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Exam 8: Application: The Costs of Taxation

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Question 91

Multiple Choice

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A $2 tax per gallon of paint placed on the buyers of paint will shift the demand curve

A) downward by exactly $2.
B) downward by less than $2.
C) upward by exactly $2.
D) upward by less than $2.

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

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Question 92

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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. Compared to the original tax rate, the higher tax will

A) increase tax revenue and increase the deadweight loss from the tax.
B) not change tax revenue and increase the deadweight loss from the tax.
C) decrease tax revenue and increase the deadweight loss from the tax.
D) decrease tax revenue and decrease the deadweight loss from the tax.

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

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Question 93

Multiple Choice

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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 deadweight loss as a result of the tax is

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-23. If the economy is at point B on the curve, then an increase in the tax rate will

Suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for the good, the

The demand for energy drinks is more elastic than the demand for milk. Would a tax on energy drinks or a tax on milk have a larger deadweight loss? Explain.

The deadweight loss from a tax of $x per unit will be smallest in a market

When a tax is imposed on a good, consumer surplus decreases and producer surplus remains unchanged.

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. With the tax, the consumer surplus is

The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.

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

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?

Figure 8-18 -Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the largest in the market represented by

Figure 8-26 -Refer to Figure 8-26. How much is total surplus at the market equilibrium?

A tax levied on the buyers of a good shifts the

The Social Security tax is a tax on

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. Producer surplus before the tax was levied is represented by area

Figure 8-11 -Refer to Figure 8-11. Neither a shift of the demand curve nor a shift of the supply curve is shown on the figure. However, we know that, when the tax is imposed,

Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. What price will sellers receive for the good after the tax is imposed?

As the size of a tax rises, the deadweight loss