Question 1

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. After the tax is levied, producer surplus is represented by area

Accepted Answer

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

Question 2

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

Accepted Answer

A)   The price elasticity of demand is small, and the price elasticity of supply is large.
B)   The price elasticity of demand is large, and the price elasticity of supply is small.
C)   The price elasticity of demand and the price elasticity of supply are both small.
D)   The price elasticity of demand and the price elasticity of supply are both large.E) A) and B)
F) B) and C)

Question 3

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

Accepted Answer

Producer surplus is ...

Question 4

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 the tax on each unit of the good is

Accepted Answer

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

Question 5

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be

Accepted Answer

A)   $200.
B)   $250.
C)   $500.
D)   $2,500.E) A) and C)
F) None of the above

Question 6

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

Accepted Answer

A)   $60
B)   $50
C)   $30
D)   $25E) A) and B)
F) B) and C)

Question 7

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

Question 8

Deadweight loss is the

Accepted Answer

A)   decline in total surplus that results from a tax.
B)   decline in government revenue when taxes are reduced in a market.
C)   decline in consumer surplus when a tax is placed on buyers.
D)   loss of profits to business firms when a tax is imposed.E) A) and B)
F) A) and C)

Question 9

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good. 
-Refer to Figure 8-8. The tax causes producer surplus to decrease by the area

Accepted Answer

A)   D+F.
B)   D+F+G.
C)   D+F+J.
D)   D+F+G+H.E) B) and D)
F) B) and C)

Question 10

In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez wrote that, according to their analysis, the federal government's tax revenue would be maximized if the marginal income tax rate on individuals with the highest earnings were in or near the range of

Accepted Answer

A)   10 percent to 30 percent.
B)   30 percent to 50 percent.
C)   50 percent to 70 percent.
D)   70 percent to 90 percent.E) A) and C)
F) A) and B)

Question 11

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 A on the curve, then a small increase in the tax rate will

Accepted Answer

A)   increase the deadweight loss of the tax and increase tax revenue.
B)   increase the deadweight loss of the tax and decrease tax revenue.
C)   decrease the deadweight loss of the tax and increase tax revenue.
D)   decrease the deadweight loss of the tax and decrease tax revenue.E) C) and D)
F) None of the above

Question 12

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. What happens to consumer surplus when the tax is imposed in this market?

Accepted Answer

A)   Consumer surplus falls by $3,600.
B)   Consumer surplus falls by $2,700.
C)   Consumer surplus falls by $1,800.
D)   Consumer surplus falls by $900.E) B) and D)
F) A) and C)

Question 13

Figure 8-19
The vertical distance between points A and B represents the original tax. 
-Refer to Figure 8-19. The original tax can be represented by the vertical distance AB. Suppose the government is deciding whether to lower the tax to CD or raise it to FG. Which of the following statements is not correct?

Accepted Answer

A)   Compared to the original tax, the larger tax will increase tax revenue.
B)   Compared to the original tax, the smaller tax will decrease deadweight loss.
C)   Compared to the original tax, the smaller tax will decrease tax revenue.
D)   Compared to the original tax, the larger tax will increase deadweight loss.E) B) and D)
F) C) and D)

Question 14

The Laffer curve relates

Accepted Answer

A)   the tax rate to tax revenue raised by the tax.
B)   the tax rate to the deadweight loss of the tax.
C)   the price elasticity of supply to the deadweight loss of the tax.
D)   government welfare payments to the birth rate.E) B) and D)
F) All of the above

Question 15

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

Question 16

A tax placed on buyers of tuxedoes shifts the

Accepted Answer

A)   demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to increase.
B)   demand curve for tuxedoes downward, decreasing the price received by sellers of tuxedoes and causing the quantity of tuxedoes to decrease.
C)   supply curve for tuxedoes upward, decreasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to increase.
D)   supply curve for tuxedoes upward, increasing the effective price paid by buyers of tuxedoes and causing the quantity of tuxedoes to decrease.E) C) and D)
F) A) and D)

Question 17

If a tax shifts the supply curve upward (or to the left) , we can infer that the tax was levied on

Accepted Answer

A)   buyers of the good.
B)   sellers of the good.
C)   both buyers and sellers of the good.
D)   We cannot infer anything because the shift described is not consistent with a tax.E) A) and B)
F) A) and C)

Question 18

Figure 8-7
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

Accepted Answer

A)   $80, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.
B)   $80, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.
C)   $60, and this figure represents the amount by which tax revenue to the government exceeds the combined loss of producer and consumer surpluses.
D)   $60, and this figure represents the surplus that is lost because the tax discourages mutually advantageous trades between buyers and sellers.E) C) and D)
F) All of the above

Question 19

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

Question 20

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. Assume Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?

Accepted Answer

A)   Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn.
B)   Karla is willing to pay Roland to mow her lawn, but Roland will decline her offer.
C)   Roland is willing to mow Karla's lawn, but Karla will decide to mow her own lawn.
D)   Roland and Karla still can engage in a mutually-agreeable trade.E) All of the above
F) A) and D)

Exam 8: Application: The Costs of Taxation

If a tax shifts the supply curve upward (or to the left) , we can infer that the tax was levied on

Correct Answer
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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. What happens to consumer surplus when the tax is imposed in this market?

Correct Answer
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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. After the tax is levied, producer surplus is represented by area

Correct Answer
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Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. Before the tax, what is the total surplus?

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

Correct Answer
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Producer surplus is ...
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Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The tax causes producer surplus to decrease by the area

Correct Answer
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The Laffer curve relates

Correct Answer
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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 the tax on each unit of the good is

Correct Answer
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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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Deadweight loss is the

Correct Answer
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In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez wrote that, according to their analysis, the federal government's tax revenue would be maximized if the marginal income tax rate on individuals with the highest earnings were in or near the range of

Correct Answer
verified

If the size of a tax increases, tax revenue

Correct Answer
verified

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be

Correct Answer
verified

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 A on the curve, then a small increase in the tax rate will

Correct Answer
verified

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

Correct Answer
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A tax placed on buyers of tuxedoes shifts the

Correct Answer
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Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

Correct Answer
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In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

Correct Answer
verified

Exam 8: Application: The Costs of Taxation

If a tax shifts the supply curve upward (or to the left) , we can infer that the tax was levied on

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. What happens to consumer surplus when the tax is imposed in this market?

Correct AnswerverifiedShow Answer

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. After the tax is levied, producer surplus is represented by area

Correct AnswerverifiedShow Answer

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

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

Correct AnswerverifiedProducer surplus is ...View AnswerShow Answer

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Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The tax causes producer surplus to decrease by the area

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The Laffer curve relates

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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 the tax on each unit of the good is

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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

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Deadweight loss is the

Correct AnswerverifiedShow Answer

In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez wrote that, according to their analysis, the federal government's tax revenue would be maximized if the marginal income tax rate on individuals with the highest earnings were in or near the range of

Correct AnswerverifiedShow Answer

If the size of a tax increases, tax revenue

Correct AnswerverifiedShow Answer

Suppose a tax of $0.50 per unit on a good creates a deadweight loss of $100. If the tax is increased to $2.50 per unit, the deadweight loss from the new tax would be

Correct AnswerverifiedShow Answer

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 A on the curve, then a small increase in the tax rate will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A tax placed on buyers of tuxedoes shifts the

Correct AnswerverifiedShow Answer

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. The deadweight loss associated with this tax amounts to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

Correct AnswerverifiedShow Answer

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Producer surplus is ...
View Answer

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