Question 1

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

Accepted Answer

A)  The greater are the price elasticities of supply and demand, the greater is the deadweight loss.
B)  The greater is the price elasticity of supply and the smaller is the price elasticity of demand, the greater is the deadweight loss.
C)  The smaller are the decreases in quantity demanded and quantity supplied, the greater the deadweight loss.
D)  The smaller is the wedge between the effective price to sellers and the effective price to buyers, the greater is the deadweight loss.E) A) and C)
F) B) and C) A

Question 2

A tax

Accepted Answer

A)  lowers the price buyers pay and raises the price sellers receive.
B)  raises the price buyers pay and lowers the price sellers receive.
C)  places a wedge between the price buyers pay and the price sellers receive.
D)  Both b)  and c)  are correct.E) A) and C)
F) All of the above

Question 3

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are

Accepted Answer

A)  $16 and 300.
B)  $10 and 600.
C)  $10 and 300.
D)  $6 and 300.E) A) and C)
F) None of the above

Question 4

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

Question 5

Economists use the government's tax revenue to measure the public benefit from a tax.

Accepted Answer

A) True 
 B)False

Question 6

For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of the

Accepted Answer

A)  government's benefit from the tax.
B)  government's loss from the tax.
C)  deadweight loss of the tax.
D)  overall net gain to society of the tax.E) B) and D)
F) A) and D)

Question 7

In terms of gains from trade, why is it true that taxes cause deadweight losses?

Accepted Answer

Taxes cause deadweight losses ...

Question 8

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 deadweight loss as a result of the tax is

Accepted Answer

A)  $2.50.
B)  $5.
C)  $7.50.
D)  $10.E) All of the above
F) B) and D)

Question 9

When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic.

Accepted Answer

A) True 
 B)False  True

Question 10

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

Question 11

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

Question 12

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

Accepted Answer

A)  downward by exactly $2.
B)  downward by less than $2.
C)  upward by exactly $2.
D)  upward by less than $2.E) All of the above
F) B) and C)

Question 13

If the labor supply curve is nearly vertical, a tax on labor

Accepted Answer

A)  has a large deadweight loss.
B)  raises a small amount of tax revenue.
C)  has little impact on the amount of work that workers are willing to do.
D)  results in a large tax burden on the firms that hire labor.E) None of the above
F) A) and B)

Question 14

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. Total surplus with the tax in place is

Accepted Answer

A)  $1,500.
B)  $3,600.
C)  $4,500.
D)  $6,000.E) B) and C)
F) A) and D)

Question 15

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, Roland's producer surplus is

Accepted Answer

A)  $2.
B)  $3.
C)  $5.
D)  $25.E) C) and D)
F) A) and B) C

Question 16

Using demand and supply diagrams, show the difference in deadweight loss between (a) a market with inelastic demand and supply and (b) a market with elastic demand and supply.

Accepted Answer

The answer of Using demand and supply diagrams, show the...

Question 17

The supply curve for whiskey is the typical upward-sloping straight line, and the demand curve for whiskey is the typical downward-sloping straight line. When whiskey is taxed, the area on the relevant supply-and-demand graph that represents

Accepted Answer

A)  government's tax revenue is a rectangle.
B)  the deadweight loss of the tax is a triangle.
C)  the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle.
D)  All of the above are correct.E) None of the above
F) A) and B)

Question 18

Table 8-1 
-Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will maximize the deadweight loss(es)  from the tax?

Accepted Answer

A)  market B only
B)  markets A and C only
C)  markets B and D only
D)  market D onlyE) C) and D)
F) B) and D)

Question 19

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to

Accepted Answer

A)  increase from $600 to $800.
B)  increase from $300 to $800.
C)  decrease from $600 to $300.
D)  remain unchanged at $600.E) B) and C)
F) A) and D)

Question 20

Figure 8-25 
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much tax revenue is collected after the tax is imposed?

Accepted Answer

Total tax revenue is...

Exam 8: Applications: the Costs of Taxation

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

Correct AnswerverifiedA

A tax

Correct AnswerverifiedShow Answer

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. Without a tax, the equilibrium price and quantity are

Correct AnswerverifiedShow Answer

The loss in total surplus resulting from a tax is called

Correct AnswerverifiedShow Answer

Economists use the government's tax revenue to measure the public benefit from a tax.

Correct AnswerverifiedShow Answer

For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of the

Correct AnswerverifiedShow Answer

In terms of gains from trade, why is it true that taxes cause deadweight losses?

Correct AnswerverifiedTaxes cause deadweight losses ...View AnswerShow 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 deadweight loss as a result of the tax is

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When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic.

Correct AnswerverifiedTrue

When a tax is levied on a good,

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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 AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the labor supply curve is nearly vertical, a tax on labor

Correct AnswerverifiedShow Answer

Figure 8-6 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-6. Total surplus with the tax in place is

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, Roland's producer surplus is

Correct AnswerverifiedC

Using demand and supply diagrams, show the difference in deadweight loss between (a) a market with inelastic demand and supply and (b) a market with elastic demand and supply.

Correct AnswerverifiedShow Answer

The supply curve for whiskey is the typical upward-sloping straight line, and the demand curve for whiskey is the typical downward-sloping straight line. When whiskey is taxed, the area on the relevant supply-and-demand graph that represents

Correct AnswerverifiedShow Answer

Table 8-1 -Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will maximize the deadweight loss(es) from the tax?

Correct AnswerverifiedShow Answer

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to

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 tax revenue is collected after the tax is imposed?

Correct AnswerverifiedTotal tax revenue is...View AnswerShow Answer

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Taxes cause deadweight losses ...
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True

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C

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Total tax revenue is...
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