Question 1

Concerning the labor market and taxes on labor, economists disagree about

Accepted Answer

A)   the size of the tax on labor.
B)   the size of the deadweight loss of the tax on labor.
C)   whether or not a tax on labor places a wedge between the wage that firms pay and the wage that workers receive.
D)   All of the above are correct.E) A) and C)
F) None of the above

Question 2

Suppose that the market for large, 64-ounce soft drinks in the town of Pudgyville is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. The market is initially in equilibrium with 1,000 soft drinks sold per day. The newly-elected Mayor of Pudgyville wants to tax 64-ounce soft drinks. She is considering either a $0.10 tax or a $0.30 tax. Her chief economic advisor estimates that the number of soft drinks sold after a $0.10 tax will be 900 and after a $0.30 tax will be 500. Which tax is better?

Accepted Answer

A)   The $0.10 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.30 tax.
B)   The $0.30 tax is better because it raises more revenue and creates a lower deadweight loss than the $0.10 tax.
C)   It is not clear which tax is better because although the $0.30 tax raises more tax revenues, it creates a larger deadweight loss than the $0.10 tax.
D)   It is not clear which tax is better because although the $0.10 tax raises more tax revenues, it creates a larger deadweight loss than the $0.30 tax.E) A) and D)
F) B) and C)

Question 3

A tax on a good

Accepted Answer

A)   gives buyers an incentive to buy less of the good than they otherwise would buy.
B)   gives sellers an incentive to produce more of the good than they otherwise would produce.
C)   creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers.
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 4

The graph that represents the amount of deadweight loss measured on the vertical axis)  as a function of the size of the tax measured on the horizontal axis)  looks like

Accepted Answer

A)   a U.
B)   an upside-down U.
C)   a horizontal straight line.
D)   an upward-sloping curve.E) A) and D)
F) None of the above

Question 5

Suppose the demand curve and the supply curve in a market are both linear. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $3 tax per unit?

Accepted Answer

The deadwe...

Question 6

Taxes on labor tend to increase the number of hours that people choose to work.

Accepted Answer

A) True 
 B)False

Question 7

John has been in the habit of mowing Willa's lawn each week for $20. John's opportunity cost is $15, and Willa would be willing to pay $25 to have her lawn mowed. What is the maximum tax the government can impose on lawn mowing without discouraging John and Willa from continuing their mutually beneficial arrangement?

Accepted Answer

If the tax is less than $10, there will ...

Question 8

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good. 
-Refer to Figure 8-8. The government collects tax revenue that is the area

Accepted Answer

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

Question 9

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

Accepted Answer

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

Question 10

Figure 8-7
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-7. Which of the following statements is correct?

Accepted Answer

A)   The loss of producer surplus that is associated with some sellers dropping out of the market as a result of the tax is $60.
B)   The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $120.
C)   The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax.
D)   This tax produces $320 in tax revenue for the government.E) A) and D)
F) C) and D)

Question 11

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

Accepted Answer

A) True 
 B)False

Question 12

If the size of a tax triples, the deadweight loss increases by a factor of six.

Accepted Answer

A) True 
 B)False

Question 13

Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the

Accepted Answer

A)   larger is the price elasticity of demand.
B)   smaller is the price elasticity of supply.
C)   larger is the amount of the tax.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 14

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

Question 15

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.

Accepted Answer

A tax on energy drinks would have a larg...

Question 16

When a tax is imposed on a good for which both demand and supply are very elastic,

Accepted Answer

A)   sellers effectively pay the majority of the tax.
B)   buyers effectively pay the majority of the tax.
C)   the tax burden is equally divided between buyers and sellers.
D)   None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.E) None of the above
F) A) and D)

Question 17

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

Question 18

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

Accepted Answer

A) True 
 B)False

Question 19

A tax on insulin is likely to cause a very large deadweight loss to society.

Accepted Answer

A) True 
 B)False

Question 20

Consider a good to which a per-unit tax applies. The greater the price elasticities of demand and supply for the good, the

Accepted Answer

A)   smaller the deadweight loss from the tax.
B)   greater the deadweight loss from the tax.
C)   more efficient is the tax.
D)   more equitable is the distribution of the tax burden between buyers and sellers.E) B) and D)
F) A) and B)

Exam 8: Application: The Costs of Taxation

Taxes on labor tend to increase the number of hours that people choose to work.

Correct Answer
verified

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.

Correct Answer
verified
A tax on energy drinks would have a larg...
View Answer

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

Correct Answer
verified

If the size of a tax triples, the deadweight loss increases by a factor of six.

Correct Answer
verified

Suppose the demand curve and the supply curve in a market are both linear. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $3 tax per unit?

Correct Answer
verified
The deadwe...
View Answer

A tax placed on buyers of tuxedoes shifts the

Correct Answer
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A tax on a good

Correct Answer
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Correct Answer
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When a tax is imposed on a good for which both demand and supply are very elastic,

Correct Answer
verified

A tax on insulin is likely to cause a very large deadweight loss to society.

Correct Answer
verified

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

Correct Answer
verified

Correct Answer
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If the tax is less than $10, there will ...
View Answer

Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the

Correct Answer
verified

Concerning the labor market and taxes on labor, economists disagree about

Correct Answer
verified

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The government collects tax revenue that is the area

Correct Answer
verified

The graph that represents the amount of deadweight loss measured on the vertical axis) as a function of the size of the tax measured on the horizontal axis) looks like

Correct Answer
verified

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

Correct Answer
verified

Consider a good to which a per-unit tax applies. The greater the price elasticities of demand and supply for the good, the

Correct Answer
verified

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

Correct Answer
verified

Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Which of the following statements is correct?

Correct Answer
verified

Exam 8: Application: The Costs of Taxation

Taxes on labor tend to increase the number of hours that people choose to work.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedA tax on energy drinks would have a larg...View AnswerShow Answer

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

Correct AnswerverifiedShow Answer

If the size of a tax triples, the deadweight loss increases by a factor of six.

Correct AnswerverifiedShow Answer

Suppose the demand curve and the supply curve in a market are both linear. If a $2 tax per unit results in a deadweight loss of $200, how large would be the deadweight loss from a $3 tax per unit?

Correct AnswerverifiedThe deadwe...View AnswerShow Answer

A tax placed on buyers of tuxedoes shifts the

Correct AnswerverifiedShow Answer

A tax on a good

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a tax is imposed on a good for which both demand and supply are very elastic,

Correct AnswerverifiedShow Answer

A tax on insulin is likely to cause a very large deadweight loss to society.

Correct AnswerverifiedShow Answer

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIf the tax is less than $10, there will ...View AnswerShow Answer

Consider a good to which a per-unit tax applies. The size of the deadweight that results from the tax is smaller, the

Correct AnswerverifiedShow Answer

Concerning the labor market and taxes on labor, economists disagree about

Correct AnswerverifiedShow Answer

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The government collects tax revenue that is the area

Correct AnswerverifiedShow Answer

The graph that represents the amount of deadweight loss measured on the vertical axis) as a function of the size of the tax measured on the horizontal axis) looks like

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Consider a good to which a per-unit tax applies. The greater the price elasticities of demand and supply for the good, the

Correct AnswerverifiedShow Answer

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 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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A tax on energy drinks would have a larg...
View Answer

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The deadwe...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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If the tax is less than $10, there will ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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