Question 1

The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

Accepted Answer

A) True 
 B)False

Question 2

If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.

Accepted Answer

A) True 
 B)False

Question 3

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The tax revenue is measured by the area

Accepted Answer

A)  K+L.
B)  I+Y.
C)  J+K+L+M.
D)  I+J+K+L+M+Y.E) All of the above
F) A) 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 loss in producer surplus caused by the tax is measured by the area

Accepted Answer

A)  ABC.
B)  P1P3ABC.
C)  P1P2BC.
D)  P1C0.E) A) and D)
F) All of the above

Question 5

Taxes drive a wedge into the market by raising the price that sellers receive and lowering the price that buyers pay.

Accepted Answer

A) True 
 B)False

Question 6

Figure 8-11 3 on the vertical axis represents the price A) received by sellers before the tax is imposed. B) received by sellers after the tax is imposed. C) paid by buyers before the tax is imposed. D) paid by buyers after the tax is imposed." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 8-11. The price labeled as P3 on the vertical axis represents the price

Accepted Answer

A)  received by sellers before the tax is imposed.
B)  received by sellers after the tax is imposed.
C)  paid by buyers before the tax is imposed.
D)  paid by buyers after the tax is imposed.E) None of the above
F) B) and C)

Question 7

The Laffer curve illustrates that

Accepted Answer

A)  deadweight loss rises by the square of the increase in a tax.
B)  deadweight loss rises exponentially as a tax increases.
C)  tax revenue first rises, then falls as a tax increases.
D)  Both a)  and b)  are correct.E) B) and C)
F) B) and D)

Question 8

The more freedom young mothers have to work outside the home, the

Accepted Answer

A)  more elastic the supply of labor will be.
B)  less elastic the supply of labor will be.
C)  more vertical the labor supply curve will be.
D)  smaller is the decrease in employment that will result from a tax on labor.E) A) and B)
F) A) and C)

Question 9

Figure 8-11 1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed, A) consumer surplus decreases by $11. B) producer surplus decreases by $11. C) the deadweight loss amounts to $6. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

Accepted Answer

A)  consumer surplus decreases by $11.
B)  producer surplus decreases by $11.
C)  the deadweight loss amounts to $6.
D)  All of the above are correct.E) A) and B)
F) All of the above

Question 10

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)  $65, producer surplus decreases by $85, tax revenue is $120, and deadweight loss is $30.
B)  $75, producer surplus decreases by $75, tax revenue is $120, and deadweight loss is $30.
C)  $80, producer surplus decreases by $80, tax revenue is $120, and deadweight loss is $40.
D)  $120, producer surplus decreases by $120, tax revenue is $200, and deadweight loss is $40.E) B) and D)
F) A) and D)

Question 11

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 D)
F) B) and D)

Question 12

As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

Accepted Answer

A) True 
 B)False

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

Question 14

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 D)
F) B) and C)

Question 15

What happens to the total surplus in a market when the government imposes a tax?

Accepted Answer

A)  Total surplus increases by the amount of the tax.
B)  Total surplus increases but by less than the amount of the tax.
C)  Total surplus decreases.
D)  Total surplus is unaffected by the tax.E) A) and C)
F) A) and B)

Question 16

Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100. If the tax is increased to $0.25 per unit, the deadweight loss from the new tax would be

Accepted Answer

A)  $200.
B)  $250.
C)  $475.
D)  $625.E) All of the above
F) B) and D)

Question 17

Figure 8-8
Suppose the government imposes a $10 per unit tax on a good. 
-Refer to Figure 8-8. The tax causes producer surplus to decrease by the area

Accepted Answer

A)  D+F.
B)  D+F+G.
C)  D+F+J.
D)  D+F+G+H.E) B) and D)
F) None of the above

Question 18

Figure 8-19. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. 
-Refer to Figure 8-19. According to a recent research paper published by the European Central Bank, the U.S.

Accepted Answer

A)  is more likely at a point such as point A rather than point B if the tax in question is the tax on capital income.
B)  is more likely at a point such as point B rather than point A if the tax in question is the tax on labor income.
C)  could increase tax revenues more by raising taxes on capital income than by raising taxes on labor income.
D)  All of the above are correct.E) A) and B)
F) C) 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, producer surplus is

Accepted Answer

A)  $450.
B)  $600.
C)  $900.
D)  $1,500.E) A) and B)
F) A) and C)

Question 20

Figure 8-1 
-Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The consumer surplus after the tax is measured by the area

Accepted Answer

A)  J+K+I.
B)  J.
C)  M.
D)  L+M+Y.E) B) and C)
F) All of the above

Exam 8: Application: The Costs of Taxation

As the size of a tax rises, the deadweight loss

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Taxes drive a wedge into the market by raising the price that sellers receive and lowering the price that buyers pay.

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Figure 8-8 Suppose the government imposes a $10 per unit tax on a good. -Refer to Figure 8-8. The tax causes producer surplus to decrease by the area

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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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Figure 8-19. The figure represents the relationship between the size of a tax and the tax revenue raised by that tax. -Refer to Figure 8-19. According to a recent research paper published by the European Central Bank, the U.S.

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Figure 8-11 -Refer to Figure 8-11. The price labeled as P3 on the vertical axis represents the price

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Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The consumer surplus after the tax is measured by the area

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As the price elasticities of supply and demand increase, the deadweight loss from a tax increases.

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The Laffer curve illustrates how taxes in markets with greater elasticities of demand compare to taxes in markets with smaller elasticities of supply.

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What happens to the total surplus in a market when the government imposes a tax?

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If the government imposes a $3 tax in a market, the equilibrium price will rise by $3.

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Figure 8-11 -Refer to Figure 8-11. Suppose Q1 = 4; Q2 = 7; P1 = $6; P2 = $8; and P3 = $10. Then, when the tax is imposed,

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Suppose a tax of $0.10 per unit on a good creates a deadweight loss of $100. If the tax is increased to $0.25 per unit, the deadweight loss from the new tax would be

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Figure 8-1 -Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. The tax revenue is measured by the area

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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, producer surplus is

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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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Taxes on labor have the effect of encouraging

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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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The Laffer curve illustrates that

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The more freedom young mothers have to work outside the home, the

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Figure 8-11 -Refer to Figure 8-11. The price labeled as P₃ on the vertical axis represents the price

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Figure 8-11 -Refer to Figure 8-11. Suppose Q₁ = 4; Q₂ = 7; P₁ = $6; P₂ = $8; and P₃= $10. Then, when the tax is imposed,

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