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

Question 2

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. Without the tax, the consumer surplus is

Accepted Answer

A)  (P0-P2)  x Q2.
B)  x (P0-P2)  x Q2.
C)  (P0-P5)  x Q5.
D)  x (P0-P5)  x Q5.E) None of the above
F) B) and C)

Question 3

Taxes cause deadweight losses because taxes

Accepted Answer

A)  reduce the sum of producer and consumer surpluses by more than the amount of tax revenue.
B)  prevent buyers and sellers from realizing some of the gains from trade.
C)  cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall.
D)  All of the above are correct.E) C) and D)
F) A) and C)

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 loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is

Accepted Answer

A)  $0.
B)  $1.
C)  $2.
D)  $3.E) A) and B)
F) A) and C)

Question 5

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. The price that buyers effectively pay after the tax is imposed is

Accepted Answer

A)  P1.
B)  P2.
C)  P3.
D)  P4.E) B) and D)
F) A) and B)

Question 6

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) All of the above
F) A) and B)

Question 7

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

Accepted Answer

A)  As the size of the tax increases, tax revenue continually rises and deadweight loss continually falls.
B)  As the size of the tax increases, tax revenue and deadweight loss rise initially, but both eventually begin to fall.
C)  As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises.
D)  As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss falls initially, but eventually it begins to rise.E) C) and D)
F) B) and D)

Question 9

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

Question 10

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

Accepted Answer

A) True 
 B)False

Question 11

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. Without the tax, the total surplus is

Accepted Answer

A)  [x (P0-P5)  x Q5] + [x (P5-0)  x Q5].
B)  [x (P0-P2)  x Q2] +[(P2-P8)  x Q2] + [x (P8-0)  x Q2].
C)  (P2-P8)  x Q2.
D)  x (P2-P8)  x (Q5-Q2) .E) B) and C)
F) A) and D)

Question 12

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

Accepted Answer

A)  P3ACP1.
B)  ABC.
C)  P2DAP3.
D)  P1CDP2.E) A) and C)
F) A) and D)

Question 13

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 C)
F) A) and D)

Question 14

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Accepted Answer

A) True 
 B)False

Question 15

For good X, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on good X. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is

Accepted Answer

A)  $1,750.
B)  $2,250.
C)  $3,000.
D)  $4,500.E) A) and D)
F) B) and D)

Question 16

Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

Accepted Answer

A)  a head tax (that is, a tax everyone must pay regardless of what one does or buys) 
B)  an income tax
C)  a tax on compact discs
D)  a tax on caviarE) A) and D)
F) A) and C)

Question 17

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

Accepted Answer

A)  deadweight loss due to the tax.
B)  loss in consumer surplus due to the tax.
C)  loss in producer surplus due to the tax.
D)  total surplus before the tax.E) C) and D)
F) B) and C)

Question 18

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. Suppose the figure pertains to the labor tax, and suppose also that point B represents the position on the curve of the typical European country. Then, according to a recent research paper published by the European Central Bank, the position on the curve of the U.S. would most likely be point

Accepted Answer

A)  A.
B)  C.
C)  D.
D)  F.E) C) and D)
F) B) and D)

Question 19

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

Accepted Answer

A) True 
 B)False

Question 20

When the government imposes taxes on buyers or sellers of a good, society

Accepted Answer

A)  loses some of the benefits of market efficiency.
B)  gains efficiency but loses equality.
C)  is better off because the government's tax revenues exceed the deadweight loss.
D)  moves from an elastic supply curve to an inelastic supply curve.E) All of the above
F) A) and C)

Exam 8: Application: The Costs of Taxation

Deadweight loss measures the loss

Correct Answer
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Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

Correct Answer
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Taxes cause deadweight losses because taxes

Correct Answer
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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. Without the tax, the consumer surplus is

Correct Answer
verified

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The price that buyers effectively pay after the tax is imposed is

Correct Answer
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The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

Correct Answer
verified

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. Without the tax, the total surplus is

Correct Answer
verified

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

Correct Answer
verified

When a good is taxed, the burden of the tax

Correct Answer
verified

The price elasticities of supply and demand affect

Correct Answer
verified

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

Correct Answer
verified

When the government imposes taxes on buyers or sellers of a good, society

Correct Answer
verified

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

Correct Answer
verified

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

Correct Answer
verified

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is

Correct Answer
verified

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

Correct Answer
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Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

Correct Answer
verified

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Correct Answer
verified

Correct Answer
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For good X, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on good X. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is

Correct Answer
verified

Exam 8: Application: The Costs of Taxation

Deadweight loss measures the loss

Correct AnswerverifiedShow Answer

Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?

Correct AnswerverifiedShow Answer

Taxes cause deadweight losses because taxes

Correct AnswerverifiedShow Answer

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. Without the tax, the consumer surplus is

Correct AnswerverifiedShow Answer

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The price that buyers effectively pay after the tax is imposed is

Correct AnswerverifiedShow Answer

The optimal tax is difficult to determine because although revenues rise and fall as the size of the tax increases, deadweight loss continues to increase.

Correct AnswerverifiedShow Answer

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. Without the tax, the total surplus is

Correct AnswerverifiedShow Answer

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

Correct AnswerverifiedShow Answer

When a good is taxed, the burden of the tax

Correct AnswerverifiedShow Answer

The price elasticities of supply and demand affect

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the government imposes taxes on buyers or sellers of a good, society

Correct AnswerverifiedShow Answer

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

Correct AnswerverifiedShow Answer

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

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 loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is

Correct AnswerverifiedShow Answer

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

Correct AnswerverifiedShow Answer

Which of the following would likely have the smallest deadweight loss relative to the tax revenue?

Correct AnswerverifiedShow Answer

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For good X, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on good X. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is

Correct AnswerverifiedShow Answer

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