Question 1

Figure 8-7
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-7. Suppose a 20th unit of the good were sold by a seller to a buyer. Which of the following statements is correct?

Accepted Answer

A)   For the 20th unit, the difference between the buyer's value and the seller's cost is less than the tax per unit.
B)   For the 20th unit, the difference between the buyer's value and the seller's cost is greater than the tax per unit.
C)   For the 20th unit, the difference between the buyer's value and the seller's cost is equal to the tax per unit.
D)   It makes sense for the buyer to buy and for the seller to sell the 20th unit, with or without the tax in place.E) A) and D)
F) A) and C)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Question 4

Figure 8-13 
-Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The producer surplus after this tax is

Accepted Answer

A)   $60.
B)   $45.
C)   $30.
D)   $15.E) A) and B)
F) B) and C)

Question 5

To fully understand how taxes affect economic well-being, we must compare the

Accepted Answer

A)   consumer surplus to the producer surplus.
B)   price paid by buyers to the price received by sellers.
C)   reduced welfare of buyers and sellers to the revenue raised by the government.
D)   consumer surplus to the deadweight loss.E) A) and B)
F) A) and C)

Question 6

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

Question 7

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

Question 8

Figure 8-3
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-3. The loss in producer surplus caused by the tax is measured by the area

Accepted Answer

A)   ABC.
B)   P1P3ABC.
C)   P1P2BC.
D)   P1C0.E) C) and D)
F) B) and D)

Question 9

Figure 8-18 
-Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the largest in the market represented by

Accepted Answer

A)   S1.
B)   S2.
C)   S3.
D)   S4.E) B) and D)
F) A) and C)

Question 10

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The amount of tax revenue received by the government is

Accepted Answer

A)   $4,000.
B)   $6,000.
C)   $10,000.
D)   $24,000.E) None of the above
F) B) and D)

Question 11

Figure 8-6
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-6. Without a tax, consumer surplus in this market is

Accepted Answer

A)   $1,500.
B)   $2,400.
C)   $3,000.
D)   $3,600.E) A) and B)
F) A) and C)

Question 12

Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. 
-Refer to Figure 8-23. If the economy is at point B on the curve, then an increase in the tax rate will

Accepted Answer

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

Question 13

Taxes on labor have the effect of encouraging

Accepted Answer

A)   workers to work more hours.
B)   the elderly to postpone retirement.
C)   second earners within a family to take a job.
D)   unscrupulous people to take part in the underground economy.E) None of the above
F) B) and C)

Question 14

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 $180.
B)   After the tax is imposed, consumer surplus is 25 percent of its pre-tax value.
C)   After the tax is imposed, producer surplus is 36 percent of its pre-tax value.
D)   All of the above are correct.E) C) and D)
F) All of the above

Question 15

Figure 8-21 
-Refer to Figure 8-21. Suppose the market is represented by Demand 1 and Supply 1. At first the government places a $3 per-unit tax on this good. Then the government decides to raise the tax to $6 per unit. Compared to the original tax rate, the higher tax will

Accepted Answer

A)   increase tax revenue and increase the deadweight loss from the tax.
B)   not change tax revenue and increase the deadweight loss from the tax.
C)   decrease tax revenue and increase the deadweight loss from the tax.
D)   decrease tax revenue and decrease the deadweight loss from the tax.E) B) and D)
F) A) and D)

Question 16

The demand for energy drinks is more elastic than the demand for milk. Would a tax on energy drinks or a tax on milk have a larger deadweight loss? Explain.

Accepted Answer

A tax on energy drinks would have a larg...

Question 17

Taxes on labor encourage all of the following except

Accepted Answer

A)   older workers to take early retirement from the labor force.
B)   mothers to stay at home rather than work in the labor force.
C)   workers to work overtime.
D)   people to be paid "under the table."E) A) and B)
F) None of the above

Question 18

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

Accepted Answer

A)   total surplus before the tax.
B)   total surplus after the tax.
C)   consumer surplus before the tax.
D)   deadweight loss from the tax.E) A) and D)
F) C) and D)

Question 19

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. Before the tax, what is the total surplus?

Accepted Answer

A)   $60
B)   $50
C)   $30
D)   $25E) All of the above
F) B) and D)

Question 20

In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez asserted the following:

Accepted Answer

A)   Since World War II, higher tax rates on individuals with the highest incomes tend to be associated with higher rates of economic growth - not with lower rates of economic growth.
B)   The average federal income tax rate on the top 1 percent of income-earners in the United States more than doubled between 1970 and 2010.
C)   A "reasonable" increase in the tax rate on top income earners is all that is needed to solve long­term fiscal problems faced by the United States.
D)   All of the above are correct.E) B) and C)
F) C) and D)

Exam 8: Application: the Costs of Taxation

Figure 8-18 -Refer to Figure 8-18. Suppose the government imposes a $1 tax in each of the four markets represented by supply curves S1, S2, S3, and S4. The deadweight will be the largest in the market represented by

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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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Figure 8-7 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-7. Suppose a 20th unit of the good were sold by a seller to a buyer. Which of the following statements is correct?

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

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Figure 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-23. If the economy is at point B on the curve, then an increase in the tax rate will

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Figure 8-21 -Refer to Figure 8-21. Suppose the market is represented by Demand 1 and Supply 1. At first the government places a $3 per-unit tax on this good. Then the government decides to raise the tax to $6 per unit. Compared to the original tax rate, the higher tax will

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The demand for energy drinks is more elastic than the demand for milk. Would a tax on energy drinks or a tax on milk have a larger deadweight loss? Explain.

Correct AnswerverifiedA tax on energy drinks would have a larg...View AnswerShow Answer

Tom walks Bethany's dog once a day for $50 per week. Bethany values this service at $60 per week, while the opportunity cost of Tom's time is $30 per week. The government places a tax of $35 per week on dog walkers. Before the tax, what is the total surplus?

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Figure 8-3 The vertical distance between points A and C represents a tax in the market. -Refer to Figure 8-3. The loss in producer surplus caused by the tax is measured by the area

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In 2012, in The Wall Street Journal, economists Peter Diamond and Emmanuel Saez asserted the following:

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When a good is taxed,

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Taxes on labor encourage all of the following except

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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 8-13 -Refer to Figure 8-13. Suppose the government places a $5 per-unit tax on this good. The producer surplus after this tax 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. Without a tax, consumer surplus in this market is

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

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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 amount of tax revenue received by the government is

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To fully understand how taxes affect economic well-being, we must compare the

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Taxes on labor have the effect of encouraging

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