Question 1

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. If Karla hires Roland to mow her lawn, Roland's producer surplus is

Accepted Answer

A)   $2.
B)   $3.
C)   $5.
D)   $25.E) A) and B)
F) None of the above

Question 2

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

Accepted Answer

A)   consumer surplus after the tax.
B)   consumer surplus before the tax.
C)   producer surplus after the tax.
D)   producer surplus before the tax.E) B) and C)
F) None of the above

Question 3

Taxes on labor tend to encourage second earners to stay at home rather than work in the labor force.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Figure 8-13 
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price received by sellers to

Accepted Answer

A)   decrease by $5.
B)   decrease by $3.
C)   decrease by $2.
D)   increase by $5.E) B) and C)
F) A) and D)

Question 6

Total surplus is always equal to the sum of consumer surplus and producer surplus.

Accepted Answer

A) True 
 B)False

Question 7

In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez asserted the following:

Accepted Answer

A)   Since World War II, higher tax rates on individuals with the highest incomes tend to be associated with higher rates of economic growth - not with lower rates of economic growth.
B)   The average federal income tax rate on the top 1 percent of income-earners in the United States more than doubled between 1970 and 2010.
C)   A "reasonable" increase in the tax rate on top income earners is all that is needed to solve long­term fiscal problems faced by the United States.
D)   All of the above are correct.E) B) and D)
F) None of the above

Question 8

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

Accepted Answer

A)   consumer surplus after the tax.
B)   consumer surplus before the tax.
C)   producer surplus after the tax.
D)   producer surplus before the tax.E) A) and B)
F) A) and C)

Question 9

Figure 8-25 
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is producer surplus after the tax is imposed?

Accepted Answer

Producer s...

Question 10

Figure 8-13 
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss of producer surplus resulting from this tax is

Accepted Answer

A)   $60.
B)   $45.
C)   $30.
D)   $15.E) B) and D)
F) A) and D)

Question 11

Assume the price of gasoline is $2.40 per gallon, and the equilibrium quantity of gasoline is 12 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

Accepted Answer

A)   A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 5 percent; and the tax on gasoline amounts to $0.40 per gallon.
B)   A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 2 percent and it increases the quantity of gasoline supplied by 7 percent; and the tax on gasoline amounts to $0.40 per gallon.
C)   A 10 percent increase in the price of gasoline reduces the quantity of gasoline demanded by 1 percent and it increases the quantity of gasoline supplied by 8 percent; and the tax on gasoline amounts to $0.35 per gallon.
D)   There is insufficient information to make this determination.E) A) and B)
F) A) and D)

Question 12

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. The loss in total welfare that results from the tax is represented by area

Accepted Answer

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

Question 13

The amount of deadweight loss that results from a tax of a given size is determined by

Accepted Answer

A)   whether the tax is levied on buyers or sellers.
B)   the number of buyers in the market relative to the number of sellers.
C)   the price elasticities of demand and supply.
D)   the ratio of the tax per unit to the effective price received by sellers.E) All of the above
F) B) and D)

Question 14

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The total surplus without the tax is

Accepted Answer

A)   $8,000.
B)   $12,000.
C)   $20,000.
D)   $40,000.E) None of the above
F) All of the above

Question 15

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)   1/2 x (P0-P2)  x Q2.
C)   (P0-P5)  x Q5.
D)   1/2 x (P0-P5)  x Q5.E) C) and D)
F) All of the above

Question 16

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

Question 17

Taxes create deadweight losses.

Accepted Answer

A) True 
 B)False

Question 18

Taxes are costly to market participants because they

Accepted Answer

A)   transfer resources from market participants to the government.
B)   alter incentives.
C)   distort market outcomes.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 19

As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the

Accepted Answer

A)   tax revenue increases at first, but it eventually peaks and then decreases.
B)   deadweight loss increases at first, but it eventually peaks and then decreases.
C)   tax revenue always increases, and the deadweight loss always increases.
D)   tax revenue always decreases, and the deadweight loss always increases.E) All of the above
F) A) and D)

Question 20

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good. 
-Refer to Figure 8-8. One effect of the tax is to

Accepted Answer

A)   reduce consumer surplus from $180 to $72.
B)   reduce producer surplus from $96 to $24.
C)   create a deadweight loss of $72.
D)   All of the above are correct.E) None of the above
F) A) and D)

Exam 8: Application: the Costs of Taxation

Taxes on labor tend to encourage second earners to stay at home rather than work in the labor force.

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Taxes are costly to market participants because they

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Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The total surplus without the tax is

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

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Assume the price of gasoline is $2.40 per gallon, and the equilibrium quantity of gasoline is 12 million gallons per day with no tax on gasoline. Starting from this initial situation, which of the following scenarios would result in the largest deadweight loss?

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The loss in total welfare that results from the tax is represented by area

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

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In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez asserted the following:

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Taxes create deadweight losses.

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As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the

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When a tax is levied on buyers of a good,

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Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. One effect of the tax is to

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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

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Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The tax causes the price received by sellers to

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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. If Karla hires Roland to mow her lawn, Roland's producer surplus is

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Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is producer surplus after the tax is imposed?

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Figure 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The loss of producer surplus resulting from this tax is

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The amount of deadweight loss that results from a tax of a given size is determined by

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

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Total surplus is always equal to the sum of consumer surplus and producer surplus.

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Producer s...
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