Question 1

The demand for beer is more elastic than the demand for milk, so a tax on beer would have a smaller deadweight loss than an equivalent tax on milk, all else equal.

Accepted Answer

A) True 
 B)False

Question 2

When a tax is levied on a good,

Accepted Answer

A)   government collects revenues which might justify the loss in total welfare.
B)   there is a decrease in the quantity of the good bought and sold in the market.
C)   a wedge is placed between the price buyers pay and the price sellers effectively receive.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 3

Figure 8-4
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is

Accepted Answer

A)   $35.00.
B)   $45.25.
C)   $52.50.
D)   $105.00.E) B) and C)
F) None of the above

Question 4

Figure 8-7
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-7. As a result of the tax, buyers effectively pay

Accepted Answer

A)   $32 for each unit of the good, and sellers effectively receive $24 for each unit of the good.
B)   $32 for each unit of the good, and sellers effectively receive $16 for each unit of the good.
C)   $24 for each unit of the good, and sellers effectively receive $16 for each unit of the good.
D)   $28 for each unit of the good, and sellers effectively receive $20 for each unit of the good.E) All of the above
F) None of the above

Question 5

If a tax shifts the demand curve downward 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) None of the above
F) B) and D)

Question 6

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is

Accepted Answer

A)   $0.
B)   $1.
C)   $2.
D)   $3.E) A) and B)
F) A) and D)

Question 7

Figure 8-22 
-Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

Accepted Answer

A)   Compared to the original tax, the larger tax will decrease 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) A) and B)
F) All of the above

Question 8

Suppose that a university charges students a $100 "tax" to register for business classes. The next year the university raises the "tax" to $150. The deadweight loss from the "tax" triples.

Accepted Answer

A) True 
 B)False

Question 9

When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.

Accepted Answer

A) True 
 B)False

Question 10

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The per-unit burden of the tax on sellers is

Accepted Answer

A)   $2.
B)   $3.
C)   $4.
D)   $5.E) B) and C)
F) B) and D)

Question 11

Figure 8-22 
-Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is correct?

Accepted Answer

A)   Compared to the original tax, the smaller tax will decrease both tax revenue and deadweight loss.
B)   Compared to the original tax, the larger tax will increase both tax revenue and deadweight loss.
C)   Compared to the original tax, the larger tax will decrease tax revenue and increase deadweight loss.
D)   Both a and b are correct.E) B) and D)
F) A) and D)

Question 12

Figure 8-14 
-Refer to Figure 8-14. Which of the following combinations will minimize the deadweight loss from a tax?

Accepted Answer

A)   supply 1 and demand 1
B)   supply 2 and demand 2
C)   supply 1 and demand 2
D)   supply 2 and demand 1E) A) and B)
F) B) and C)

Question 13

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The loss of consumer surplus as a result of the tax is

Accepted Answer

A)   $1.50.
B)   $3.
C)   $4.50.
D)   $6.E) A) and B)
F) A) and C)

Question 14

For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is

Accepted Answer

A)   $1,750.
B)   $2,250.
C)   $3,000.
D)   $4,500.E) B) and D)
F) B) and C)

Question 15

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

Accepted Answer

Consumer s...

Question 16

Figure 8-26 
-Refer to Figure 8-26. What are the equilibrium price and equilibrium quantity in this market?

Accepted Answer

The equilibrium pric...

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Accepted Answer

A) True 
 B)False

Question 19

When a tax is placed on a product, the price paid by buyers

Accepted Answer

A)   rises, and the price received by sellers rises.
B)   rises, and the price received by sellers falls.
C)   falls, and the price received by sellers rises.
D)   falls, and the price received by sellers falls.E) None of the above
F) B) and C)

Question 20

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 B)
F) None of the above

Exam 8: Application: The Costs of Taxation

When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.

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Figure 8-14 -Refer to Figure 8-14. Which of the following combinations will minimize the deadweight loss from a tax?

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When a tax is levied on buyers of a good,

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Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is

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

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

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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 loss of producer surplus associated with some sellers dropping out of the market as a result of the tax is

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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 loss of consumer surplus as a result of the tax is

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When a tax is placed on a product, the price paid by buyers

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For widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. A tax of $15 per unit is imposed on widgets. The tax reduces the equilibrium quantity in the market by 300 units. The deadweight loss from the tax is

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The demand for beer is more elastic than the demand for milk, so a tax on beer would have a smaller deadweight loss than an equivalent tax on milk, all else equal.

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When a tax is levied on a good,

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Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

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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 per-unit burden of the tax on sellers is

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Figure 8-26 -Refer to Figure 8-26. What are the equilibrium price and equilibrium quantity in this market?

Correct AnswerverifiedThe equilibrium pric...View AnswerShow Answer

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

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Figure 8-22 -Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is not correct?

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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. As a result of the tax, buyers effectively pay

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Suppose that a university charges students a $100 "tax" to register for business classes. The next year the university raises the "tax" to $150. The deadweight loss from the "tax" triples.

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Figure 8-22 -Refer to Figure 8-22. Suppose the government initially imposes a $3 per-unit tax on this good. Now suppose the government is deciding whether to lower the tax to $1.50 or raise it to $4.50. Which of the following statements is correct?

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The equilibrium pric...
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Consumer s...
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