Question 1

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

Question 2

A tax placed on a good

Accepted Answer

A)  causes the effective price to sellers to increase.
B)  affects the welfare of buyers of the good but not the welfare of sellers.
C)  causes the equilibrium quantity of the good to decrease.
D)  creates a burden that is usually borne entirely by the sellers of the good.E) B) and C)
F) All of the above

Question 3

Andre walks Julia's dog once a day for $50 per week. Julia values this service at $60 per week, while the opportunity cost of Andre's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the loss in total surplus?

Accepted Answer

A)  $50
B)  $30
C)  $25
D)  $0E) B) and C)
F) A) and D)

Question 4

Figure 8-4
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-4. The equilibrium price before the tax is imposed is

Accepted Answer

A)  $12, and the equilibrium quantity is 70.
B)  $8, and the equilibrium quantity is 100.
C)  $5, and the equilibrium quantity is 70.
D)  $5, and the equilibrium quantity is 100.E) All of the above
F) A) and D)

Question 5

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 D)
F) C) and D)

Question 6

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

Accepted Answer

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

Question 7

Figure 8-11 1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed, A) consumer surplus decreases by $13. B) producer surplus decreases by $13. C) the deadweight loss amounts to $6. D) the amount of the good that is sold remains unchanged." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

Accepted Answer

A)  consumer surplus decreases by $13.
B)  producer surplus decreases by $13.
C)  the deadweight loss amounts to $6.
D)  the amount of the good that is sold remains unchanged.E) C) and D)
F) B) and D)

Question 8

Which of the following is a tax on labor?

Accepted Answer

A)  Medicare tax
B)  Social Security tax
C)  federal income tax
D)  All of the above are labor taxes.E) None of the above
F) A) and C)

Question 9

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 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) All of the above
F) C) and D)

Question 10

If the tax on a good is increased from $0.15 per unit to $0.60 per unit, the deadweight loss from the tax

Accepted Answer

A)  remains constant.
B)  increases by a factor of 4.
C)  increases by a factor of 9.
D)  increases by a factor of 16.E) A) and B)
F) None of the above

Question 11

Economists generally agree that the most important tax in the U.S. economy is the

Accepted Answer

A)  investment tax.
B)  sales tax.
C)  property tax.
D)  labor tax.E) A) and C)
F) B) and C)

Question 12

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 quantity sold to

Accepted Answer

A)  increase by 20 units.
B)  increase by 500 units.
C)  decrease by 20 units.
D)  decrease by 500 units.E) B) and D)
F) A) and B)

Question 13

Figure 8-16 
-Refer to Figure 8-16. 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

Accepted Answer

A)  S1.
B)  S2.
C)  S3.
D)  S4.E) All of the above
F) A) and B)

Question 14

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good. 
-Refer to Figure 8-8. After the tax goes into effect, consumer surplus is the area

Accepted Answer

A)  A.
B)  B+C.
C)  A+B+C.
D)  A+B+D+J+K.E) B) and D)
F) None of the above

Question 15

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 deadweight loss associated with the tax is equal to

Accepted Answer

A)  P3ACP1.
B)  ABC.
C)  P2ADP3.
D)  P1DCP2.E) All of the above
F) B) and C)

Question 16

If the labor supply curve is very elastic, a tax on labor

Accepted Answer

A)  has a large deadweight loss.
B)  raises enough tax revenue to offset the loss in welfare.
C)  has a relatively small impact on the number of hours that workers choose to work.
D)  results in a large tax burden on the firms that hire labor.E) A) and D)
F) B) and D)

Question 17

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

Accepted Answer

A)  first year after it is imposed than in the fifth year after it is imposed because demand and supply will be more elastic in the first year than in the fifth year.
B)  first year after it is imposed than in the fifth year after it is imposed because demand and supply will be less elastic in the first year than in the fifth year.
C)  fifth 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 fifth year.
D)  fifth 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 fifth year.E) B) and D)
F) A) and D)

Question 18

A tax raises the price received by sellers and lowers the price paid by buyers.

Accepted Answer

A) True 
 B)False

Question 19

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. The equilibrium price before the tax is imposed is

Accepted Answer

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

Question 20

Figure 8-15 
-Refer to Figure 8-15. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the largest in the market represented by

Accepted Answer

A)  D1.
B)  D2.
C)  D3.
D)  D4.E) None of the above
F) A) and D)

Exam 8: Application: The Costs of Taxation

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

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A tax raises the price received by sellers and lowers the price paid by buyers.

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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. With the tax, the total surplus is

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

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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 deadweight loss associated with the tax is equal to

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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 quantity sold to

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Figure 8-15 -Refer to Figure 8-15. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the largest in the market represented by

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A tax placed on a good

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Figure 8-16 -Refer to Figure 8-16. 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

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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 equilibrium price before the tax is imposed is

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If the labor supply curve is very elastic, a tax on labor

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Economists generally agree that the most important tax in the U.S. economy is the

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Andre walks Julia's dog once a day for $50 per week. Julia values this service at $60 per week, while the opportunity cost of Andre's time is $30 per week. The government places a tax of $35 per week on dog walkers. After the tax, what is the loss in total surplus?

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If the tax on a good is increased from $0.15 per unit to $0.60 per unit, the deadweight loss from the tax

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Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. After the tax goes into effect, consumer surplus is the area

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Which of the following is a tax on labor?

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The equilibrium price before the tax is imposed is

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Figure 8-11 -Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

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

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Figure 8-11 -Refer to Figure 8-11. Suppose Q₁ = 4; Q₂ = 7; P₁ = $6; P₂ = $8; and P₃= $10. Then, when the tax is imposed,

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