tax

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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.Which of the following equations is valid for the deadweight loss of the tax?

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

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When demand is relatively elastic,the deadweight loss of a tax is larger than when demand is relatively inelastic.

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Consider a good to which a per-unit tax applies.The greater the price elasticities of demand and supply for the good,the

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In which of the following instances would the deadweight loss of the tax on cartons of cigarettes increase by a factor of 9?

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Which of the following quantities decrease in response to a tax on a good?

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Figure 8-19. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-19.If the economy is at point A on the curve,then a decrease in the tax rate will

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Taxes are of interest to

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Assume the price of gasoline is $2.40 per gallon,and the equilibrium quantity of gasoline is 12 million gallons per day with no tax on gasoline.Starting from this initial situation,which of the following scenarios would result in the largest deadweight loss?

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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.The price that sellers receive is

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Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9.The amount of amount of deadweight loss as a result of the tax is

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Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7.Before the tax is imposed,the equilibrium price is

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