Question 1

Figure 8-24. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. 
-Refer to Figure 8-24. For an economy that is currently at point D on the curve, a decrease in the tax rate would

Accepted Answer

A)  decrease consumer surplus.
B)  decrease producer surplus.
C)  increase tax revenue.
D)  increase the deadweight loss of the tax.E) All of the above
F) None of the above

Question 2

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 sellers is

Accepted Answer

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

Question 3

Which of the following tools help us evaluate how taxes affect economic well-being?
(i) consumer surplus
(ii) producer surplus
(iii) tax revenue
(iv) deadweight loss

Accepted Answer

A)  (i)  and (ii)  only
B)  (i) , (ii) , and (iii)  only
C)  (iii)  and (iv)  only
D)  (i) , (ii) , (iii) , and (iv) E) A) and B)
F) A) and C)

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 producer surplus with the tax is

Accepted Answer

A)  $3,000.
B)  $6,000.
C)  $9,000.
D)  $12,000.E) B) and C)
F) A) and C)

Question 5

Which of the following is a tax on labor?

Accepted Answer

A)  Medicare tax
B)  Social Security tax
C)  federal income tax
D)  All of the above are labor taxes.E) A) and B)
F) A) and C)

Question 6

Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon. As a result,

Accepted Answer

A)  tax revenue necessarily decreases.
B)  the deadweight loss of the tax necessarily decreases.
C)  the demand curve for gasoline necessarily becomes steeper.
D)  the supply curve for gasoline necessarily becomes flatter.E) A) and B)
F) None of the above

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

As the size of a tax rises, the deadweight loss

Accepted Answer

A)  rises, and tax revenue first rises, then falls.
B)  rises as does tax revenue.
C)  falls, and tax revenue first rises, then falls.
D)  falls as does tax revenue.E) A) and B)
F) All of the above

Question 9

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 total surplus in this market when the tax is imposed?

Accepted Answer

A)  Total surplus increases by $1,500.
B)  Total surplus increases by $3,000.
C)  Total surplus decreases by $1,500.
D)  Total surplus decreases by $,3000.E) A) and B)
F) A) and D)

Question 10

A tax levied on the buyers of a good shifts the

Accepted Answer

A)  supply curve upward (or to the left) .
B)  supply curve downward (or to the right) .
C)  demand curve downward (or to the left) .
D)  demand curve upward (or to the right) .E) B) and C)
F) B) and D)

Question 11

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 12

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, buyers effectively pay what amount of the $10 tax?

Accepted Answer

A)  $0
B)  $4
C)  $6
D)  $10E) B) and C)
F) A) and D)

Question 13

The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

Accepted Answer

A) True 
 B)False

Question 14

The demand for beer is more elastic than the demand for milk, so a tax on beer would have a smaller deadweight loss than an equivalent tax on milk, all else equal.

Accepted Answer

A) True 
 B)False

Question 15

Figure 8-11 
-Refer to Figure 8-11. The length of the line segment connecting points A and B represents

Accepted Answer

A)  the difference between the price paid by buyers after the tax is imposed and the price received by sellers after the tax is imposed.
B)  the size of the tax.
C)  the "tax wedge."
D)  All of the above are correct.E) A) and B)
F) B) and D)

Question 16

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

Question 17

Which of the following events is consistent with an increase in the deadweight loss of the gasoline tax from $30 million to $120 million?

Accepted Answer

A)  The tax on gasoline increases from $0.30 per gallon to $0.45 per gallon.
B)  The tax on gasoline increases from $0.30 per gallon to $0.60 per gallon.
C)  The tax on gasoline increases from $0.25 per gallon to $0.45 per gallon.
D)  The tax on gasoline increases from $0.25 per gallon to $1.00 per gallon.E) B) and C)
F) All of the above

Question 18

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 $500.
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) C) and D)
F) B) and D)

Question 19

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 D)

Question 20

A tax places a wedge between the price buyers pay and the price sellers receive.

Accepted Answer

A) True 
 B)False

Exam 8: Applications: the Costs of Taxation

Which of the following events is consistent with an increase in the deadweight loss of the gasoline tax from $30 million to $120 million?

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Figure 8-24. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-24. For an economy that is currently at point D on the curve, a decrease in the tax rate would

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A tax levied on the buyers of a good shifts the

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Which of the following is a tax on labor?

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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 with the tax is

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Figure 8-11 -Refer to Figure 8-11. The length of the line segment connecting points A and B represents

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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 total surplus in this market when the tax is imposed?

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A tax places a wedge between the price buyers pay and the price sellers receive.

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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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The Laffer curve is the curve showing how tax revenue varies as the size of the tax varies.

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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, buyers effectively pay what amount of the $10 tax?

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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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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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As the size of a tax rises, the deadweight loss

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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 sellers is

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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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The demand for beer is more elastic than the demand for milk, so a tax on beer would have a smaller deadweight loss than an equivalent tax on milk, all else equal.

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Suppose the tax on gasoline is decreased from $0.60 per gallon to $0.40 per gallon. As a result,

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Which of the following tools help us evaluate how taxes affect economic well-being? (i) consumer surplus (ii) producer surplus (iii) tax revenue (iv) deadweight loss

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

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