Question 1

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) A) and C)

Question 2

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

Accepted Answer

A)  downward by the amount of the tax.
B)  upward by the amount of the tax.
C)  downward by less than the amount of the tax.
D)  upward by more than the amount of the tax.E) B) and D)
F) A) and B)

Question 3

When the government places a tax on a product,

Accepted Answer

A)  the cost of the tax to buyers and sellers is less than the revenue raised from the tax by the government.
B)  the cost of the tax to buyers and sellers is equal to the revenue raised from the tax by the government.
C)  the cost of the tax to buyers and sellers exceeds the revenue raised from the tax by the government.
D)  Without additional information, such as the elasticity of demand for this product, it is impossible to compare the cost of a tax to buyers and sellers with tax revenue.E) C) and D)
F) None of the above

Question 4

In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

Accepted Answer

A)  The price elasticity of demand is small and the price elasticity of supply is large.
B)  The price elasticity of demand is large and the price elasticity of supply is small.
C)  The price elasticity of demand and the price elasticity of supply are both small.
D)  The price elasticity of demand and the price elasticity of supply are both large.E) C) and D)
F) None of the above

Question 5

Figure 8-2
 
-Refer to Figure 8-2.The amount of the tax on each unit of the good is

Accepted Answer

A)  P₃ - P₁.
B)  P₃ - P₂.
C)  P₂ - P₁.
D)  Q₂ - Q₁.E) A) and D)
F) A) and C)

Question 6

When a good is taxed,the burden of the tax

Accepted Answer

A)  falls more heavily on the side of the market that is more elastic.
B)  falls more heavily on the side of the market that is more inelastic.
C)  falls more heavily on the side of the market that is closer to unit elastic.
D)  is distributed independently of relative elasticities of supply and demand.E) A) and C)
F) None of the above

Question 7

The loss in total surplus resulting from a tax is called

Accepted Answer

A)  a deficit.
B)  economic loss.
C)  deadweight loss.
D)  inefficiency.E) A) and C)
F) A) and B)

Question 8

Consider a good to which a per-unit tax applies.The size of the deadweight that results from the tax is smaller,the

Accepted Answer

A)  larger is the price elasticity of demand.
B)  smaller is the price elasticity of supply.
C)  larger is the amount of the tax.
D)  All of the above are correct.E) B) and D)
F) All of the above

Question 9

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) None of the above
F) A) and C)

Question 10

Economists disagree on whether labor taxes cause small or large deadweight losses.This disagreement arises primarily because economists hold different views about

Accepted Answer

A)  the size of labor taxes.
B)  the importance of labor taxes imposed by the federal government relative to the importance of labor taxes imposed by the various states.
C)  the elasticity of labor supply.
D)  the elasticity of labor demand.E) B) and C)
F) C) and D)

Question 11

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

Question 12

Figure 8-6
 
-Refer to Figure 8-6.As a result of the tax,

Accepted Answer

A)  buyers effectively pay $16 for each unit of the good and sellers effectively receive $12 for each unit of the good.
B)  buyers effectively pay $16 for each unit of the good and sellers effectively receive $8 for each unit of the good.
C)  buyers effectively pay $12 for each unit of the good and sellers effectively receive $8 for each unit of the good.
D)  buyers effectively pay $14 for each unit of the good and sellers effectively receive $10 for each unit of the good.E) None of the above
F) B) and C)

Question 13

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) B) and C)
F) None of the above

Question 14

Taxes on labor have the effect of encouraging

Accepted Answer

A)  workers to work more hours.
B)  the elderly to postpone retirement.
C)  second earners within a family to take a job.
D)  unscrupulous people to take part in the underground economy.E) A) and C)
F) A) and B)

Question 15

In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9?

Accepted Answer

A)  The tax on airline tickets increases from $20 per ticket to $60 per ticket.
B)  The tax on airline tickets increases from $20 per ticket to $90 per ticket.
C)  The tax on airline tickets increases from $15 per ticket to $60 per ticket.
D)  The tax on airline tickets increases from $15 per ticket to $135 per ticket.E) C) and D)
F) A) and B)

Question 16

The more freedom people are given to choose the date of their retirement,the

Accepted Answer

A)  more elastic is the supply of labor.
B)  less elastic is the supply of labor.
C)  steeper is the labor supply curve.
D)  smaller is the decrease in employment that will result from a tax on labor.E) B) and C)
F) None of the above

Question 17

If the supply of land is fixed,the burden of a tax on land falls

Accepted Answer

A)  partly on landowners and partly on users of land.
B)  entirely on the renters or users of land.
C)  entirely on workers.
D)  entirely on landowners.E) A) and D)
F) A) and C)

Question 18

A tax on insulin is likely to cause a tremendous deadweight loss to society.

Accepted Answer

A) True 
 B)False

Question 19

Suppose the tax on liquor is increased so that the tax goes from being a "medium" tax to being a "large" tax.As a result,it is likely that

Accepted Answer

A)  tax revenue increases and the deadweight loss increases.
B)  tax revenue increases and the deadweight loss decreases.
C)  tax revenue decreases and the deadweight loss increases.
D)  tax revenue decreases and the deadweight loss decreases.E) A) and B)
F) B) and C)

Question 20

The deadweight loss of a tax rises even more rapidly than the size of the tax.

Accepted Answer

A) True 
 B)False

Exam 8: Application: the Costs of Taxation

Other things equal,the deadweight loss of a tax

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A tax on insulin is likely to cause a tremendous deadweight loss to society.

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In which of the following cases is it most likely that an increase in the size of a tax will decrease tax revenue?

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In which of the following instances would the deadweight loss of the tax on airline tickets increase by a factor of 9?

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Taxes on labor have the effect of encouraging

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When the government places a tax on a product,

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Consider a good to which a per-unit tax applies.The size of the deadweight that results from the tax is smaller,the

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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?

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Figure 8-6 -Refer to Figure 8-6.As a result of the tax,

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The more freedom people are given to choose the date of their retirement,the

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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?

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

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Figure 8-2 -Refer to Figure 8-2.The amount of the tax on each unit of the good is

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If the supply of land is fixed,the burden of a tax on land falls

Correct AnswerverifiedShow Answer

Suppose the tax on liquor is increased so that the tax goes from being a "medium" tax to being a "large" tax.As a result,it is likely that

Correct AnswerverifiedShow Answer

The deadweight loss of a tax rises even more rapidly than the size of the tax.

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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

When a good is taxed,the burden of the tax

Correct AnswerverifiedShow Answer

The loss in total surplus resulting from a tax is called

Correct AnswerverifiedShow Answer

Economists disagree on whether labor taxes cause small or large deadweight losses.This disagreement arises primarily because economists hold different views about

Correct AnswerverifiedShow Answer

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