Question 1

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

Accepted Answer

A)   California economics.
B)   welfare economics.
C)   supply-side economics.
D)   elasticity economics.E) C) and D)
F) A) and D)

Question 2

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 producer surplus when the tax is imposed in this market?

Accepted Answer

A)   Producer surplus falls by $600.
B)   Producer surplus falls by $900.
C)   Producer surplus falls by $1,800.
D)   Producer surplus falls by $2,100.E) A) and B)
F) A) and C)

Question 3

When alcohol is taxed and sellers of alcohol are required to pay the tax to the government,

Accepted Answer

A)   the quantity of alcohol bought and sold in the market is reduced.
B)   the price paid by buyers of alcohol decreases.
C)   the demand for alcohol decreases.
D)   there is a movement downward and to the right along the demand curve for alcohol.E) A) and B)
F) B) and C)

Question 4

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)   $210.
B)   $420.
C)   $980.
D)   $1,600.E) None of the above
F) All of the above

Question 5

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) None of the above
F) All of the above

Question 6

Economists disagree on whether labor taxes have a small or large deadweight loss.

Accepted Answer

A) True 
 B)False

Question 7

The Laffer curve relates

Accepted Answer

A)   the tax rate to tax revenue raised by the tax.
B)   the tax rate to the deadweight loss of the tax.
C)   the price elasticity of supply to the deadweight loss of the tax.
D)   government welfare payments to the birth rate.E) A) and B)
F) A) and C)

Question 8

Assume the price of gasoline is $2.00 per gallon,and the equilibrium quantity of gasoline is 10 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)   The price elasticity of demand for gasoline is 0.1;the price elasticity of supply for gasoline is 0.6;and the gasoline tax amounts to $0.20 per gallon.
B)   The price elasticity of demand for gasoline is 0.1;the price elasticity of supply for gasoline is 0.4;and the gasoline tax amounts to $0.20 per gallon.
C)   The price elasticity of demand for gasoline is 0.2;the price elasticity of supply for gasoline is 0.6;and the gasoline tax amounts to $0.30 per gallon.
D)   There is insufficient information to make this determination.E) B) and C)
F) A) and D)

Question 9

Consider a good to which a per-unit tax applies.The greater the price elasticities of demand and supply for the good,the

Accepted Answer

A)   smaller the deadweight loss from the tax.
B)   greater the deadweight loss from the tax.
C)   more efficient is the tax.
D)   more equitable is the distribution of the tax burden between buyers and sellers.E) A) and B)
F) C) and D)

Question 10

A tax of $0.25 is imposed on each bag of potato chips that is sold.The tax decreases producer surplus by $600 per day,generates tax revenue of $1,220 per day,and decreases the equilibrium quantity of potato chips by 120 bags per day.The tax

Accepted Answer

A)   decreases consumer surplus by $645 per day.
B)   decreases the equilibrium quantity from 6,000 bags per day to 5,880 bags per day.
C)   decreases total surplus from $3,000 to $1,800 per day.
D)   creates a deadweight loss of $15 per day.E) B) and D)
F) C) and D)

Question 11

Figure 8-1 
-Refer to Figure 8-1.Suppose the government imposes a tax of P' - P'''.The producer surplus before the tax is measured by the area

Accepted Answer

A)   I+J+K.
B)   I+Y.
C)   L+M+Y.
D)   M.E) All of the above
F) B) and C)

Question 12

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 tax revenue received by the government is equal to the area

Accepted Answer

A)   P3ACP1.
B)   ABC.
C)   P2DAP3.
D)   P1CDP2.E) B) and D)
F) B) and C)

Question 13

When a good is taxed,the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

Accepted Answer

A) True 
 B)False

Question 14

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2.The amount of tax revenue received by the government is

Accepted Answer

A)   $2.50.
B)   $4.
C)   $5.
D)   $9.E) A) and B)
F) A) and C)

Question 15

When a tax is levied on a good,

Accepted Answer

A)   neither buyers nor sellers are made worse off.
B)   only sellers are made worse off.
C)   only buyers are made worse off.
D)   both buyers and sellers are made worse off.E) B) and D)
F) All of the above

Question 16

If a tax shifts the demand curve upward (or to the right) ,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) All of the above
F) A) and C)

Question 17

For a good that is taxed,the area on the relevant supply-and-demand graph that represents government's tax revenue is

Accepted Answer

A)   smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax.
B)   bounded by the supply curve,the demand curve,the effective price paid by buyers,and the effective price received by sellers.
C)   a right triangle.
D)   a triangle,but not necessarily a right triangle.E) A) and D)
F) A) and C)

Question 18

Suppose that instead of a supply-demand diagram,you are given the following information:
Qs = 100 + 3P
Qd = 400 - 2P
From this information compute equilibrium price and quantity.Now suppose that a tax is placed on buyers so that
Qd = 400 - (2P + T).
If T = 15,solve for the new equilibrium price and quantity.(Note: P is the price received by sellers and P + T is the price paid by buyers. )Compare these answers for equilibrium price and quantity with your first answers.What does this show you?

Accepted Answer

Prior to the tax,the equilibrium price w...

Question 19

Tax revenues increase in direct proportion to increases in the size of the tax.

Accepted Answer

A) True 
 B)False

Question 20

Because the supply of land is perfectly elastic,the deadweight loss of a tax on land is very large.

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

Consider a good to which a per-unit tax applies.The greater the price elasticities of demand and supply for the good,the

Correct Answer
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When a good is taxed,the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

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 producer surplus when the tax is imposed in this market?

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 amount of tax revenue received by the government is

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

Correct Answer
verified

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

Correct Answer
verified

For a good that is taxed,the area on the relevant supply-and-demand graph that represents government's tax revenue is

Correct Answer
verified

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

Correct Answer
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Economists disagree on whether labor taxes have a small or large deadweight loss.

Correct Answer
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The Laffer curve relates

Correct Answer
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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 tax revenue received by the government is equal to the area

Correct Answer
verified

A tax of $0.25 is imposed on each bag of potato chips that is sold.The tax decreases producer surplus by $600 per day,generates tax revenue of $1,220 per day,and decreases the equilibrium quantity of potato chips by 120 bags per day.The tax

Correct Answer
verified

Assume the price of gasoline is $2.00 per gallon,and the equilibrium quantity of gasoline is 10 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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Prior to the tax,the equilibrium price w...
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Because the supply of land is perfectly elastic,the deadweight loss of a tax on land is very large.

Correct Answer
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Tax revenues increase in direct proportion to increases in the size of the tax.

Correct Answer
verified

When alcohol is taxed and sellers of alcohol are required to pay the tax to the government,

Correct Answer
verified

Figure 8-1 -Refer to Figure 8-1.Suppose the government imposes a tax of P' - P'''.The producer surplus before the tax is measured by the area

Correct Answer
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When a tax is levied on a good,

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 L+M+Y represents

Correct Answer
verified

Exam 8: Application: The Costs of Taxation

Consider a good to which a per-unit tax applies.The greater the price elasticities of demand and supply for the good,the

Correct AnswerverifiedShow Answer

When a good is taxed,the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

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 producer surplus when the tax is imposed in this market?

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 amount of tax revenue received by the government is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The view held by Arthur Laffer and Ronald Reagan that cuts in tax rates would encourage people to increase the quantity of labor they supplied became known as

Correct AnswerverifiedShow Answer

For a good that is taxed,the area on the relevant supply-and-demand graph that represents government's tax revenue is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Economists disagree on whether labor taxes have a small or large deadweight loss.

Correct AnswerverifiedShow Answer

The Laffer curve relates

Correct AnswerverifiedShow 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 tax revenue received by the government is equal to the area

Correct AnswerverifiedShow Answer

A tax of $0.25 is imposed on each bag of potato chips that is sold.The tax decreases producer surplus by $600 per day,generates tax revenue of $1,220 per day,and decreases the equilibrium quantity of potato chips by 120 bags per day.The tax

Correct AnswerverifiedShow Answer

Assume the price of gasoline is $2.00 per gallon,and the equilibrium quantity of gasoline is 10 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 AnswerverifiedPrior to the tax,the equilibrium price w...View AnswerShow Answer

Because the supply of land is perfectly elastic,the deadweight loss of a tax on land is very large.

Correct AnswerverifiedShow Answer

Tax revenues increase in direct proportion to increases in the size of the tax.

Correct AnswerverifiedShow Answer

When alcohol is taxed and sellers of alcohol are required to pay the tax to the government,

Correct AnswerverifiedShow Answer

Figure 8-1 -Refer to Figure 8-1.Suppose the government imposes a tax of P' - P'''.The producer surplus before the tax is measured by the area

Correct AnswerverifiedShow Answer

When a tax is levied on a good,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Prior to the tax,the equilibrium price w...
View Answer

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