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Exam 8: Application: The Costs of Taxation

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Question 111

Multiple Choice

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A tax on a good

A) gives buyers an incentive to buy less of the good than they otherwise would buy.
B) gives sellers an incentive to produce more of the good than they otherwise would produce.
C) creates a benefit to the government, the size of which exceeds the loss in surplus to buyers and sellers.
D) All of the above are correct.

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

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Question 112

Multiple Choice

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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. Without the tax, the total surplus is

A) [1/2 x (P0-P5) x Q5] + [1/2 x (P5-0) x Q5].
B) [1/2 x (P0-P2) x Q2] +[(P2-P8) x Q2] + [1/2 x (P8-0) x Q2].
C) (P2-P8) x Q2.
D) 1/2 x (P2-P8) x (Q5-Q2) .

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

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Question 113

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Assume that for good X the supply curve for a good is a typical, upward-sloping straight line, and the demand curve is a typical downward-sloping straight line. If the good is taxed, and the tax is tripled, the

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

When a tax is levied on buyers, the

The deadweight loss from a tax of $2 per unit will be smallest in a market with

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: If T = 40, how much will be the deadweight loss from this tax?

Suppose a tax is imposed on the sellers of fast-food French fries. The burden of the tax will

When the price of a good is measured in dollars, then the size of the deadweight loss that results from taxing that good is measured in

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: If T = 40, what price will buyers pay and what price will sellers receive?

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 buyers is

Figure 8-12 -Refer to Figure 8-12. Suppose a $3 per-unit tax is placed on this good. The per-unit burden of the tax on sellers is

Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. After the tax goes into effect, consumer surplus is the area

John has been in the habit of mowing Willa's lawn each week for $20. John's opportunity cost is $15, and Willa would be willing to pay $25 to have her lawn mowed. What is the maximum tax the government can impose on lawn mowing without discouraging John and Willa from continuing their mutually beneficial arrangement?

The elasticities of the supply and demand curves in the market for cigarettes affect how much a tax distorts that market.

In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $800 per month in tax revenue. We can conclude that the equilibrium quantity of widgets has fallen by

When a tax is imposed on a good, the

Buyers of a product will bear the larger part of the tax burden, and sellers will bear a smaller part of the tax burden, when the

Scenario 8-3 Suppose the market demand and market supply curves are given by the equations: -Refer to Scenario 8-3. Suppose that a tax of T is placed on buyers so that the demand curve becomes: What price will sellers receive and what price will buyers pay after the tax is imposed?

Total surplus with a tax is equal to