Question 1

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The per-unit burden of the tax on buyers is

Accepted Answer

A)  $20.
B)  $200.
C)  $300.
D)  $500.E) All of the above
F) A) and D)

Question 2

Figure 8-7
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-7. As a result of the tax, consumer surplus decreases by

Accepted Answer

A)  $130, producer surplus decreases by $170, tax revenue is $240, and deadweight loss is $60.
B)  $150, producer surplus decreases by $150, tax revenue is $240, and deadweight loss is $60.
C)  $160, producer surplus decreases by $160, tax revenue is $240, and deadweight loss is $80.
D)  $240, producer surplus decreases by $240, tax revenue is $400, and deadweight loss is $80.E) A) and B)
F) A) and C)

Question 3

Figure 8-4
The vertical distance between points A and B represents a tax in the market. 
-Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is

Accepted Answer

A)  $35.00.
B)  $45.25.
C)  $52.50.
D)  $105.00.E) C) and D)
F) All of the above

Question 4

When a tax is placed on the buyers of a product, a result is that buyers effectively pay

Accepted Answer

A)  less than before the tax, and sellers effectively receive less than before the tax.
B)  less than before the tax, and sellers effectively receive more than before the tax.
C)  more than before the tax, and sellers effectively receive less than before the tax.
D)  more than before the tax, and sellers effectively receive more than before the tax.E) A) and D)
F) B) and D)

Question 5

Figure 8-10 
-Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. With the tax, the producer surplus is

Accepted Answer

A)  (P5-0)  x Q5.
B)  1/2 x (P5-0)  x Q5.
C)  (P8-0)  x Q2.
D)  1/2 x (P8-0)  x Q2.E) A) and D)
F) C) and D)

Question 6

Economists disagree on whether labor taxes have a small or large deadweight loss.

Accepted Answer

A) True 
 B)False

Question 7

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

Question 8

Figure 8-9
The vertical distance between points A and C represents a tax in the market. 
-Refer to Figure 8-9. The imposition of the tax causes the price paid by buyers to increase by

Accepted Answer

A)  $20.
B)  $200.
C)  $300.
D)  $500.E) B) and C)
F) A) and D)

Question 9

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. What is the deadweight loss of the tax?

Accepted Answer

A)  the maximum value that Rebecca would pay for dog sitting
B)  the $30 tax
C)  the lost benefit to Rebecca and Susan because after the tax, Susan will not dog sit for Rebecca
D)  the lost benefit to Rebecca of being unable to hire a dog sitter because Rebecca is the one who would pay the taxE) A) and B)
F) A) and C)

Question 10

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The area measured by L+M+Y 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) C) and D)
F) A) 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. 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 B)
F) C) and D)

Question 12

Figure 8-5
Suppose that the government imposes a tax of P3 - P1. 
-Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by area

Accepted Answer

A)  A.
B)  B+C.
C)  C+H.
D)  F.E) B) and C)
F) A) and B)

Question 13

Which of the following quantities decrease in response to a tax on a good?

Accepted Answer

A)  the equilibrium quantity in the market for the good, the effective price of the good paid by buyers, and consumer surplus
B)  the equilibrium quantity in the market for the good, producer surplus, and the well-being of buyers of the good
C)  the effective price received by sellers of the good, the wedge between the effective price paid by buyers and the effective price received by sellers, and consumer surplus
D)  None of the above is necessarily correct unless we know whether the tax is levied on buyers or on sellers.E) B) and C)
F) C) and D)

Question 14

Figure 8-25 
-Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is total surplus after the tax is imposed?

Accepted Answer

Total surp...

Question 15

If a tax shifts the supply curve upward (or to the left) , we can infer that the tax was levied on

Accepted Answer

A)  buyers of the good.
B)  sellers of the good.
C)  both buyers and sellers of the good.
D)  We cannot infer anything because the shift described is not consistent with a tax.E) A) and B)
F) C) and D)

Question 16

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. The curve that is shown on the figure is called the

Accepted Answer

A)  deadweight-loss curve.
B)  tax-incidence curve.
C)  Laffer curve.
D)  Lorenz curve.E) None of the above
F) C) and D)

Question 17

Figure 8-16  
-Refer to Figure 8-16. Panel (a)  and Panel (b)  each illustrate a $2 tax placed on a market. In comparison to Panel (a) , Panel (b)  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 18

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

Question 19

When a good is taxed, the burden of the tax

Accepted Answer

A)  falls more heavily on the side of the market that is more elastic.
B)  falls more heavily on the side of the market that is more inelastic.
C)  falls more heavily on the side of the market that is closer to unit elastic.
D)  is distributed independently of relative elasticities of supply and demand.E) None of the above
F) A) and C)

Question 20

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. How would you characterize the decision to raise the tax rate from $3 to $6 per unit? The decision is

Accepted Answer

A)  a good one because it increases tax revenue while decreasing the deadweight loss from the tax.
B)  a bad one because it does not increase tax revenue yet increases the deadweight loss from the tax.
C)  a bad one because it decreases tax revenue while increasing the deadweight loss from the tax.
D)  unclear because it increases tax revenue yet also increases the deadweight loss from the tax.E) A) and B)
F) All of the above

Exam 8: Applications: the Costs of Taxation

If a tax shifts the supply curve upward (or to the left) , we can infer that the tax was levied on

Correct Answer
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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 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-23. The curve that is shown on the figure is called the

Correct Answer
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When a tax is placed on the buyers of a product, a result is that buyers effectively pay

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Figure 8-16 -Refer to Figure 8-16. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (a) , Panel (b) illustrates which of the following statements?

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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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Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is

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Which of the following quantities decrease in response to a tax on a good?

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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

Correct Answer
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Economists disagree on whether labor taxes have a small or large deadweight loss.

Correct Answer
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Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. With the tax, the producer surplus is

Correct Answer
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Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is total surplus after the tax is imposed?

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Total surp...
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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 L+M+Y represents

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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 per-unit burden of the tax on buyers is

Correct Answer
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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by area

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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 imposition of the tax causes the price paid by buyers to increase by

Correct Answer
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When a good is taxed, the burden of the tax

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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. As a result of the tax, consumer surplus decreases by

Correct Answer
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Exam 8: Applications: the Costs of Taxation

If a tax shifts the supply curve upward (or to the left) , we can infer that the tax was levied on

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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 8-23. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-23. The curve that is shown on the figure is called the

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When a tax is placed on the buyers of a product, a result is that buyers effectively pay

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Figure 8-16 -Refer to Figure 8-16. Panel (a) and Panel (b) each illustrate a $2 tax placed on a market. In comparison to Panel (a) , Panel (b) illustrates which of the following statements?

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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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Figure 8-4 The vertical distance between points A and B represents a tax in the market. -Refer to Figure 8-4. The amount of deadweight loss as a result of the tax is

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Which of the following quantities decrease in response to a tax on a good?

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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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Economists disagree on whether labor taxes have a small or large deadweight loss.

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Figure 8-10 -Refer to Figure 8-10. Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. With the tax, the producer surplus is

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Figure 8-25 -Refer to Figure 8-25. Suppose the government places a $4 tax per unit on this good. How much is total surplus after the tax is imposed?

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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 L+M+Y represents

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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 per-unit burden of the tax on buyers is

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Figure 8-5 Suppose that the government imposes a tax of P3 - P1. -Refer to Figure 8-5. The tax causes a reduction in consumer surplus that is represented by area

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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 imposition of the tax causes the price paid by buyers to increase by

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When a good is taxed, the burden of the tax

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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. As a result of the tax, consumer surplus decreases by

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Total surp...
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