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 amount of the tax on each unit of the good is

Accepted Answer

A)  $1.
B)  $4.
C)  $5.
D)  $9.E) All of the above
F) B) and C)

Question 2

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

Accepted Answer

A)  deadweight loss due to the tax.
B)  loss in consumer surplus due to the tax.
C)  loss in producer surplus due to the tax.
D)  total surplus before the tax.E) B) and C)
F) None of the above

Question 3

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents

Accepted Answer

A)  consumer surplus after the tax.
B)  consumer surplus before the tax.
C)  producer surplus after the tax.
D)  producer surplus before the tax.E) A) and B)
F) C) and D)

Question 4

Figure 8-15  
-Refer to Figure 8-15. Panel (a)  and Panel (b)  each illustrate a $4 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) C) and D)
F) B) and D)

Question 5

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. The amount of the tax on each unit of the good is

Accepted Answer

A)  $6.
B)  $8.
C)  $10.
D)  $12.E) B) and C)
F) None of the above

Question 6

Suppose a tax is imposed on each new hearing aid that is sold. The supply curve is a typical upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. As a result of the tax, the equilibrium quantity of hearing aids decreases from 10,000 to 9,000, and the deadweight loss of the tax is $60,000. We can conclude that the tax on each hearing aid is

Accepted Answer

A)  $60.
B)  $120.
C)  $160.
D)  $200.E) C) and D)
F) B) and D)

Question 7

Which of the following scenarios is consistent with the Laffer curve?

Accepted Answer

A)  The tax rate is 1 percent, and tax revenue is very low.
B)  The tax rate is 1 percent, and tax revenue is very high.
C)  The tax rate is 99 percent, and tax revenue is very high.
D)  The tax rate is moderate (between very high and very low) , and tax revenue is very low.E) A) and D)
F) A) and C)

Question 8

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

Question 9

The Laffer curve illustrates that

Accepted Answer

A)  deadweight loss rises by the square of the increase in a tax.
B)  deadweight loss rises exponentially as a tax increases.
C)  tax revenue first rises, then falls as a tax increases.
D)  Both a)  and b)  are correct.E) B) and D)
F) C) and D)

Question 10

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. When the tax is imposed in this market, the price sellers effectively receive is

Accepted Answer

A)  $4.
B)  $6.
C)  $10.
D)  $16.E) B) and D)
F) A) and C)

Question 11

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The producer surplus without the tax is

Accepted Answer

A)  $3,000.
B)  $8,000.
C)  $12,000.
D)  $24,000.E) A) and C)
F) A) and B)

Question 12

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 B)
F) All of the above

Question 13

In the early 1980s, which of the following countries had a marginal tax rate of about 80 percent?

Accepted Answer

A)  United States
B)  Canada
C)  Japan
D)  SwedenE) A) and B)
F) B) and D)

Question 14

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

Question 15

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 $60.
B)  The loss of consumer surplus for those buyers of the good who continue to buy it after the tax is imposed is $120.
C)  The loss of consumer surplus caused by this tax exceeds the loss of producer surplus caused by this tax.
D)  This tax produces $320 in tax revenue for the government.E) A) and D)
F) B) and C)

Question 16

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The total surplus with the tax is

Accepted Answer

A)  $2,000.
B)  $3,000.
C)  $15,000.
D)  $20,000.E) None of the above
F) A) and B)

Question 17

The amount of deadweight loss that results from a tax of a given size is determined by

Accepted Answer

A)  whether the tax is levied on buyers or sellers.
B)  the number of buyers in the market relative to the number of sellers.
C)  the price elasticities of demand and supply.
D)  the ratio of the tax per unit to the effective price received by sellers.E) B) and C)
F) None of the above

Question 18

When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

Accepted Answer

A) True 
 B)False

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

Figure 8-12 
-Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to

Accepted Answer

A)  decrease by $3.
B)  increase by $2.
C)  decrease by $1.
D)  increase by $6.E) B) and D)
F) B) and C)

Exam 8: Application: The Costs of Taxation

The Laffer curve illustrates that

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The amount of deadweight loss that results from a tax of a given size is determined by

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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 the tax on each unit of the good is

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Figure 8-15 -Refer to Figure 8-15. Panel (a) and Panel (b) each illustrate a $4 tax placed on a market. In comparison to Panel (b) , Panel (a) illustrates which of the following statements?

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Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

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Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to

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When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

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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 amount of the tax on each unit of the good is

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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. When the tax is imposed in this market, the price sellers effectively receive 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. Producer surplus without the tax is

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Which of the following scenarios is consistent with the Laffer curve?

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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 total surplus with the tax is

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

Correct Answer
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In the early 1980s, which of the following countries had a marginal tax rate of about 80 percent?

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 producer surplus without the tax is

Correct Answer
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Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents

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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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Exam 8: Application: The Costs of Taxation

The Laffer curve illustrates that

Correct AnswerverifiedShow Answer

The amount of deadweight loss that results from a tax of a given size is determined by

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 amount of the tax on each unit of the good is

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Figure 8-15 -Refer to Figure 8-15. Panel (a) and Panel (b) each illustrate a $4 tax placed on a market. In comparison to Panel (b) , Panel (a) illustrates which of the following statements?

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Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by I+Y represents the

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Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The tax causes the price paid by buyers to

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When the government imposes taxes on buyers and sellers of a good, society loses some of the benefits of market efficiency.

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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 amount of the tax on each unit of the good is

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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. When the tax is imposed in this market, the price sellers effectively receive 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. Producer surplus without the tax is

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Which of the following scenarios is consistent with the Laffer curve?

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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 total surplus with the tax is

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

Correct AnswerverifiedShow Answer

In the early 1980s, which of the following countries had a marginal tax rate of about 80 percent?

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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 producer surplus without the tax is

Correct AnswerverifiedShow Answer

Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by J represents

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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 AnswerverifiedShow Answer

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