Question 1

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

Question 2

Figure 8-26 
-Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

Accepted Answer

60 units will be bou...

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 loss of consumer surplus as a result of the tax is

Accepted Answer

A)   $1.50.
B)   $3.
C)   $4.50.
D)   $6.E) A) and B)
F) A) and D)

Question 4

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. The loss of producer surplus for those sellers of the good who continue to sell it after the tax is imposed is

Accepted Answer

A)   $0.
B)   $1.
C)   $2.
D)   $3.E) A) and C)
F) B) and C)

Question 5

Scenario 8-3
Suppose the market demand and market supply curves are given by the equations: 
-Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes:  If T = 40, how many units will be bought and sold after the tax is imposed?

Accepted Answer

120 units will be bo...

Question 6

Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

Accepted Answer

A)   The response of buyers to a change in the price of bananas is strong, and the response of sellers to a change in the price of bananas is weak.
B)   The response of sellers to a change in the price of bananas is strong, and the response of buyers to a change in the price of bananas is weak.
C)   The response of buyers and sellers to a change in the price of bananas is strong.
D)   The response of buyers and sellers to a change in the price of bananas is weak.E) None of the above
F) B) and D)

Question 7

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. Consumer surplus without the tax is

Accepted Answer

A)   $6, and consumer surplus with the tax is $1.50.
B)   $6, and consumer surplus with the tax is $4.50.
C)   $10, and consumer surplus with the tax is $1.50.
D)   $10, and consumer surplus with the tax is $4.50.E) A) and D)
F) A) and C)

Question 8

Figure 8-2
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-2. Producer surplus without the tax is

Accepted Answer

A)   $4, and producer surplus with the tax is $1.
B)   $4, and producer surplus with the tax is $3.
C)   $10, and producer surplus with the tax is $1.
D)   $10, and producer surplus with the tax is $3.E) A) and C)
F) B) and C)

Question 9

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

Accepted Answer

A) True 
 B)False

Question 10

Because taxes distort incentives, they cause markets to allocate resources inefficiently.

Accepted Answer

A) True 
 B)False

Question 11

Figure 8-26 
-Refer to Figure 8-26. How much is total surplus at the market equilibrium?

Accepted Answer

Total surplus is the sum of co...

Question 12

If the tax on gasoline increases from $2 to $4 per gallon, the deadweight loss from the tax increases by a factor of

Accepted Answer

A)   one-half.
B)   two.
C)   four.
D)   six.E) A) and D)
F) None of the above

Question 13

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. The tax results in a deadweight loss that amounts to

Accepted Answer

A)   $600.
B)   $900.
C)   $1,500.
D)   $1,800.E) A) and D)
F) B) and C)

Question 14

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area

Accepted Answer

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

Question 15

Taxes drive a wedge into the market by raising the price that sellers receive and lowering the price that buyers pay.

Accepted Answer

A) True 
 B)False

Question 16

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) B) and C)

Question 17

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

When a tax is levied on buyers, the

Accepted Answer

A)   supply curves shifts upward by the amount of the tax.
B)   tax creates a wedge between the price buyers effectively pay and the price sellers receive.
C)   tax has no effect on the well-being of sellers.
D)   All of the above are correct.E) B) and C)
F) C) and D)

Exam 8: Application: the Costs of Taxation

When a tax is levied on buyers, the

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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. The tax results in a deadweight loss that amounts to

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

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Because taxes distort incentives, they cause markets to allocate resources inefficiently.

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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 loss of producer surplus for those sellers of the good who continue to sell it after the tax is imposed is

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Suppose a tax is imposed on bananas. In which of the following cases will the tax cause the equilibrium quantity of bananas to shrink by the largest amount?

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Figure 8-26 -Refer to Figure 8-26. Suppose the government places a $3 tax per unit on this good. How many units of this good will be bought and sold after the tax is imposed?

Correct Answerverified60 units will be bou...View AnswerShow Answer

Figure 8-26 -Refer to Figure 8-26. How much is total surplus at the market equilibrium?

Correct AnswerverifiedTotal surplus is the sum of co...View AnswerShow Answer

Economists dismiss the idea that lower tax rates can lead to higher tax revenue, because there is a consensus that the relevant elasticities of demand and supply are very low.

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area

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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 per-unit burden of the tax on buyers is

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

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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. Producer surplus without the tax is

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If the tax on gasoline increases from $2 to $4 per gallon, the deadweight loss from the tax increases by a factor of

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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 loss of consumer surplus as a result of the tax is

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Taxes drive a wedge into the market by raising the price that sellers receive and lowering the price that buyers pay.

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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. Consumer surplus without the tax is

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Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: If T = 40, how many units will be bought and sold after the tax is imposed?

Correct Answerverified120 units will be bo...View AnswerShow Answer

The greater the elasticity of demand, the smaller the deadweight loss of a tax.

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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?

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60 units will be bou...
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Total surplus is the sum of co...
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120 units will be bo...
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