Question 1

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. Without a tax, total surplus in this market is

Accepted Answer

A)  $3,000.
B)  $4,800.
C)  $6,000.
D)  $7,200.E) A) and B)
F) None of the above

Question 2

Suppose that policymakers are considering placing a tax on either of two markets. In Market A, the tax will have a significant effect on the price consumers pay, but it will not affect equilibrium quantity very much. In Market B, the same tax will have only a small effect on the price consumers pay, but it will have a large effect on the equilibrium quantity. Other factors are held constant. In which market will the tax have a larger deadweight loss?

Accepted Answer

A)  Market A
B)  Market B
C)  The deadweight loss will be the same in both markets.
D)  There is not enough information to answer the question.E) A) and B)
F) A) and C)

Question 3

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

Accepted Answer

A)  length of the line segment connecting points A and B.
B)  length of the line segment connecting points A and C.
C)  length of the line segment connecting points B and C.
D)  area of the triangle bounded by the points A, B, and C.E) A) and B)
F) A) and C)

Question 4

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 $250.
B)  After the tax is imposed, consumer surplus is 45 percent of its pre-tax value.
C)  After the tax is imposed, producer surplus is 45 percent of its pre-tax value.
D)  All of the above are correct.E) A) and B)
F) B) and C)

Question 5

Total surplus is always equal to the sum of consumer surplus and producer surplus.

Accepted Answer

A) True 
 B)False

Question 6

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

Accepted Answer

A)  $250.
B)  $500.
C)  $750.
D)  $1,000.E) None of the above
F) B) and C)

Question 7

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 250 per month when there is no tax. Then a tax of $6 per widget is imposed. As a result, the government is able to raise $750 per month in tax revenue. We can conclude that the after-tax quantity of widgets is

Accepted Answer

A)  75 per month.
B)  100 per month.
C)  125 per month.
D)  150 per month.E) All of the above
F) B) and C)

Question 8

Which of the following statements is correct regarding the imposition of a tax on gasoline?

Accepted Answer

A)  The incidence of the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government.
B)  The incidence of the tax depends upon the price elasticities of demand and supply.
C)  The amount of tax revenue raised by the tax depends upon whether the buyers or the sellers are required to remit tax payments to the government.
D)  The amount of tax revenue raised by the tax does not depend upon the amount of the tax per unit.E) A) and B)
F) A) and C)

Question 9

Figure 8-14 
-Refer to Figure 8-14. Panel (a)  and Panel (b)  each illustrate a $2 tax placed on a market. In comparison to Panel (b) , Panel (a)  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) B) and D)
F) A) and B)

Question 10

In a recent research paper published by the European Central Bank, two economists concluded that U.S. tax revenues would

Accepted Answer

A)  increase if labor taxes were increased or if capital income taxes were increased.
B)  increase if labor taxes were increased, but tax revenues would decrease if capital income taxes were increased.
C)  decrease if labor taxes were increased, but tax revenues would increase if capital income taxes were increased.
D)  decrease if labor taxes were increased or if capital income taxes were increased.E) A) and D)
F) All of the above

Question 11

Figure 8-9
The vertical distance between points A and C represent a tax in the market. 
-Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is

Accepted Answer

A)  $4,000.
B)  $5,000.
C)  $6,000.
D)  $10,000.E) C) and D)
F) All of the above

Question 12

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 $45.
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) C) and D)
F) B) and D)

Question 13

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)  The loss of producer surplus that is associated with some sellers dropping out of the market as a result of the tax is $30.
B)  The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $60.
C)  The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax.
D)  This tax produces $200 in tax revenue for the government.E) A) and C)
F) B) and D)

Question 14

Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

Accepted Answer

A)  the larger is the decrease in quantity demanded as a result of the tax.
B)  the smaller is the tax burden on buyers relative to the tax burden on sellers.
C)  the larger is the deadweight loss of the tax.
D)  All of the above are correct.E) A) and B)
F) B) and D)

Question 15

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

Accepted Answer

A)  benefit to buyers with the loss to sellers.
B)  price paid by buyers to the price received by sellers.
C)  profits earned by firms to the losses incurred by consumers.
D)  decrease in total surplus to the increase in revenue raised by the government.E) A) and B)
F) A) and C)

Question 16

Assume the supply curve for cigars is a typical, upward-sloping straight line, and the demand curve for cigars is a typical, downward-sloping straight line. Suppose the equilibrium quantity in the market for cigars is 1,000 per month when there is no tax. Then a tax of $0.50 per cigar is imposed. The effective price paid by buyers increases from $1.50 to $1.90 and the effective price received by sellers falls from $1.50 to $1.40. The government's tax revenue amounts to $475 per month. Which of the following statements is correct?

Accepted Answer

A)  The demand for cigars is less elastic than the supply of cigars.
B)  The tax causes a decrease in consumer surplus of $390 and a decrease in producer surplus of $97.50.
C)  The deadweight loss of the tax is $12.50.
D)  All of the above are correct.E) C) and D)
F) B) and D)

Question 17

If the size of a tax doubles, the deadweight loss doubles.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

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 deadweight loss as a result of the tax is

Accepted Answer

A)  $2.50.
B)  $5.
C)  $7.50.
D)  $10.E) C) and D)
F) A) and C)

Question 20

A deadweight loss is a consequence of a tax on a good because the tax

Accepted Answer

A)  induces the government to increase its expenditures.
B)  induces buyers to consume less, and sellers to produce less.
C)  increases the equilibrium price in the market.
D)  imposes a loss on buyers that is greater than the loss to sellers.E) A) and B)
F) A) and C)

Exam 8: Application: The Costs of Taxation

In a recent research paper published by the European Central Bank, two economists concluded that U.S. tax revenues would

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 8-7 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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Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

Correct Answer
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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?

Correct Answer
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A deadweight loss is a consequence of a tax on a good because the tax

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

Correct Answer
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Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

Correct Answer
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Figure 8-14 -Refer to Figure 8-14. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (b) , Panel (a) illustrates which of the following statements?

Correct Answer
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Total surplus is always equal to the sum of consumer surplus and producer surplus.

Correct Answer
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If the size of a tax doubles, the deadweight loss doubles.

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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. Without a tax, total surplus in this market is

Correct Answer
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Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is

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 deadweight loss as a result of the tax is

Correct Answer
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Which of the following statements is correct regarding the imposition of a tax on gasoline?

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

Correct Answer
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Exam 8: Application: The Costs of Taxation

In a recent research paper published by the European Central Bank, two economists concluded that U.S. tax revenues would

Correct AnswerverifiedShow Answer

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 8-7 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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Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

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?

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A deadweight loss is a consequence of a tax on a good because the tax

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

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Suppose a tax of $1 per unit is imposed on a good. The more elastic the demand for the good, other things equal,

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Figure 8-14 -Refer to Figure 8-14. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (b) , Panel (a) illustrates which of the following statements?

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Total surplus is always equal to the sum of consumer surplus and producer surplus.

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If the size of a tax doubles, the deadweight loss doubles.

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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. Without a tax, total surplus in this market is

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Figure 8-9 The vertical distance between points A and C represent a tax in the market. -Refer to Figure 8-9. The amount of amount of deadweight loss as a result of the tax is

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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 deadweight loss as a result of the tax is

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Which of the following statements is correct regarding the imposition of a tax on gasoline?

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

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