Question 1

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented by area

Accepted Answer

A)  A.
B)  C+H.
C)  D+H.
D)  F.E) A) and D)
F) A) and B)

Question 2

Scenario 8-2
Tom mows Stephanie's lawn for $25. Tom's opportunity cost of mowing Stephanie's lawn is $20, and Stephanie's willingness to pay Tom to mow her lawn is $28.
-Refer to Scenario 8-2. Assume Tom is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?

Accepted Answer

A)  Stephanie now will decide to mow her own lawn, and Tom will decide it is no longer in his interest to mow Stephanie's lawn.
B)  Stephanie is willing to pay Tom to mow her lawn, but Tom will decline her offer.
C)  Tom is willing to mow Stephanie's lawn, but Stephanie will decide to mow her own lawn.
D)  Tom and Stephanie still can engage in a mutually-agreeable trade.E) A) and D)
F) A) and C)

Question 3

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to

Accepted Answer

A)  decrease by $2.
B)  increase by $3.
C)  decrease by $4.
D)  increase by $5.E) A) and C)
F) A) and B)

Question 4

Who once said that taxes are the price we pay for a civilized society?

Accepted Answer

A)  Aristotle
B)  George Washington
C)  Oliver Wendell Holmes, Jr.
D)  Ronald ReaganE) A) and B)
F) A) and D)

Question 5

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. Consumer surplus before the tax was levied is represented by area

Accepted Answer

A)  A.
B)  A+B+C.
C)  D+H+F.
D)  F.E) None of the above
F) A) and C)

Question 6

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The deadweight loss due to the tax is measured by the area

Accepted Answer

A)  J+K+L+M.
B)  J+K+L+M+N.
C)  I+Y.
D)  I+Y+B.E) A) and D)
F) A) and C)

Question 7

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) None of the above
F) All of the above

Question 8

It does not matter whether a tax is levied on the buyers or the sellers of a good because

Accepted Answer

A)  sellers always bear the full burden of the tax.
B)  buyers always bear the full burden of the tax.
C)  buyers and sellers will share the burden of the tax.
D)  None of the above is correct; the incidence of the tax does depend on whether the buyers or the sellers are required to pay the tax.E) A) and B)
F) B) and D)

Question 9

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

Accepted Answer

A)  M.
B)  L+M+N+Y+B.
C)  L+M+Y.
D)  J.E) B) and D)
F) None of the above

Question 10

Concerning the labor market and taxes on labor, economists disagree about

Accepted Answer

A)  the size of the tax on labor.
B)  the size of the deadweight loss of the tax on labor.
C)  whether or not a tax on labor places a wedge between the wage that firms pay and the wage that workers receive.
D)  All of the above are correct.E) A) and B)
F) None of the above

Question 11

Which of the following statements correctly describes the relationship between the size of the deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax?

Accepted Answer

A)  Both the size of the deadweight loss and tax revenue increase.
B)  The size of the deadweight loss increases, but the tax revenue decreases.
C)  The size of the deadweight loss increases, but the tax revenue first increases, then decreases.
D)  Both the size of the deadweight loss and tax revenue decrease.E) A) and B)
F) All of the above

Question 12

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The per-unit burden of the tax on buyers is

Accepted Answer

A)  $2.
B)  $3.
C)  $4.
D)  $5.E) B) and C)
F) A) and C)

Question 13

Which of the following is not correct?

Accepted Answer

A)  Economists who argue that labor taxes are highly distorting believe that labor supply is fairly elastic.
B)  Economists who argue that labor taxes are not highly distorting believe that labor supply is fairly inelastic.
C)  Economists who argue that labor supply is fairly inelastic cite elderly workers who adjust the date they retire as an example.
D)  Economists who argue that labor supply is fairly elastic cite workers who adjust the hours of overtime that they work as an example.E) A) and C)
F) B) and C)

Question 14

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)  less elastic is the demand for the good.
B)  less elastic is the supply of the good.
C)  smaller is the amount of the tax.
D)  All of the above are correct.E) B) and C)
F) A) and B)

Question 15

When a tax is imposed on a good, consumer surplus decreases and producer surplus remains unchanged.

Accepted Answer

A) True 
 B)False

Question 16

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will

Accepted Answer

A)  decrease tax revenue and decrease the deadweight loss.
B)  decrease tax revenue and increase the deadweight loss.
C)  increase tax revenue and decrease the deadweight loss.
D)  increase tax revenue and increase the deadweight loss.E) A) and D)
F) B) and C)

Question 17

When a tax is imposed on a good for which both demand and supply are very elastic,

Accepted Answer

A)  sellers effectively pay the majority of the tax.
B)  buyers effectively pay the majority of the tax.
C)  the tax burden is equally divided between buyers and sellers.
D)  None of the above is correct; further information would be required to determine how the burden of the tax is distributed between buyers and sellers.E) B) and D)
F) B) and C)

Question 18

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) A) and C)

Question 19

When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.

Accepted Answer

A) True 
 B)False

Question 20

When a tax is imposed on a good, the resulting decrease in consumer surplus is always larger than the resulting decrease in producer surplus.

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to

Correct Answer
verified

Who once said that taxes are the price we pay for a civilized society?

Correct Answer
verified

When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.

Correct Answer
verified

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will

Correct Answer
verified

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The deadweight loss due to the tax is measured by the area

Correct Answer
verified

When a tax is imposed on a good, consumer surplus decreases and producer surplus remains unchanged.

Correct Answer
verified

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The per-unit burden of the tax on buyers is

Correct Answer
verified

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

Correct Answer
verified

When a tax is imposed on a good for which both demand and supply are very elastic,

Correct Answer
verified

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

Correct Answer
verified

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented by area

Correct Answer
verified

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

It does not matter whether a tax is levied on the buyers or the sellers of a good because

Correct Answer
verified

When a tax is imposed on a good, the resulting decrease in consumer surplus is always larger than the resulting decrease in producer surplus.

Correct Answer
verified

When a good is taxed,

Correct Answer
verified

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. Consumer surplus before the tax was levied is represented by area

Correct Answer
verified

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

Correct Answer
verified

Concerning the labor market and taxes on labor, economists disagree about

Correct Answer
verified

Which of the following statements correctly describes the relationship between the size of the deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax?

Correct Answer
verified

Exam 8: Application: The Costs of Taxation

Figure 8-2 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-2. The imposition of the tax causes the price received by sellers to

Correct AnswerverifiedShow Answer

Who once said that taxes are the price we pay for a civilized society?

Correct AnswerverifiedShow Answer

When a good is taxed, the deadweight loss is larger the more elastic are demand and supply.

Correct AnswerverifiedShow Answer

When a country is on the downward-sloping side of the Laffer curves, a cut in the tax rate will

Correct AnswerverifiedShow Answer

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The deadweight loss due to the tax is measured by the area

Correct AnswerverifiedShow Answer

When a tax is imposed on a good, consumer surplus decreases and producer surplus remains unchanged.

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 per-unit burden of the tax on buyers is

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

When a tax is imposed on a good for which both demand and supply are very elastic,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax causes a reduction in producer surplus that is represented by area

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

It does not matter whether a tax is levied on the buyers or the sellers of a good because

Correct AnswerverifiedShow Answer

When a tax is imposed on a good, the resulting decrease in consumer surplus is always larger than the resulting decrease in producer surplus.

Correct AnswerverifiedShow Answer

When a good is taxed,

Correct AnswerverifiedShow Answer

Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. Consumer surplus before the tax was levied is represented by area

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Concerning the labor market and taxes on labor, economists disagree about

Correct AnswerverifiedShow Answer

Which of the following statements correctly describes the relationship between the size of the deadweight loss and the amount of tax revenue as the size of a tax increases from a small tax to a medium tax and finally to a large tax?

Correct AnswerverifiedShow Answer

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