Question 1

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

Question 2

In 1776, the American Revolution was sparked by anger over

Accepted Answer

A)  the extravagant lifestyle of British royalty.
B)  the crimes of British soldiers stationed in the American colonies.
C)  British taxes imposed on the American colonies.
D)  the failure of the British to protect American colonists from attack by hostile Native Americans.E) B) and D)
F) B) and C)

Question 3

A decrease in the size of a tax is most likely to increase tax revenue in a market with

Accepted Answer

A)  elastic demand and elastic supply.
B)  elastic demand and inelastic supply.
C)  inelastic demand and elastic supply.
D)  inelastic demand and inelastic supply.E) None of the above
F) B) and D)

Question 4

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

Accepted Answer

A)  P3ACP1.
B)  ABC.
C)  P2DAP3.
D)  P1CDP2.E) A) and B)
F) A) and C)

Question 5

Suppose Rebecca needs a dog sitter so that she can travel to her sister's wedding. Rebecca values dog sitting for the weekend at $200. Susan is willing to dog sit for Rebecca so long as she receives at least $175. Rebecca and Susan agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. The tax has made Rebecca and Susan worse off by a total of

Accepted Answer

A)  $30.
B)  $25.
C)  $10.
D)  $5.E) None of the above
F) A) and D)

Question 6

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

Question 7

Labor taxes may distort labor markets greatly if

Accepted Answer

A)  labor supply is highly inelastic.
B)  many workers choose to work 40 hours per week regardless of their earnings.
C)  the number of hours many part-time workers want to work is very sensitive to the wage rate.
D)  "underground" workers do not respond to changes in the wages of legal jobs because they prefer not to pay taxes.E) All of the above
F) B) and D)

Question 8

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Accepted Answer

A) True 
 B)False

Question 9

When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

Accepted Answer

A) True 
 B)False

Question 10

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 11

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

Accepted Answer

A)  $10, and total surplus with the tax is $2.50.
B)  $10, and total surplus with the tax is $7.50.
C)  $20, and total surplus with the tax is $2.50.
D)  $20, and total surplus with the tax is $7.50.E) A) and B)
F) A) and C)

Question 12

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is

Accepted Answer

A)  smaller than the area that represents the loss of consumer surplus and producer surplus caused by the tax.
B)  bounded by the supply curve, the demand curve, the effective price paid by buyers, and the effective price received by sellers.
C)  a right triangle.
D)  a triangle, but not necessarily a right triangle.E) B) and D)
F) None of the above

Question 13

Figure 8-25 
-Refer to Figure 8-25. How much is consumer surplus at the market equilibrium?

Accepted Answer

Consumer s...

Question 14

Other things equal, the deadweight loss of a tax

Accepted Answer

A)  decreases as the size of the tax increases.
B)  increases as the size of the tax increases, but the increase in the deadweight loss is less rapid than the increase in the size of the tax.
C)  increases as the size of the tax increases, and the increase in the deadweight loss is more rapid than the increase in the size of the tax.
D)  increases as the price elasticities of demand and/or supply increase, but the deadweight loss does not change as the size of the tax increases.E) C) and D)
F) B) and C)

Question 15

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax provides to the government?

Accepted Answer

A)  Tax revenue = (P2 - P1) xQ1
B)  Tax revenue = (P3 - P1) xQ1
C)  Tax revenue = (P3 - P2) xQ1
D)  Tax revenue = (P3 - P1) x(Q2 - Q1) E) A) and C)
F) B) and C)

Question 16

Figure 8-25 
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Accepted Answer

The deadwe...

Question 17

Scenario 8-1
Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week.
-Refer to Scenario 8-1. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is

Accepted Answer

A)  $80.
B)  $30.
C)  $20.
D)  $10.E) B) and D)
F) A) and D)

Question 18

Figure 8-25 
-Refer to Figure 8-25. How much is total surplus at the market equilibrium?

Accepted Answer

Total surp...

Question 19

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) B) and D)
F) All of the above

Question 20

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

Accepted Answer

A) True 
 B)False

Exam 8: Application: The Costs of Taxation

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

Correct Answer
verified

Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. -Refer to Scenario 8-1. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is

Correct Answer
verified

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. Total surplus without the tax is

Correct Answer
verified

Other things equal, the deadweight loss of a tax

Correct Answer
verified

Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Correct Answer
verified
The deadwe...
View 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.

Correct Answer
verified

Figure 8-25 -Refer to Figure 8-25. How much is total surplus at the market equilibrium?

Correct Answer
verified
Total surp...
View Answer

A decrease in the size of a tax is most likely to increase tax revenue in a market with

Correct Answer
verified

In 1776, the American Revolution was sparked by anger over

Correct Answer
verified

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?

Correct Answer
verified

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

Correct Answer
verified

Labor taxes may distort labor markets greatly if

Correct Answer
verified

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is

Correct Answer
verified

Figure 8-25 -Refer to Figure 8-25. How much is consumer surplus at the market equilibrium?

Correct Answer
verified
Consumer s...
View Answer

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

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

Correct Answer
verified

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax provides to the government?

Correct Answer
verified

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Correct Answer
verified

Exam 8: Application: The Costs of Taxation

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The amount of tax revenue received by the government is equal to the area

Correct AnswerverifiedShow Answer

Scenario 8-1 Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. -Refer to Scenario 8-1. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is

Correct AnswerverifiedShow Answer

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. Total surplus without the tax is

Correct AnswerverifiedShow Answer

Other things equal, the deadweight loss of a tax

Correct AnswerverifiedShow Answer

Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is the deadweight loss from this tax?

Correct AnswerverifiedThe deadwe...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.

Correct AnswerverifiedShow Answer

Figure 8-25 -Refer to Figure 8-25. How much is total surplus at the market equilibrium?

Correct AnswerverifiedTotal surp...View AnswerShow Answer

A decrease in the size of a tax is most likely to increase tax revenue in a market with

Correct AnswerverifiedShow Answer

In 1776, the American Revolution was sparked by anger over

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

The Social Security tax, and to a large extent, the federal income tax, are labor taxes.

Correct AnswerverifiedShow Answer

Labor taxes may distort labor markets greatly if

Correct AnswerverifiedShow Answer

For a good that is taxed, the area on the relevant supply-and-demand graph that represents government's tax revenue is

Correct AnswerverifiedShow Answer

Figure 8-25 -Refer to Figure 8-25. How much is consumer surplus at the market equilibrium?

Correct AnswerverifiedConsumer s...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

When a good is taxed, the tax revenue collected by the government equals the decrease in the welfare of buyers and sellers caused by the tax.

Correct AnswerverifiedShow Answer

Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. Which of the following equations is valid for the tax revenue that the tax provides to the government?

Correct AnswerverifiedShow Answer

Economist Arthur Laffer made the argument that tax rates in the United States were so high that reducing the rates would increase tax revenue.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The deadwe...
View Answer

Correct Answer
verified

Correct Answer
verified
Total surp...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Consumer s...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified