Question 1

Suppose a tax of $3 per unit is imposed on a good. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. The tax decreases consumer surplus by $3,900 and decreases producer surplus by $3,000. The tax generates tax revenue of $6,000. The tax decreased the equilibrium quantity of the good from

Accepted Answer

A)   2,000 to 1,500.
B)   2,400 to 2,000.
C)   2,600 to 2,000.
D)   3,000 to 2,400.E) None of the above
F) A) and B)

Question 2

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. Total surplus with the tax in place is

Accepted Answer

A)   $1,500.
B)   $3,600.
C)   $4,500.
D)   $6,000.E) A) and D)
F) A) and C)

Question 3

Describe the Laffer curve.

Accepted Answer

The Laffer curve depicts the r...

Question 4

Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax

Accepted Answer

A)   also doubles.
B)   triples.
C)   quadruples.
D)   rises by a factor of 8.E) A) and B)
F) All of the above

Question 5

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The imposition of the tax causes the quantity sold to

Accepted Answer

A)   increase by 1 unit.
B)   decrease by 1 unit.
C)   increase by 2 units.
D)   decrease by 2 units.E) All of the above
F) B) and C)

Question 6

For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of the

Accepted Answer

A)   government's benefit from the tax.
B)   government's loss from the tax.
C)   deadweight loss of the tax.
D)   overall net gain to society of the tax.E) C) and D)
F) B) and D)

Question 7

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 doubled, the

Accepted Answer

A)   base of the triangle that represents the deadweight loss doubles.
B)   height of the triangle that represents the deadweight loss doubles.
C)   deadweight loss of the tax quadruples.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 8

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

Accepted Answer

A)   buyers of the good will bear most of the burden of the tax.
B)   sellers of the good will bear most of the burden of the tax.
C)   buyers and sellers will each bear 50 percent of the burden of the tax.
D)   both equilibrium price and quantity will increase.E) A) and C)
F) A) and B)

Question 9

Figure 8-26 
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is producer surplus after the tax is imposed?

Accepted Answer

Producer surplus is ...

Question 10

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

Accepted Answer

Consumer surplus is ...

Question 11

Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

Accepted Answer

A) True 
 B)False

Question 12

Figure 8-9
The vertical distance between points A and C represents 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) None of the above
F) All of the above

Question 13

Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

Accepted Answer

A)   the larger is the decrease in quantity demanded as a result of the tax.
B)   the smaller is the tax burden on buyers relative to the tax burden on sellers.
C)   the larger is the deadweight loss of the tax.
D)   All of the above are correct.E) A) and C)
F) All of the above

Question 14

With linear demand and supply curves in a market, suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40. If the tax is increased to $0.50 per unit, the deadweight loss from the new tax will be

Accepted Answer

A)   $200.
B)   $250.
C)   $475.
D)   $625.E) None of the above
F) C) and D)

Question 15

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 total surplus in this market when the tax is imposed?

Accepted Answer

A)   Total surplus increases by $1,500.
B)   Total surplus increases by $3,000.
C)   Total surplus decreases by $1,500.
D)   Total surplus decreases by $,3000.E) A) and D)
F) C) and D)

Question 16

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The loss of producer surplus as a result of the tax is

Accepted Answer

A)   $3,000.
B)   $6,000.
C)   $9,000.
D)   $12,000.E) None of the above
F) All of the above

Question 17

Figure 8-11 
-Refer to Figure 8-11. The tax revenue that the government collects equals

Accepted Answer

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

Question 18

Figure 8-16
-Refer to Figure 8-16. Panel (a)  and Panel (b)  each illustrate a $2 tax placed on a market. In comparison to Panel (a) , Panel (b)  illustrates which of the following statements?

Accepted Answer

A)   When demand is relatively inelastic, the deadweight loss of a tax is smaller than when demand is relatively elastic.
B)   When demand is relatively elastic, the deadweight loss of a tax is larger than when demand is relatively inelastic.
C)   When supply is relatively inelastic, the deadweight loss of a tax is smaller than when supply is relatively elastic.
D)   When supply is relatively elastic, the deadweight loss of a tax is larger than when supply is relatively inelastic.E) A) and D)
F) A) and C)

Question 19

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

Question 20

If the size of a tax doubles, the deadweight loss doubles.

Accepted Answer

A) True 
 B)False

Exam 8: Application: the Costs of Taxation

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For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of the

Correct Answer
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When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

Correct Answer
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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. The imposition of the tax causes the quantity sold to

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

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Consumer surplus is ...
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Figure 8-11 -Refer to Figure 8-11. The tax revenue that the government collects equals

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. Total surplus with the tax in place is

Correct Answer
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With linear demand and supply curves in a market, suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40. If the tax is increased to $0.50 per unit, the deadweight loss from the new tax will be

Correct Answer
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Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax

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
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Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

Correct Answer
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Figure 8-16 -Refer to Figure 8-16. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (a) , Panel (b) illustrates which of the following statements?

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Describe the Laffer curve.

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The Laffer curve depicts the r...
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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 doubled, the

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 total surplus in this market when the tax is imposed?

Correct Answer
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If the size of a tax doubles, the deadweight loss doubles.

Correct Answer
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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 imposition of the tax causes the quantity sold to

Correct Answer
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Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is producer surplus after the tax is imposed?

Correct Answer
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Producer surplus is ...
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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 loss of producer surplus as a result of the tax is

Correct Answer
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Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

Correct Answer
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Exam 8: Application: the Costs of Taxation

Correct AnswerverifiedShow Answer

For the purpose of analyzing the gains and losses from a tax on a good, we use tax revenue as a direct measure of the

Correct AnswerverifiedShow Answer

When a tax is imposed on a good for which the supply is relatively elastic and the demand is relatively inelastic,

Correct AnswerverifiedShow Answer

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The imposition of the tax causes the quantity sold to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedConsumer surplus is ...View AnswerShow Answer

Figure 8-11 -Refer to Figure 8-11. The tax revenue that the government collects equals

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. Total surplus with the tax in place is

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With linear demand and supply curves in a market, suppose a tax of $0.20 per unit on a good creates a deadweight loss of $40. If the tax is increased to $0.50 per unit, the deadweight loss from the new tax will be

Correct AnswerverifiedShow Answer

Suppose the federal government doubles the gasoline tax. The deadweight loss associated with the tax

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Total surplus in a market does not change when the government imposes a tax on that market because the loss of consumer surplus and producer surplus is equal to the gain of government revenue.

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Figure 8-16 -Refer to Figure 8-16. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (a) , Panel (b) illustrates which of the following statements?

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Describe the Laffer curve.

Correct AnswerverifiedThe Laffer curve depicts the r...View AnswerShow Answer

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 doubled, the

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 total surplus in this market when the tax is imposed?

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If the size of a tax doubles, the deadweight loss doubles.

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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 imposition of the tax causes the quantity sold to

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Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How much is producer surplus after the tax is imposed?

Correct AnswerverifiedProducer surplus is ...View AnswerShow Answer

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The loss of producer surplus as a result of the tax is

Correct AnswerverifiedShow Answer

Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

Correct AnswerverifiedShow Answer

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Consumer surplus is ...
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The Laffer curve depicts the r...
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Producer surplus is ...
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