Question 1

Figure 8-12 
-Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of deadweight loss resulting from this tax is

Accepted Answer

A)   $7.50.
B)   $15.00.
C)   $22.50.
D)   $45.00.E) None of the above
F) All of the above

Question 2

To measure the gains and losses from a tax on a good, economists use the tools of

Accepted Answer

A)   macroeconomics.
B)   welfare economics.
C)   international-trade theory.
D)   circular-flow analysis.E) A) and D)
F) A) and C)

Question 3

Suppose the government places a per-unit tax on a good. The smaller 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)   less efficient is the tax.
D)   more equitable is the distribution of the tax burden between buyers and sellers.E) All of the above
F) A) and B)

Question 4

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

Question 5

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 6

Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is tripled, the

Accepted Answer

A)   base of the triangle that represents the deadweight loss triples.
B)   height of the triangle that represents the deadweight loss triples.
C)   deadweight loss of the tax increases by a factor of nine.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 7

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3. The per-unit burden of the tax on sellers is

Accepted Answer

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

Question 8

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 B on the curve, then a small decrease 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) A) and B)
F) A) and C)

Question 9

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Accepted Answer

A) True 
 B)False

Question 10

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 11

Taxes affect market participants by increasing the price paid by the buyer and decreasing the price received by the seller.

Accepted Answer

A) True 
 B)False

Question 12

In a 2012 Wall Street Journal column, economists Edward Prescott and Lee Ohanian claimed that, in order to promote faster economic growth, the government should

Accepted Answer

A)   increase tax rates on individuals with high incomes, and leave tax rates on other individuals unchanged.
B)   equalize tax rates on all individuals, regardless of how much they earn.
C)   decrease tax rates on income and increase tax rates on consumption.
D)   increase the after-tax benefits to successful entrepreneurship and risk-taking.E) A) and C)
F) A) and B)

Question 13

Which of the following statements correctly describes the relationship between the size of the deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax?

Accepted Answer

A)   Both the size of the deadweight loss and tax revenue increase.
B)   The size of the deadweight loss increases, but the tax revenue decreases.
C)   The size of the deadweight loss increases, but the tax revenue first increases, then decreases.
D)   Both the size of the deadweight loss and tax revenue decrease.E) A) and B)
F) All of the above

Question 14

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

Question 15

When a tax is levied on buyers of a good,

Accepted Answer

A)   government collects too little revenue to justify the tax if the equilibrium quantity of the good decreases as a result of the tax.
B)   there is an increase in the quantity of the good supplied.
C)   a wedge is placed between the price buyers pay and the price sellers effectively receive.
D)   the effective price to buyers decreases because the demand curve shifts leftward.E) A) and D)
F) None of the above

Question 16

If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax.

Accepted Answer

A) True 
 B)False

Question 17

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good. 
-Refer to Figure 8-8. The deadweight loss of the tax is the area

Accepted Answer

A)   B+D.
B)   C+F.
C)   A+C+F+J.
D)   B+C+D+F.E) All of the above
F) A) and B)

Question 18

Figure 8-14 
-Refer to Figure 8-14. Which of the following statements is correct?

Accepted Answer

A)   Supply 1 is more elastic than supply 2.
B)   Demand 2 is more elastic than demand 1.
C)   Demand 1 is more elastic than supply 1.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 19

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. Total surplus without the tax is

Accepted Answer

A)   $10, and total surplus with the tax is $2.50.
B)   $10, and total surplus with the tax is $7.50.
C)   $20, and total surplus with the tax is $2.50.
D)   $20, and total surplus with the tax is $7.50.E) A) and C)
F) All of the above

Question 20

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

Exam 8: Application: the Costs of Taxation

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

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

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If the government imposes a $3 tax in a market, the buyers and sellers will share an equal burden of the tax.

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Which of the following statements correctly describes the relationship between the size of the deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax?

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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.

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Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. Total surplus without the tax 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 deadweight loss of the tax is the area

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In a 2012 Wall Street Journal column, economists Edward Prescott and Lee Ohanian claimed that, in order to promote faster economic growth, the government should

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When a tax is levied on buyers of a good,

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The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

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Figure 8-14 -Refer to Figure 8-14. Which of the following statements is correct?

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Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is tripled, the

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Suppose the government places a per-unit tax on a good. The smaller the price elasticities of demand and supply for the good, the

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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

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Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The amount of deadweight loss resulting from this tax is

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To measure the gains and losses from a tax on a good, economists use the tools of

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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 per-unit burden of the tax on sellers is

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Taxes cause deadweight losses because taxes

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Taxes affect market participants by increasing the price paid by the buyer and decreasing the price received by the seller.

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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 B on the curve, then a small decrease in the tax rate will

Correct AnswerverifiedShow Answer

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