Question 1

When a tax is placed on a product, the price paid by buyers

Accepted Answer

A)   rises, and the price received by sellers rises.
B)   rises, and the price received by sellers falls.
C)   falls, and the price received by sellers rises.
D)   falls, and the price received by sellers falls.E) All of the above
F) A) and D)

Question 2

Figure 8-7
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

Accepted Answer

A)   $80, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.
B)   $80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.
C)   $60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.
D)   $60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.E) B) and D)
F) None of the above

Question 3

Scenario 8-2
Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28.
-Refer to Scenario 8-2. If Karla hires Roland to mow her lawn, Karla's consumer surplus is

Accepted Answer

A)   $3.
B)   $5.
C)   $8.
D)   $25.E) All of the above
F) B) and C)

Question 4

Suppose the demand curve and the supply curve in a market are both linear, and suppose the price elasticity of supply is 0.5. Will the deadweight loss from a $3 tax per unit be larger if the price elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?

Accepted Answer

The deadweight loss ...

Question 5

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. How would you characterize the decision to raise the tax rate from $3 to $6 per unit? The decision is

Accepted Answer

A)   a good one because it increases tax revenue while decreasing the deadweight loss from the tax.
B)   a bad one because it does not increase tax revenue yet increases the deadweight loss from the tax.
C)   a bad one because it decreases tax revenue while increasing the deadweight loss from the tax.
D)   unclear because it increases tax revenue yet also increases the deadweight loss from the tax.E) B) and C)
F) A) and B)

Question 6

When a tax is levied on a good,

Accepted Answer

A)   government collects revenues which might justify the loss in total welfare.
B)   there is a decrease in the quantity of the good bought and sold in the market.
C)   a wedge is placed between the price buyers pay and the price sellers effectively receive.
D)   All of the above are correct.E) A) and B)
F) None of the above

Question 7

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. After the tax, what is the total surplus?

Accepted Answer

A)   $50
B)   $30
C)   $25
D)   $0E) B) and D)
F) All of the above

Question 8

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 sellers is

Accepted Answer

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

Question 9

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) B) and D)
F) None of the above

Question 10

Tax revenue equals the size of the tax multiplied by the quantity sold in the market after the tax is levied.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following scenarios is consistent with the Laffer curve?

Accepted Answer

A)   The tax rate is 1 percent, and tax revenue is very low.
B)   The tax rate is 1 percent, and tax revenue is very high.
C)   The tax rate is 99 percent, and tax revenue is very high.
D)   The tax rate is moderate between very high and very low) , and tax revenue is very low.E) A) and B)
F) All of the above

Question 12

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area

Accepted Answer

A)   I+Y.
B)   J+K+L+M.
C)   I+Y+B.
D)   I+J+K+L+M+Y.E) B) and C)
F) A) and D)

Question 13

Suppose a tax is imposed on baseball bats. In which of the following cases will the tax cause the equilibrium quantity of baseball bats to shrink by the smallest amount?

Accepted Answer

A)   The response of buyers to a change in the price of baseball bats is strong, and the response of sellers to a change in the price of baseball bats is weak.
B)   The response of sellers to a change in the price of baseball bats is strong, and the response of buyers to a change in the price of baseball bats is weak.
C)   The response of buyers and sellers to a change in the price of baseball bats is strong.
D)   The response of buyers and sellers to a change in the price of baseball bats is weak.E) B) and C)
F) A) and C)

Question 14

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

Question 15

Figure 8-25 
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Accepted Answer

The deadwe...

Question 16

In 1776, the American Revolution was sparked by anger over

Accepted Answer

A)   the extravagant lifestyle of British royalty.
B)   the crimes of British soldiers stationed in the American colonies.
C)   British taxes imposed on the American colonies.
D)   the failure of the British to protect American colonists from attack by hostile Native Americans.E) A) and D)
F) B) and D)

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 amount of the tax on each unit of the good is

Accepted Answer

A)   $1.
B)   $4.
C)   $5.
D)   $9.E) All of the above
F) B) and C)

Question 18

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) All of the above
F) None of the above

Question 19

Figure 8-29 
-Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to tax revenues?

Accepted Answer

When the tax is $3, tax revenue is $3 x ...

Question 20

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubled, the

Accepted Answer

A)   base of the triangle that represents the deadweight loss doubles.
B)   height of the triangle that represents the deadweight loss doubles.
C)   deadweight loss of the tax quadruples.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Exam 8: Application: the Costs of Taxation

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area

Correct Answer
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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. After the tax, what is the total surplus?

Correct Answer
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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 amount of the tax on each unit of the good is

Correct Answer
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Suppose a tax is imposed on baseball bats. In which of the following cases will the tax cause the equilibrium quantity of baseball bats to shrink by the smallest amount?

Correct Answer
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Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Correct Answer
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The deadwe...
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If the labor supply curve is very elastic, a tax on labor

Correct Answer
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When a tax is placed on a product, the price paid by buyers

Correct Answer
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When a tax is levied on a good,

Correct Answer
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Which of the following scenarios is consistent with the Laffer curve?

Correct Answer
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In 1776, the American Revolution was sparked by anger over

Correct Answer
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Scenario 8-2 Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. -Refer to Scenario 8-2. If Karla hires Roland to mow her lawn, Karla's consumer surplus is

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 sellers is

Correct Answer
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Tax revenue equals the size of the tax multiplied by the quantity sold in the market after the tax is levied.

Correct Answer
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Deadweight loss measures the loss

Correct Answer
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Suppose the demand curve and the supply curve in a market are both linear, and suppose the price elasticity of supply is 0.5. Will the deadweight loss from a $3 tax per unit be larger if the price elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?

Correct Answer
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The deadweight loss ...
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Figure 8-29 -Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to tax revenues?

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When the tax is $3, tax revenue is $3 x ...
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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. The deadweight loss associated with this tax amounts to

Correct Answer
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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?

Correct Answer
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Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubled, the

Correct Answer
verified

Exam 8: Application: the Costs of Taxation

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus after the tax is measured by the area

Correct AnswerverifiedShow Answer

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. After the tax, what is the total surplus?

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 amount of the tax on each unit of the good is

Correct AnswerverifiedShow Answer

Suppose a tax is imposed on baseball bats. In which of the following cases will the tax cause the equilibrium quantity of baseball bats to shrink by the smallest amount?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Correct AnswerverifiedThe deadwe...View AnswerShow Answer

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

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When a tax is placed on a product, the price paid by buyers

Correct AnswerverifiedShow Answer

When a tax is levied on a good,

Correct AnswerverifiedShow Answer

Which of the following scenarios is consistent with the Laffer curve?

Correct AnswerverifiedShow Answer

In 1776, the American Revolution was sparked by anger over

Correct AnswerverifiedShow Answer

Scenario 8-2 Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. -Refer to Scenario 8-2. If Karla hires Roland to mow her lawn, Karla's consumer surplus 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 per-unit burden of the tax on sellers is

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Tax revenue equals the size of the tax multiplied by the quantity sold in the market after the tax is levied.

Correct AnswerverifiedShow Answer

Deadweight loss measures the loss

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Suppose the demand curve and the supply curve in a market are both linear, and suppose the price elasticity of supply is 0.5. Will the deadweight loss from a $3 tax per unit be larger if the price elasticity of demand is 0.3 or if the price elasticity of demand is 0.7?

Correct AnswerverifiedThe deadweight loss ...View AnswerShow Answer

Figure 8-29 -Refer to Figure 8-29. As the size of the tax increases from $3 to $6 to $9, what happens to tax revenues?

Correct AnswerverifiedWhen the tax is $3, tax revenue is $3 x ...View AnswerShow Answer

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is doubled, the

Correct AnswerverifiedShow Answer

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The deadwe...
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The deadweight loss ...
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When the tax is $3, tax revenue is $3 x ...
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