Question 1

Figure 8-12 
-Refer to Figure 8-12.Which of the following statements is not correct?

Accepted Answer

A)   Supply 2 is more elastic than supply 1.
B)   Demand 2 is more elastic than demand 1.
C)   Supply 1 is more inelastic than supply 2.
D)   Demand 2 is more inelastic than supply 2.E) None of the above
F) A) and B)

Question 2

Figure 8-11 
-Refer to Figure 8-11.The size of the tax is represented by the

Accepted Answer

A)   length of the line segment connecting points A and B.
B)   length of the line segment connecting points A and C.
C)   length of the line segment connecting points B and C.
D)   area of the triangle bounded by the points A,B,and C.E) A) and B)
F) All of the above

Question 3

Figure 8-13  
-Refer to Figure 8-13.Panel (a) and Panel (b) each illustrate a $4 tax placed on a market.In comparison to Panel (b) ,Panel (a) illustrates which of the following statements?

Accepted Answer

A)   When demand is relatively inelastic,the deadweight loss of a tax is smaller than when demand is relatively elastic.
B)   When demand is relatively elastic,the deadweight loss of a tax is larger than when demand is relatively inelastic.
C)   When supply is relatively inelastic,the deadweight loss of a tax is smaller than when supply is relatively elastic.
D)   When supply is relatively elastic,the deadweight loss of a tax is larger than when supply is relatively inelastic.E) None of the above
F) B) and C)

Question 4

Figure 8-11 1 on the vertical axis represents the price A)  received by sellers before the tax is imposed. B)  received by sellers after the tax is imposed. C)  paid by buyers before the tax is imposed. D)  paid by buyers after the tax is imposed." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 8-11.The price labeled as P1 on the vertical axis represents the price

Accepted Answer

A)   received by sellers before the tax is imposed.
B)   received by sellers after the tax is imposed.
C)   paid by buyers before the tax is imposed.
D)   paid by buyers after the tax is imposed.E) None of the above
F) A) and C)

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 imposition of the tax causes the price received by sellers to decrease by

Accepted Answer

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

Question 6

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

Accepted Answer

A)   Milton Friedman
B)   Theodore Roosevelt
C)   Arthur Laffer
D)   Oliver Wendell Holmes,Jr.E) None of the above
F) All of the above

Question 7

Which of the following ideas is the most plausible?

Accepted Answer

A)   Tax revenue is more likely to increase when a low tax rate is increased than when a high tax rate is increased.
B)   Tax revenue is less likely to increase when a low tax rate is increased than when a high tax rate is increased.
C)   Tax revenue is likely to increase by the same amount when a low tax rate is increased and when a high tax rate is increased.
D)   Decreasing a tax rate can never increase tax revenue.E) A) and B)
F) A) and D)

Question 8

Suppose the tax on gasoline is raised from $0.50 per gallon to $2.50 per gallon.As a result,

Accepted Answer

A)   tax revenue necessarily increases.
B)   the deadweight loss of the tax necessarily increases.
C)   the demand curve for gasoline necessarily becomes steeper.
D)   All of the above are correct.E) A) and D)
F) B) and D)

Question 9

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 10

Taxes on labor tend to encourage the elderly to retire early.

Accepted Answer

A) True 
 B)False

Question 11

Figure 8-4
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-4.The amount of the tax on each unit of the good is

Accepted Answer

A)   $5.
B)   $7.
C)   $8.
D)   $12.E) None of the above
F) A) and C)

Question 12

Buyers of a product will bear the larger part of the tax burden,and sellers will bear a smaller part of the tax burden,when the

Accepted Answer

A)   tax is placed on the sellers of the product.
B)   tax is placed on the buyers of the product.
C)   supply of the product is more elastic than the demand for the product.
D)   demand for the product is more elastic than the supply of the product.E) B) and C)
F) A) and D)

Question 13

Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

Accepted Answer

A) True 
 B)False

Question 14

The loss in total surplus resulting from a tax is called

Accepted Answer

A)   a deficit.
B)   economic loss.
C)   deadweight loss.
D)   inefficiency.E) A) and C)
F) B) and D)

Question 15

Figure 8-20.The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. 
-Refer to Figure 8-20.For an economy that is currently at point D on the curve,a decrease in the tax rate would

Accepted Answer

A)   decrease consumer surplus.
B)   decrease producer surplus.
C)   increase tax revenue.
D)   increase the deadweight loss of the tax.E) A) and B)
F) A) and C)

Question 16

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

Question 17

The higher a country's tax rates,the more likely that country will be

Accepted Answer

A)   at the top of the Laffer curve.
B)   on the positively sloped part of the Laffer curve.
C)   on the negatively sloped part of the Laffer curve.
D)   experiencing small deadweight losses.E) C) and D)
F) B) and D)

Question 18

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

Question 19

The more elastic the supply,the larger the deadweight loss from a tax,all else equal.

Accepted Answer

A) True 
 B)False

Question 20

The price elasticities of supply and demand affect

Accepted Answer

A)   both the size of the deadweight loss from a tax and the tax incidence.
B)   the size of the deadweight loss from a tax but not the tax incidence.
C)   the tax incidence but not the size of the deadweight loss from a tax.
D)   neither the size of the deadweight loss from a tax nor the tax incidence.E) B) and D)
F) None of the above

Exam 8: Application: The Costs of Taxation

Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

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Figure 8-13 -Refer to Figure 8-13.Panel (a) and Panel (b) each illustrate a $4 tax placed on a market.In comparison to Panel (b) ,Panel (a) illustrates which of the following statements?

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The price elasticities of supply and demand affect

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

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Taxes on labor tend to encourage the elderly to retire early.

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Figure 8-20.The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-20.For an economy that is currently at point D on the curve,a decrease in the tax rate would

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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 imposition of the tax causes the price received by sellers to decrease by

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Figure 8-11 -Refer to Figure 8-11.The size of the tax is represented by the

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

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The higher a country's tax rates,the more likely that country will be

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Buyers of a product will bear the larger part of the tax burden,and sellers will bear a smaller part of the tax burden,when the

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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.

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Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4.The amount of the tax on each unit of the good is

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Figure 8-12 -Refer to Figure 8-12.Which of the following statements is not correct?

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The more elastic the supply,the larger the deadweight loss from a tax,all else equal.

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Figure 8-11 -Refer to Figure 8-11.The price labeled as P1 on the vertical axis represents the price

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Suppose the tax on gasoline is raised from $0.50 per gallon to $2.50 per gallon.As a result,

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Which of the following ideas is the most plausible?

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The loss in total surplus resulting from a tax is called

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Which of the following is a tax on labor?

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Figure 8-11 -Refer to Figure 8-11.The price labeled as P₁ on the vertical axis represents the price

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