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Exam 8: Applications: the Costs of Taxation

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Question 61

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The deadweight loss from a tax of $x per unit will be smallest in a market

A) in which demand is elastic and supply is inelastic.
B) in which demand is inelastic and supply is elastic.
C) in which demand is inelastic and supply is inelastic.
D) None of the above are correct; we need to know the value of x in order to determine the answer.

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

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Question 62

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In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $800 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by

A) 40 per month.
B) 50 per month.
C) 75 per month.
D) 100 per month.

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

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Question 63

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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 price received by sellers to

The larger the deadweight loss from taxation, the larger the cost of government programs.

Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The per-unit burden of the tax on sellers is

If a tax shifts the demand curve upward (or to the right) , we can infer that the tax was levied on

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. If Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is

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

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

When a tax is imposed on the buyers of a good, the demand curve shifts

Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

Suppose that the market for product X is characterized by a typical, downward-sloping, linear demand curve and a typical, upward-sloping, linear supply curve. Suppose the price elasticity of supply is 0.7. Will the deadweight loss from a $3 tax per unit be smaller if the absolute value of the price elasticity of demand is 0.6 or if the absolute value of the price elasticity of demand is 1.5?

Figure 8-11 -Refer to Figure 8-11. The deadweight loss of the tax is represented by the

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

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The price that sellers effectively receive after the tax is imposed is

Figure 8-22 -Refer to Figure 8-22. Suppose the government changed the per-unit tax on this good from $3.00 to $1.50. Compared to the original tax rate, this lower tax rate would

When a tax is levied on a good, the buyers and sellers of the good share the burden,

Figure 8-11 -Refer to Figure 8-11. The price labeled as P₁ on the vertical axis represents the price

Table 8-1 -Refer to Table 8-1. Suppose the government is considering levying a tax in one or more of the markets described in the table. Which of the markets will allow the government to minimize the deadweight loss(es) from the tax?

Figure 8-27 -Refer to Figure 8-27. Suppose that Market A is characterized by Demand 1 and Supply 1, and Market B is characterized by Demand 2 and Supply 1. If an identical tax is imposed on each market, the tax will create a larger deadweight loss in which market? Explain.