Question 1

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

Accepted Answer

A)   P3 - P1.
B)   P3 - P2.
C)   P2 - P1.
D)   P4 - P3.E) A) and D)
F) None of the above

Question 2

The supply curve for motor oil is the typical upward-sloping straight line, and the demand curve for motor oil is the typical downward-sloping straight line. When motor oil is taxed, the area on the relevant supply-and-demand graph that represents the deadweight loss is

Accepted Answer

A)   larger than the area that represents consumer surplus in the absence of the tax.
B)   larger than the area that represents government's tax revenue.
C)   a triangle.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 3

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

Accepted Answer

Total tax revenue is...

Question 4

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J+K+I 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 D)
F) A) and B)

Question 5

Other things equal, the deadweight loss of a tax

Accepted Answer

A)   decreases as the size of the tax increases.
B)   increases as the size of the tax increases, but the increase in the deadweight loss is less rapid than the increase in the size of the tax.
C)   increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax.
D)   increases as the price elasticities of demand and/or supply increase, but the deadweight loss does not change as the size of the tax increases.E) A) and B)
F) None of the above

Question 6

Scenario 8-1
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week.
-Refer to Scenario 8-1. Assume Erin is required to pay a tax of $5 when she hires someone to clean her house. Which of the following is true?

Accepted Answer

A)   Erin will continue to hire Ernesto to clean her house, but her consumer surplus will decline.
B)   Ernesto will continue to clean Erin's house, and his producer surplus will increase.
C)   Total economic welfare consumer surplus plus producer surplus plus tax revenue)  will decrease.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 7

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 D)
F) A) and B)

Question 8

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

Question 9

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by area

Accepted Answer

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

Question 10

Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.

Accepted Answer

A) True 
 B)False

Question 11

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. The curve that is shown on the figure is called the

Accepted Answer

A)   deadweight-loss curve.
B)   tax-incidence curve.
C)   Laffer curve.
D)   Lorenz curve.E) A) and B)
F) A) and C)

Question 12

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 13

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) A) and D)
F) C) 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 consumer surplus without the tax is

Accepted Answer

A)   $2,000.
B)   $5,000.
C)   $8,000.
D)   $16,000.E) C) and D)
F) None of the above

Question 15

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 buyers is

Accepted Answer

A)   $2.
B)   $3.
C)   $4.
D)   $5.E) C) and D)
F) None of the above

Question 16

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)   Total surplus before the tax is imposed is $180.
B)   After the tax is imposed, consumer surplus is 25 percent of its pre-tax value.
C)   After the tax is imposed, producer surplus is 36 percent of its pre-tax value.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 17

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

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 B)
F) A) and C)

Question 19

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 total surplus is

Accepted Answer

A)   [1/2 x P0-P5)  x Q5] + [1/2 x P5-0)  x Q5].
B)   [1/2 x P0-P2)  x Q2] +[P2-P8)  x Q2] + [1/2 x P8-0)  x Q2].
C)   P2-P8)  x Q2.
D)   1/2 x P2-P8)  x Q5-Q2) .E) C) and D)
F) B) and D)

Question 20

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

Accepted Answer

A) True 
 B)False

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.

Correct Answer
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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.

Correct Answer
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The supply curve for motor oil is the typical upward-sloping straight line, and the demand curve for motor oil is the typical downward-sloping straight line. When motor oil is taxed, the area on the relevant supply-and-demand graph that represents the deadweight loss is

Correct Answer
verified

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

Correct Answer
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Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.

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 tax revenue is collected after the tax is imposed?

Correct Answer
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Total tax revenue is...
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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 amount of the tax on each unit of the good is

Correct Answer
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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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Other things equal, the deadweight loss of a tax

Correct Answer
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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?

Correct Answer
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Correct Answer
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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+K+I represents

Correct Answer
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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 total surplus is

Correct Answer
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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. The curve that is shown on the figure is called the

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 per-unit burden of the tax on buyers is

Correct Answer
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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. Which of the following statements is correct?

Correct Answer
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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by area

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 consumer surplus without the tax is

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?

Correct Answer
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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.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The supply curve for motor oil is the typical upward-sloping straight line, and the demand curve for motor oil is the typical downward-sloping straight line. When motor oil is taxed, the area on the relevant supply-and-demand graph that represents the deadweight loss is

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

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Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.

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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 tax revenue is collected after the tax is imposed?

Correct AnswerverifiedTotal tax revenue is...View AnswerShow Answer

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

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

Other things equal, the deadweight loss of a tax

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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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

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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 total surplus is

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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. The curve that is shown on the figure is called the

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 per-unit burden of the tax on buyers is

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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. Which of the following statements is correct?

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by area

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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 consumer surplus without the tax is

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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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Total tax revenue is...
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