Question 1

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) B) and D)
F) C) and D)

Question 2

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. Suppose the price elasticity of supply is 0.7. Will the deadweight loss from a $3 tax per unit be smaller if the absolute value of the price elasticity of demand is 0.6 or if the absolute value of the price elasticity of demand is 1.5?

Accepted Answer

The deadweight loss will be smaller if t...

Question 3

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

Question 4

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good. 
-Refer to Figure 8-8. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area

Accepted Answer

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

Question 5

The graph that represents the amount of deadweight loss measured on the vertical axis)  as a function of the size of the tax measured on the horizontal axis)  looks like

Accepted Answer

A)   a U.
B)   an upside-down U.
C)   a horizontal straight line.
D)   an upward-sloping curve.E) C) and D)
F) A) and B)

Question 6

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. The loss in total welfare that results from the tax is represented by area

Accepted Answer

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

Question 7

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?

Accepted Answer

A)   Kate and William will agree to a new price somewhere between $85 and $100.
B)   Kate and William will agree to a new price somewhere between $70 and $110.
C)   Kate will no longer offer personal training services to William because she must charge more than $100 in order to cover her opportunity costs and pay the tax.
D)   The price will remain at $80, and Kate will pay the $10 tax.E) B) and C)
F) C) and D)

Question 8

Figure 8-21 
-Refer to Figure 8-21. Suppose the government places a $3 per-unit tax on this good. The largest deadweight loss from the tax would occur in a market where demand is represented by

Accepted Answer

A)   Demand 1, and supply is represented by Supply 1.
B)   Demand 1, and supply is represented by Supply 2.
C)   Demand 2, and supply is represented by Supply 1.
D)   Demand 2, and supply is represented by Supply 2.E) A) and B)
F) A) and C)

Question 9

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is

Accepted Answer

A)   $600.
B)   $900.
C)   $1,500.
D)   $3,000.E) B) and C)
F) A) and D)

Question 10

Figure 8-13 
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on buyers is

Accepted Answer

A)   $1.
B)   $2.
C)   $3.
D)   $5.E) B) and D)
F) A) and B)

Question 11

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The per-unit burden of the tax on buyers is

Accepted Answer

A)   $20.
B)   $200.
C)   $300.
D)   $500.E) A) and B)
F) B) and C)

Question 12

Economists disagree on whether labor taxes have a small or large deadweight loss.

Accepted Answer

A) True 
 B)False

Question 13

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. The benefit to the government is measured by

Accepted Answer

A)   tax revenue and is represented by area A+B.
B)   tax revenue and is represented by area B+D.
C)   the net gain in total surplus and is represented by area B+D.
D)   the net gain in total surplus and is represented by area C+H.E) B) and C)
F) A) and D)

Question 14

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) All of the above
F) A) and B)

Question 15

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

Accepted Answer

A)   As the size of the tax increases, tax revenue continually rises and deadweight loss continually falls.
B)   As the size of the tax increases, tax revenue and deadweight loss rise initially, but both eventually begin to fall.
C)   As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises.
D)   As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss falls initially, but eventually it begins to rise.E) A) and C)
F) A) and D)

Question 16

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 consumer surplus when the tax is imposed in this market?

Accepted Answer

A)   Consumer surplus falls by $3,600.
B)   Consumer surplus falls by $2,700.
C)   Consumer surplus falls by $1,800.
D)   Consumer surplus falls by $900.E) B) and D)
F) All of the above

Question 17

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 consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is

Accepted Answer

A)   $0.
B)   $1.50.
C)   $3.
D)   $4.50.E) None of the above
F) All of the above

Question 18

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax?

Accepted Answer

A)   the maximum value that Rebecca would pay for dog sitting
B)   the $30 tax
C)   the lost benefit to Rebecca and Susan because after the tax, Susan will not dog sit for Rebecca
D)   the lost benefit to Rebecca of being unable to hire a dog sitter because Rebecca is the one who would pay the taxE) All of the above
F) None of the above

Question 19

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 D)
F) A) and B)

Question 20

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. The tax has made Rebecca and Susan worse off by a total of

Accepted Answer

A)   $30.
B)   $25.
C)   $10.
D)   $5.E) A) and B)
F) None of the above

Exam 8: Application: the Costs of Taxation

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on buyers is

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

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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

Correct Answer
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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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Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area

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Figure 8-21 -Refer to Figure 8-21. Suppose the government places a $3 per-unit tax on this good. The largest deadweight loss from the tax would occur in a market where demand is represented by

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The benefit to the government is measured by

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

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The graph that represents the amount of deadweight loss measured on the vertical axis) as a function of the size of the tax measured on the horizontal axis) looks like

Correct Answer
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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 per-unit burden of the tax on buyers is

Correct Answer
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The deadweight loss will be smaller if t...
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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. When the government imposes the tax in this market, tax revenue is

Correct Answer
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Economists disagree on whether labor taxes have a small or large deadweight loss.

Correct Answer
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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The loss in total welfare that results from the tax is represented by area

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Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

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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 consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is

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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 consumer surplus when the tax is imposed in this market?

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Exam 8: Application: the Costs of Taxation

Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The per-unit burden of the tax on buyers is

Correct AnswerverifiedShow Answer

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

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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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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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Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The decrease in consumer and producer surpluses that is not offset by tax revenue is the area

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Figure 8-21 -Refer to Figure 8-21. Suppose the government places a $3 per-unit tax on this good. The largest deadweight loss from the tax would occur in a market where demand is represented by

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The benefit to the government is measured by

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

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The graph that represents the amount of deadweight loss measured on the vertical axis) as a function of the size of the tax measured on the horizontal axis) looks like

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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 per-unit burden of the tax on buyers is

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Correct AnswerverifiedThe deadweight loss will be smaller if t...View AnswerShow Answer

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. When the government imposes the tax in this market, tax revenue is

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Economists disagree on whether labor taxes have a small or large deadweight loss.

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The loss in total welfare that results from the tax is represented by area

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Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

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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 consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is

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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 consumer surplus when the tax is imposed in this market?

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The deadweight loss will be smaller if t...
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