Question 1

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)  $32, and the equilibrium quantity is 15.
B)  $24, and the equilibrium quantity is 15.
C)  $24, and the equilibrium quantity is 25.
D)  $16, and the equilibrium quantity is 15.E) C) and D)
F) B) and C)

Question 2

Figure 8-4
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-4. The price that sellers effectively receive after the tax is imposed is

Accepted Answer

A)  $12.
B)  between $8 and $12.
C)  between $5 and $8.
D)  $5.E) A) and B)
F) All of the above

Question 3

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

Question 4

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to

Accepted Answer

A)  decrease by $2.
B)  increase by $3.
C)  decrease by $4.
D)  increase by $5.E) All of the above
F) B) and D)

Question 5

If the size of a tax increases, tax revenue

Accepted Answer

A)  increases.
B)  decreases.
C)  remains the same.
D)  may increase, decrease, or remain the same.E) B) and D)
F) A) and B)

Question 6

Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100. If the tax is increased to $0.25 per unit, the deadweight loss from the new tax would be

Accepted Answer

A)  $200.
B)  $250.
C)  $475.
D)  $625.E) B) and C)
F) B) and D)

Question 7

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

Accepted Answer

A)  total surplus after the tax.
B)  total surplus before the tax.
C)  deadweight loss from the tax.
D)  tax revenue.E) A) and B)
F) A) and C)

Question 8

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. The tax results in a deadweight loss that amounts to

Accepted Answer

A)  $600.
B)  $900.
C)  $1,500.
D)  $1,800.E) A) and D)
F) C) and D)

Question 9

Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

Accepted Answer

A)  first year after it is imposed than in the eighth year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year.
B)  first year after it is imposed than in the eighth year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.
C)  eighth year after it is imposed than in the first year after it is imposed because demand and supply will be more elastic in the first year than in the eighth year.
D)  eighth year after it is imposed than in the first year after it is imposed because demand and supply will be less elastic in the first year than in the eighth year.E) None of the above
F) A) and B)

Question 10

Figure 8-29 
-Refer to Figure 8-29. If you were a policymaker choosing between a $3, $6, or $9 tax, which would you choose and why?

Accepted Answer

If the objective is to maximize tax reve...

Question 11

Scenario 8-3
Suppose the market demand and market supply curves are given by the equations: 
-Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:  If T = 40, how much is the burden of the tax on the buyers and on the sellers?

Accepted Answer

The burden of the ta...

Question 12

To fully understand how taxes affect economic well-being, we must compare the

Accepted Answer

A)  consumer surplus to the producer surplus.
B)  price paid by buyers to the price received by sellers.
C)  reduced welfare of buyers and sellers to the revenue raised by the government.
D)  consumer surplus to the deadweight loss.E) B) and C)
F) A) and D)

Question 13

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by M 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) None of the above
F) A) and B)

Question 14

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

Question 15

When a good is taxed, the burden of the tax

Accepted Answer

A)  falls more heavily on the side of the market that is more elastic.
B)  falls more heavily on the side of the market that is more inelastic.
C)  falls more heavily on the side of the market that is closer to unit elastic.
D)  is distributed independently of relative elasticities of supply and demand.E) A) and D)
F) A) and C)

Question 16

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 C)
F) A) and D)

Question 17

Supply-side economics is a term associated with the views of

Accepted Answer

A)  Ronald Reagan and Arthur Laffer.
B)  Karl Marx.
C)  Bill Clinton and Greg Mankiw.
D)  Milton Friedman.E) None of the above
F) All of the above

Question 18

As the size of a tax increases, the government's tax revenue rises, then falls.

Accepted Answer

A) True 
 B)False

Question 19

Figure 8-21 
-Refer to Figure 8-21. Suppose the government places a $3 per-unit tax on this good. The smallest 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) None of the above
F) A) and D)

Question 20

To fully understand how taxes affect economic well-being, we must compare the

Accepted Answer

A)  benefit to buyers with the loss to sellers.
B)  price paid by buyers to the price received by sellers.
C)  profits earned by firms to the losses incurred by consumers.
D)  decrease in total surplus to the increase in revenue raised by the government.E) A) and C)
F) None of the above

Exam 8: Application: The Costs of Taxation

Which of the following ideas is the most plausible?

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To fully understand how taxes affect economic well-being, we must compare the

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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 smallest deadweight loss from the tax would occur in a market where demand is represented by

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Suppose the government imposes a tax on cheese. The deadweight loss from this tax will likely be greater in the

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If the size of a tax increases, tax revenue

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When a good is taxed, the burden of the tax

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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. The tax results in a deadweight loss that amounts to

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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 imposition of the tax causes the price received by sellers to

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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+L+M 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 per-unit burden of the tax on buyers is

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Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: If T = 40, how much is the burden of the tax on the buyers and on the sellers?

Correct AnswerverifiedThe burden of the ta...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. Before the tax is imposed, the equilibrium price is

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Which of the following is a tax on labor?

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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 M represents

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To fully understand how taxes affect economic well-being, we must compare the

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As the size of a tax increases, the government's tax revenue rises, then falls.

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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 price that sellers effectively receive after the tax is imposed is

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Supply-side economics is a term associated with the views of

Correct AnswerverifiedShow Answer

Figure 8-29 -Refer to Figure 8-29. If you were a policymaker choosing between a $3, $6, or $9 tax, which would you choose and why?

Correct AnswerverifiedIf the objective is to maximize tax reve...View AnswerShow Answer

Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100. If the tax is increased to $0.25 per unit, the deadweight loss from the new tax would be

Correct AnswerverifiedShow Answer

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The burden of the ta...
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If the objective is to maximize tax reve...
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