Question 1

Scenario 8-2
Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28.
-Refer to Scenario 8-2. Assume Roland is required to pay a tax of $10 each time he mows a lawn. Which of the following results is most likely?

Accepted Answer

A)   Karla now will decide to mow her own lawn, and Roland will decide it is no longer in his interest to mow Karla's lawn.
B)   Karla still is willing to pay Roland to mow her lawn, but Roland will decline her offer.
C)   Roland still is willing to mow Karla's lawn, but Karla will decide to mow her own lawn.
D)   Roland and Karla still can engage in a mutually-agreeable trade.E) A) and B)
F) None of the above

Question 2

Figure 8-17 
-Refer to Figure 8-17. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the market represented by

Accepted Answer

A)   D1.
B)   D2.
C)   D3.
D)   D4.E) B) and C)
F) None of the above

Question 3

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) All of the above
F) C) and D)

Question 4

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The per-unit burden of the tax on sellers is

Accepted Answer

A)   $20.
B)   $200.
C)   $300.
D)   $500.E) A) and C)
F) B) and D)

Question 5

Figure 8-18 
-Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the largest in the market represented by

Accepted Answer

A)   S1.
B)   S2.
C)   S3.
D)   S4.E) B) and D)
F) None of the above

Question 6

Figure 8-25 
-Refer to Figure 8-25. What are the equilibrium price and equilibrium quantity in this market?

Accepted Answer

The equilibrium pric...

Question 7

Relative to a situation in which gasoline is not taxed, the imposition of a tax on gasoline causes the quantity of gasoline demanded to

Accepted Answer

A)   decrease and the quantity of gasoline supplied to decrease.
B)   decrease and the quantity of gasoline supplied to increase.
C)   increase and the quantity of gasoline supplied to decrease.
D)   increase and the quantity of gasoline supplied to increase.E) A) and C)
F) B) and C)

Question 8

As the size of a tax increases, the government's tax revenue rises, then falls.

Accepted Answer

A) True 
 B)False

Question 9

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 - 2(P + 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 ...

Question 10

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The amount of the tax on each unit of the good is

Accepted Answer

A)   $20.
B)   $200.
C)   $300.
D)   $500.E) A) and B)
F) None of the above

Question 11

The more elastic the supply, the larger the deadweight loss from a tax, all else equal.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

Accepted Answer

A)   The greater are the price elasticities of supply and demand, the greater is the deadweight loss.
B)   The greater is the price elasticity of supply and the smaller is the price elasticity of demand, the greater is the deadweight loss.
C)   The smaller are the decreases in quantity demanded and quantity supplied, the greater the deadweight loss.
D)   The smaller is the wedge between the effective price to sellers and the effective price to buyers, the greater is the deadweight loss.E) B) and C)
F) A) and B)

Question 13

The Social Security tax is a tax on

Accepted Answer

A)   capital.
B)   labor.
C)   land.
D)   savings.E) B) and D)
F) A) and B)

Question 14

When a tax is imposed on sellers, consumer surplus and producer surplus both decrease.

Accepted Answer

A) True 
 B)False

Question 15

When a good is taxed,

Accepted Answer

A)   both buyers and sellers of the good are made worse off.
B)   only buyers are made worse off, because they ultimately bear the burden of the tax.
C)   only sellers are made worse off, because they ultimately bear the burden of the tax.
D)   neither buyers nor sellers are made worse off, since tax revenue is used to provide goods and services that would otherwise not be provided in a market economy.E) C) and D)
F) None of the above

Question 16

Suppose the tax on automobile tires 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) A) and C)

Question 17

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

Accepted Answer

A)   government's tax revenue is a rectangle.
B)   the deadweight loss of the tax is a triangle.
C)   the loss of consumer surplus caused by the tax is neither a rectangle nor a triangle.
D)   All of the above are correct.E) C) and D)
F) All of the above

Question 18

When a tax is imposed on the sellers of a good, the

Accepted Answer

A)   demand curve shifts downward by less than the amount of the tax.
B)   demand curve shifts downward by the amount of the tax.
C)   supply curve shifts upward by less than the amount of the tax.
D)   supply curve shifts upward by the amount of the tax.E) None of the above
F) All of the above

Question 19

As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Accepted Answer

A) True 
 B)False

Question 20

To fully understand how taxes affect economic well-being, we must compare the

Accepted Answer

A)   consumer surplus to the producer surplus.
B)   price paid by buyers to the price received by sellers.
C)   reduced welfare of buyers and sellers to the revenue raised by the government.
D)   consumer surplus to the deadweight loss.E) All of the above
F) None of the above

Exam 8: Application: The Costs of Taxation

As the size of a tax increases, the government's tax revenue rises, then falls.

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

Correct Answer
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When a good is taxed,

Correct Answer
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The more elastic the supply, the larger the deadweight loss from a tax, all else equal.

Correct Answer
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Figure 8-17 -Refer to Figure 8-17. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the market represented by

Correct Answer
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When a tax is imposed on sellers, consumer surplus and producer surplus both decrease.

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 per-unit burden of the tax on sellers is

Correct Answer
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When a tax is imposed on the sellers of a good, the

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

The Social Security tax is a tax on

Correct Answer
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Relative to a situation in which gasoline is not taxed, the imposition of a tax on gasoline causes the quantity of gasoline demanded to

Correct Answer
verified

Suppose the tax on automobile tires 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 Answer
verified

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
verified

As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Correct Answer
verified

Figure 8-25 -Refer to Figure 8-25. What are the equilibrium price and equilibrium quantity in this market?

Correct Answer
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The equilibrium pric...
View Answer

Correct Answer
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Figure 8-18 -Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the largest in the market represented by

Correct Answer
verified

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The amount of the tax on each unit of the good is

Correct Answer
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Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

Correct Answer
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To fully understand how taxes affect economic well-being, we must compare the

Correct Answer
verified

Exam 8: Application: The Costs of Taxation

As the size of a tax increases, the government's tax revenue rises, then falls.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a good is taxed,

Correct AnswerverifiedShow Answer

The more elastic the supply, the larger the deadweight loss from a tax, all else equal.

Correct AnswerverifiedShow Answer

Figure 8-17 -Refer to Figure 8-17. Suppose the government imposes a $1 tax in each of the four markets represented by demand curves D1, D2, D3, and D4. The deadweight will be the smallest in the market represented by

Correct AnswerverifiedShow Answer

When a tax is imposed on sellers, consumer surplus and producer surplus both decrease.

Correct AnswerverifiedShow Answer

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The per-unit burden of the tax on sellers is

Correct AnswerverifiedShow Answer

When a tax is imposed on the sellers of a good, the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedPrior to the tax, the equilibrium price ...View AnswerShow Answer

The Social Security tax is a tax on

Correct AnswerverifiedShow Answer

Relative to a situation in which gasoline is not taxed, the imposition of a tax on gasoline causes the quantity of gasoline demanded to

Correct AnswerverifiedShow Answer

Suppose the tax on automobile tires 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

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

As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Correct AnswerverifiedShow Answer

Figure 8-25 -Refer to Figure 8-25. What are the equilibrium price and equilibrium quantity in this market?

Correct AnswerverifiedThe equilibrium pric...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Figure 8-18 -Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the largest in the market represented by

Correct AnswerverifiedShow Answer

Figure 8-9 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-9. The amount of the tax on each unit of the good is

Correct AnswerverifiedShow Answer

Which of the following statements is correct regarding a tax on a good and the resulting deadweight loss?

Correct AnswerverifiedShow Answer

To fully understand how taxes affect economic well-being, we must compare the

Correct AnswerverifiedShow Answer

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Prior to the tax, the equilibrium price ...
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The equilibrium pric...
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